<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1996
REGISTRATION STATEMENT NO. 333-05047
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AEARO CORPORATION
(FORMERLY CABOT SAFETY HOLDINGS CORPORATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3999 13-384050
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
AEARO CORPORATION
ONE WASHINGTON MALL--8TH FLOOR
BOSTON, MA 02108-2610
(617) 371-4200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
JOHN D. CURTIN, JR.
CHIEF EXECUTIVE OFFICER
AEARO CORPORATION
ONE WASHINGTON MALL--8TH FLOOR
BOSTON, MA 02108-2610
(617) 371-4200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
RICHARD E. FLOOR, P.C. DAVID C. CHAPIN, ESQ.
ETTORE A. SANTUCCI, P.C. ROPES & GRAY
GOODWIN, PROCTER & HOAR LLP ONE INTERNATIONAL PLACE
EXCHANGE PLACE BOSTON, MA 02110
BOSTON, MA 02109 (617) 951-7000
(617) 570-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
AEARO CORPORATION
<TABLE>
CROSS REFERENCE SHEET
<CAPTION>
ITEM NUMBER OF CAPTION LOCATION OR HEADING IN PROSPECTUS
---------------------------------------- ----------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover of Prospectus....... Outside Front Page of Registration Statement
and Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page and Outside Back Cover
Page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary, Risk Factors, Selected
Unaudited Pro Forma Financial Data and
Selected Historical Consolidated Financial
Data
4. Use of Proceeds......................... Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page of Prospectus and
Underwriting
6. Dilution................................ Dilution
7. Selling Security Holders................ Not Applicable
8. Plan of Distribution.................... Outside Front Cover Page of Prospectus and
Underwriting
9. Description of Securities to be
Registered.............................. Outside Front Cover Page of Prospectus,
Prospectus Summary and Description of Capital
Stock
10. Interest of Named Experts and
Counsel................................. Not Applicable
11. Information With Respect to the
Registrant.............................. Prospectus Summary, Risk Factors,
Capitalization, Selected Unaudited Pro Forma
Financial Data, Selected Historical
Consolidated Financial Data, Management's
Discussion and Analysis of Financial Condition
and Results of Operations, Business,
Management, Certain Relationships and Related
Transactions, Principal Stockholders,
Description of Capital Stock, Shares Eligible
for Future Sale and Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 8, 1996
5,500,000 SHARES
AEARO CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------
All of the 5,500,000 shares of Common Stock offered hereby are being sold
by the Company. Of the offering proceeds, approximately $39.4 million will be
used to prepay publicly traded senior subordinated notes issued in connection
with the acquisition of the Company and approximately $25.3 million will be used
to redeem preferred stock held by the two principal stockholders of the Company.
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
per share will be between $13.00 and $15.00. For factors considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for listing upon notice of issuance on
the New York Stock Exchange under the symbol "AER".
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(3)................................. $ $ $
<FN>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 825,000 shares at the initial public offering price per share,
less the underwriting discount, solely to cover over-allotments. If such
option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting".
</TABLE>
---------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
, 1996 against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
---------------------
[LOGO] The date of this Prospectus is , 1996.
<PAGE> 4
(INSIDE FRONT COVER)
AEARO CORPORATION...
A GLOBAL MANUFACTURER OF A BROAD RANGE OF NAME-BRAND PERSONAL PROTECTION
EQUIPMENT...
(four-color photo of a broad selection of our products; CSC safety, Peltor and
S/C.)
Aearo Corporation is one of the world's leading manufacturers and marketers of
a broad range of personal protection equipment and energy-absorbing polymer
materials.
The Company's personal protection products, which are marketed under the brand
names AOSafety, E-A-R, Peltor and Eastern are available through a worldwide
network of consumer and industrial distribution channels. These products are
sold in 85 different countries and are used by industrial workers, healthcare
providers, construction workers, the military and consumers throughout the
world.
The Company's unique energy-absorbing resins, which are marketed under the
E-A-R Specialty Composites brand, are custom designed and formulated for a wide
variety of OEM applications in the communications, transportation, medical, and
recreational markets.
(TWO-PAGE FOLD-OUT)
...SOLD THROUGH MULTIPLE DISTRIBUTION CHANNELS TO A WIDE VARIETY OF END-USERS
WORLDWIDE.
(Channel of distribution diagram.)
One of Aearo Corporation's primary strengths is its multiplicity of distribution
channels in its safety product business. The Company's broad range of personal
protection equipment is available through industrial and safety distributors;
home centers, hardware stores, drug stores, and sporting good stores; healthcare
distributors; farm supply outlets; catalogs; and a worldwide network of
international distributors. The Company believes no other competitor has such a
broad and diverse distribution system for its products.
(Application photos: Applications should show a variety of industrial,
consumer, construction, and agricultural applications with people wearing
combinations of hearing protection, eyewear, face shields, head protection,
respiratory protection, prescription eyewear)
<PAGE> 5
[ART WORK]
PHOTO
HEARING PROTECTION
The E-A-R brand name is known worldwide for a wide variety of earplugs and
semi-aural devices.
PHOTO
CONSUMER
The Company is a leading supplier of a broad range of personal protection
products to the consumer/DIY market.
PHOTO
PRESCRIPTION SAFETY EYEWEAR
AOSafety is a leading brand name for prescription safety eyewear.
PHOTO
RESPIRATORY
Respirators are sold under the AOSafety brand name.
PHOTO
PLANO EYEWEAR
AOSafety is also a leading brand name in plano (non-prescription) safety
eyewear.
PHOTO
E-A-R SPECIALTY COMPOSITES
This line of custom-formulated, engineered polymers has seen substantial
growth in recent years.
AEARO[Trademark], E-A-R[Registered Trademark], AOSAFETY[Registered
Trademark], EASTERN[Trademark], PELTOR[Registered Trademark],
AEROLITE[Trademark], AEROSITE[Registered Trademark], HAZARDMASTER[Registered
Trademark], OMNISTAR[Trademark], AOTUFFMASTER[Registered Trademark], AO
5-STAR[Registered Trademark], AO 7-STAR[Registered Trademark],
CABOFLEX[Registered Trademark], CABOT DX[Trademark], CENTURION[Registered
Trademark], CLASSIC[Trademark], COMFORT EYES[Trademark], CONFETTI[Registered
Trademark], CONFOR[Trademark], DIALOG[Trademark], EAR[Registered Trademark]
CAPS, EUROLITE[Registered Trademark], EXPRESS[Registered Trademark],
E-Z-FIT[Trademark], FECTOIDS[Trademark], FLEXISTAR[Registered Trademark], HAZARD
MASTER[Trademark], LASERMASTER[Trademark], ISOLOSS[Registered Trademark] LS,
MALIBU[Registered Trademark], NASSAU[Registered Trademark] PLUS,
OMNISTAR[Registered Trademark], SCANNERS[Trademark], SEE-PRO[Trademark],
SUPER-SOFT[Trademark], TAPERFIT[Registered Trademark], TOURGUARD[Registered
Trademark], TRACERS[Trademark], TUFCOTE[Registered Trademark],
ULTRAFIT[Registered Trademark], ULTRA-TECH[Trademark] AND ALL OF THE COMPANY'S
OTHER LOGOS AND PRODUCT NAMES ARE THE PROPERTY OF THE COMPANY.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. As used in this Prospectus, unless the
context otherwise requires, references to "Aearo" or the "Company" mean Aearo
Corporation together with its wholly-owned subsidiary, Aearo Company (the
"Subsidiary"), and all other direct and indirect subsidiaries and the businesses
of the Company's predecessors, but only to the extent that such businesses were
the subject of the Formation Acquisition (as defined in this Prospectus). Unless
otherwise indicated (i) references to financial or operating results of the
Company occurring in any fiscal year are to the twelve months ended on September
30 of such indicated fiscal year, and (ii) the information in this Prospectus
assumes no exercise of the over-allotment option granted to the Underwriters and
gives effect to an 80 for 1 stock split effected on July , 1996. In May 1996,
Cabot Safety Holdings Corporation changed its name to Aearo Corporation.
THE COMPANY
The Company is one of the leaders in the hearing, eye, face, head and
respiratory protection segments of the personal protection equipment ("PPE")
market worldwide through its safety products operating unit ("Safety Products"),
which manufactures and sells hearing protection devices, prescription and
non-prescription safety eyewear, face shields, reusable and disposable
respirators, hard hats and first aid kits in more than 85 countries under its
well-known brand names: AOSafety, E-A-R, Eastern and Peltor. Personal protection
equipment encompasses all articles of equipment and clothing worn for the
purpose of protecting against bodily injury, including safety eyewear and
goggles, ear muffs and ear plugs, respirators, hard hats, gloves, safety
clothing and safety shoes. With the acquisition of Peltor AB of Sweden, the
Company is a global leader in the industrial market for specialty communications
ear muffs. Safety Products accounted for approximately 84% of the Company's net
sales in fiscal 1995. The Company attributes its leading market positions to:
- Strong, well-recognized brand names
- A reputation for providing innovative, quality products
- Intensive coverage of multiple distribution channels targeting a wide
array of end-users
- One of the industry's broadest product offerings
- A commitment to providing the highest level of customer service
Through its specialty composites operating unit ("Specialty Composites"),
the Company manufactures a wide array of energy-absorbing materials which are
incorporated into other manufacturers' products to control noise, vibration and
shock. Specific product applications for such materials include noise-reducing
and vibration-dampening matting used in the lining of transportation equipment
such as heavy truck cabs, shock protection parts for electronic devices such as
computer disk drives, and durable energy-absorbent and cushioning foams used in
footwear. Specialty Composites also produces specially formulated foam used in
the manufacture of Safety Products' polyvinylchloride ("PVC") ear plugs.
Specialty Composites accounted for approximately 16% of the Company's net sales
in fiscal 1995.
A 1996 industry study prepared by Frost & Sullivan estimates the size of
the U.S. segment of the PPE market in which the Company competes (which excludes
safety clothing, gloves and shoes) was approximately $1.0 billion in 1995.
Management estimates annual sales outside the United States for the segment of
the PPE market in which the Company competes were in excess of $1.0 billion in
1995. Historically, a large number of relatively small, independent
manufacturers with limited product lines served the PPE market and the industry
remains highly fragmented.
3
<PAGE> 7
Management believes the primary factors driving the growth of the PPE
market are:
- Increased employer safety awareness. Management believes that employers
are increasingly aware of the rising cost of insurance, the costs and
liabilities relating to worker injury and the savings in insurance costs
and workers' compensation payouts that can be achieved through consistent
use of effective PPE
- Continued regulatory enforcement and compliance. Increases in regulatory
enforcement and compliance programs through various government agencies
(e.g., OSHA, MSHA and NIOSH) could result in significant growth in demand
for PPE
- Increased user acceptance. Through improvements in comfort, performance
and styling, management believes employees will be more likely to use
safety products regularly, thereby increasing regulatory compliance and
reducing risk of injury
- Market expansion opportunities. Management believes significant growth
opportunities exist in retail home centers and mass merchandisers which
offer a variety of PPE for the consumer/Do-It-Yourself ("DIY") market,
and the catalog supply, healthcare and international markets
OPERATING STRATEGY
The Company's goal is to become the leading safety products company in the
world. The Company's strategy to achieve this goal has three components:
- Increase market share and profitability through innovative new product
development
- Increase unit sales through focused sales and marketing programs to
penetrate existing and newly developing distribution channels
- Grow through strategic acquisitions worldwide
INNOVATIVE NEW PRODUCT DEVELOPMENT. The Company believes that an
innovative and disciplined new product development effort is critical to its
success. The Company's strategy is to increase market share and profitability by
focusing on both select, high-impact new products and enhancements to existing
products to leverage its strong distribution network and well-recognized brand
names. Acceptance of safety products by users, which increases regulatory
compliance and reduces the risk of injury, is driven in large part by design
improvements, which increase comfort, performance and styling. The Company's
product managers work closely with research and development personnel to develop
comfortable, high performance and stylish safety products, often incorporating
proprietary materials and designs.
FOCUSED SALES AND MARKETING PROGRAMS TO PENETRATE EXISTING AND NEWLY
DEVELOPING DISTRIBUTION CHANNELS. The Company believes that its strength in
managing multiple distribution channels gives it a strategic advantage over more
narrowly focused competitors. The Company intends to continue to maximize
penetration of existing distribution channels and to develop new channels. In
existing distribution channels, the Company has developed and pursued several
focused marketing programs, such as the Dialog distributor relations program,
aimed at creating a mutually profitable relationship between the Company and a
select group of distributors, and the Sales Specialist program, whereby the
Company's trained sales representatives call directly on end-users on behalf of
its Dialog distributors. The Company has targeted the growing catalog and
telemarketing segment of the U.S. distributor market since its emergence. The
Company has also implemented its Dispensing Manager Program in which it uses its
own employee opticians to dispense prescription eyewear instead of depending on
local contract opticians. The Company has aggressively pursued newly developing
distribution channels such as consumer/DIY, healthcare and international.
STRATEGIC ACQUISITIONS WORLDWIDE. The Company believes that the current
structure of the global PPE market is likely to present numerous strategic
acquisition opportunities. The Company
4
<PAGE> 8
will continue to focus on opportunities that offer one or more of the following
three strategic advantages:
- Extension of existing product categories
- New product categories
- Distribution strength
RECENT ACQUISITIONS
On May 30, 1996, the Company acquired Peltor AB and its subsidiaries
("Peltor") for approximately $86.0 million (the "Peltor Acquisition"). Peltor is
the world's leading manufacturer of ear muff hearing protection devices and
markets its products worldwide through safety and industrial distributors in the
industrial, government, military and recreational markets. Peltor's headquarters
and principal manufacturing facilities are based in Varnamo, Sweden, and Peltor
has sales offices in Scandinavia, Germany, France, England and the United
States. The Peltor Acquisition significantly broadens the Company's line of ear
muff hearing protection devices and adds specialty muffs capable of two-way
radio frequency communications and other high-end applications to the Company's
product offerings. Management believes that the Peltor Acquisition further
establishes the Company as the worldwide leader in all types of hearing
protection and a leader in the speciality communications ear muff market. The
Company financed the Peltor Acquisition with bank borrowings. See "Acquisition
of Peltor."
On January 3, 1996 the Company acquired all of the outstanding capital
stock of Eastern Safety Equipment Co., Inc. ("Eastern") for approximately $7.8
million (the "Eastern Acquisition"). The Eastern Acquisition substantially
increased the Company's market position in the consumer/DIY market by adding
Eastern's strength with home centers and mass merchandisers to the Company's
established position with hardware wholesalers and purchasing cooperatives. The
Eastern Acquisition also added first aid kits as a new product category for the
Company.
OWNERSHIP
In July 1995, Vestar Equity Partners, L.P. (together with certain related
persons, "Vestar"), Cabot Corporation ("Cabot") and management effected through
the Company the acquisition of substantially all of the assets and certain
liabilities of Cabot CSC Corporation ("Old Cabot Safety Corporation"), a
wholly-owned subsidiary of Cabot, and certain of its affiliates (the "Formation
Acquisition") for $206.1 million. To finance the Formation Acquisition, the
Company incurred $47.5 million of senior secured debt, sold $100 million of
12 1/2% senior subordinated notes due 2005 (the "Subordinated Notes"), issued to
Vestar and Cabot an aggregate of $45 million of 12 1/2% redeemable preferred
stock (the "Redeemable Preferred Stock"), and issued to Vestar, Cabot and
certain members of management and key employees of the Company (collectively the
"Management Investors") an aggregate of 8,000,000 shares of Common Stock. Of the
proceeds from this offering (the "Offering") approximately $39.4 million will be
used to prepay publicly traded Subordinated Notes and approximately $25.3
million will be used to redeem one half of the Redeemable Preferred Stock,
including accrued dividends, held by Vestar and Cabot. See "Use of Proceeds."
Cabot and Vestar have agreed, effective upon the consummation of the Offering,
to exchange all of the remaining $25.3 million of Redeemable Preferred Stock,
including $2.8 million of accrued dividends since July 1995, for shares of
Common Stock at an exchange price equal to the initial public offering price of
the Common Stock (1,807,142 shares based on an assumed initial public offering
price of $14.00 per share, the mid-point of the range set forth on the cover
page of this Prospectus) (the "Exchange Transaction"). See "Certain
Relationships and Related Transactions -- The Formation Acquisition." After
giving effect to the Offering and the use of proceeds therefrom and the Exchange
Transaction, Vestar, Cabot and the Management Investors (without giving effect
to shares of Common Stock issuable upon exercise of stock options) will own
approximately 28.1%, 28.1% and 7.8%, respectively, of the outstanding Common
Stock.
5
<PAGE> 9
<TABLE>
The following table summarizes the sources and uses of funds related to the
Formation Acquisition. For further details regarding the Formation Acquisition
and related transactions see "Certain Relationships and Related Transactions --
The Formation Acquisition."
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES:
Senior bank facilities................................... $ 48.6
Subordinated notes....................................... 100.0
Assumed debt............................................. 4.8
Common and preferred stock............................... 64.1
------
Total................................................. $217.5
======
USES:
Acquisition consideration................................ $206.1
Transaction fees and expenses............................ 11.4
------
Total................................................. $217.5
======
</TABLE>
<TABLE>
The following table sets forth the investment of Vestar, Cabot and the
Management Investors (without giving effect to stock options) in equity
securities of the Company in connection with the Formation Acquisition, the
effect of the Offering and the Exchange Transaction on their investment and the
anticipated value of the Common Stock to be owned by them after the Offering.
<CAPTION>
MANAGEMENT
VESTAR CABOT INVESTORS
--------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Initial investment in Common Stock..... $ 8.5 $ 8.5 $ 3.0
Initial investment in Redeemable
Preferred Stock..................... 22.5 22.5 --
Accrued dividends...................... 2.8 2.8 --
--------- --------- ---------
Total investment............... 33.8 33.8 3.0
Redeemable Preferred Stock redeemed in
the Offering........................ (12.7)(1) (12.7)(1) --
--------- --------- ---------
Remaining investment after Offering and
Exchange Transaction, at cost....... $ 21.1(2) $ 21.1(2) $ 3.0
========= ========= =========
Number of shares of Common Stock to be
held after the Offering and Exchange
Transaction......................... 4,303,571(3) 4,303,571(3) 1,200,000
Value of investment(4)................. $ 60.3 $ 60.3 $ 16.8
<FN>
- ------------------------
(1) Includes approximately $1.4 million of accrued dividends.
(2) Includes approximately $12.7 million, including $1.4 million of accrued
dividends, on account of Redeemable Preferred Stock to be exchanged into
Common Stock upon completion of the Offering.
(3) Includes an assumed 903,571 shares to be issued upon exchange of $12.7
million of Redeemable Preferred Stock.
(4) Based on an assumed initial public offering price of $14.00 per share, the
mid-point of the range set forth on the cover page of this Prospectus.
Includes shares to be acquired in the Exchange Transaction.
</TABLE>
6
<PAGE> 10
DELEVERAGING PLAN
The Offering is part of a deleveraging plan that the Company is
implementing in order to reduce indebtedness and interest expense, improve
operating and financial flexibility and increase common stockholders' equity.
The deleveraging plan includes the following components: (i) the exchange of
approximately $25.3 million of Redeemable Preferred Stock, including accrued
dividends, into Common Stock; (ii) the use of approximately $39.4 million to
redeem $35.0 million principal amount of the publicly traded Subordinated Notes
at a redemption price equal to 112.5% of principal, plus accrued and unpaid
interest; (iii) the use of approximately $25.3 million to redeem outstanding
shares of Redeemable Preferred Stock, including accrued dividends since July
1995; and (iv) the reduction of borrowings under the Senior Bank Facilities with
the balance of the net proceeds from the Offering.
THE OFFERING
Common Stock offered......................................... 5,500,000 shares
Common Stock to be outstanding after the Offering(1)......... 15,315,142 shares
Proposed New York Stock Exchange Symbol...................... AER
---------------
[FN]
(1) Excludes (i) 400,000 shares of Common Stock issuable upon exercise of
outstanding stock options at an exercise price of $7.50 per share, none of
which is exercisable as of the date of this Prospectus, (ii) 286,250 shares
of Common Stock issuable upon exercise of outstanding stock options at an
exercise price equal to the initial public offering price, none of which is
immediately exercisable and (iii) an additional 513,750 shares of Common
Stock reserved for future issuance pursuant to the Company's stock option
plan. See "Management -- Employee Stock and Other Benefit Plans."
USE OF PROCEEDS
The net proceeds from the Offering, estimated to be approximately $70.3
million, will be used as follows: (i) approximately $39.4 million will be used
to redeem $35.0 million principal amount of Subordinated Notes at a redemption
price equal to 112.5% of principal, plus accrued interest; (ii) approximately
$25.3 million will be used to redeem Redeemable Preferred Stock, including
accrued dividends since July 1995; and (iii) the balance will be used to reduce
bank debt. See "Use of Proceeds" and "Certain Relationships and Related
Transactions."
RISK FACTORS
Prospective purchasers of Common Stock in the Offering should consider
carefully the matters set forth under the caption "Risk Factors," as well as the
other information set forth in this Prospectus.
7
<PAGE> 11
SUMMARY FINANCIAL INFORMATION
<TABLE>
SUMMARY HISTORICAL FINANCIAL DATA. The summary historical financial data
below present consolidated financial data of the Company's predecessor for
periods prior to the Formation Acquisition. See "Certain Relationships and
Related Transactions -- The Formation Acquisition." Because of such transaction,
certain aspects of the consolidated results of operations for periods prior to
July 12, 1995 are not comparable with those for subsequent periods. The results
of operations for the six months ended March 31, 1996 include the results of
Eastern after January 3, 1996, the date on which Eastern was acquired by the
Company. The following summary historical financial data of the Company should
be read in conjunction with "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements of the Company, including notes thereto,
the unaudited pro forma financial information for the Company, including notes
thereto, and other financial information appearing elsewhere in this Prospectus.
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------------------------------- -----------------------
FISCAL YEAR ENDED SIX MONTHS PERIOD PERIOD SIX MONTHS
SEPTEMBER 30, ENDED ENDED ENDED ENDED
------------------------------------- MARCH 31, JULY 11, SEPT. 30, MARCH 31,
1991 1992 1993 1994 1995 1995 1995 1996
------- ------ ------ ------ ---------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $166.5 $168.2 $169.6 $178.3 $ 97.7 $154.7 $ 47.9 $112.7
Gross profit.................... 80.1 79.8 73.0 78.8 42.5 67.0 18.6(1) 50.4
Operating income................ 25.7 27.3 19.6 18.8 9.9 13.5(2) 4.0 13.5
Interest expense, net........... 9.9 5.9 4.8 5.8 3.6 5.7 4.1 9.1
Net income (loss)............... 10.6(3) 12.6 9.4 8.0 4.0 4.8 (0.6) 2.5
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets.................... $181.2 $168.0 $163.4 $171.2 $181.7 $177.5 $218.3 $226.2
Total debt...................... 106.6 92.1 82.4 76.9 82.3 78.4 152.3 156.1
Stockholders' equity............ 35.0 46.2 51.0 35.2 39.4 40.1 32.0 34.3
OTHER DATA:
Depreciation.................... $ 5.4 $ 5.7 $ 6.1 $ 6.1 $ 3.5 $ 4.9 $ 1.3 $ 4.1
Amortization.................... 6.4 6.0 5.7 5.6 2.8 4.3 0.8 2.0
Capital expenditures............ 6.9 5.1 9.0 4.5 5.3 10.4 2.7 4.0
<FN>
- ---------------
(1) Includes a $3.6 million charge related to allocation of purchase price to
finished goods inventory. This amount was recorded in cost of sales as the
acquired inventory was sold during the period ended September 30, 1995.
(2) Includes a $1.1 million charge related to the termination of the Old Cabot
Safety Corporation stock option plan and a $0.8 million charge related to a
provision for potential value-added tax penalties by the Company's French
subsidiary. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Legal Proceedings."
(3) The results of operations for fiscal 1991 exclude the results of Rastronics,
which were presented as discontinued operations in the 1991 financial
statements.
</TABLE>
8
<PAGE> 12
<TABLE>
SUMMARY PRO FORMA FINANCIAL DATA. The following table sets forth summary
pro forma financial data of the Company as of and for the year ended September
30, 1995 and the six months ended March 31, 1995 and March 31, 1996. The pro
forma financial data give effect to the Offering, the Exchange Transaction, the
Formation Acquisition, the Eastern Acquisition and the Peltor Acquisition and
related transactions as if they had occurred on October 1, 1994 for purposes of
the pro forma consolidated income statement data and as of March 31, 1996 for
purposes of the pro forma consolidated balance sheet data and the elimination of
certain fiscal 1995 non-recurring charges relating to allocation of purchase
price to inventory, termination of the Old Cabot Safety Corporation stock option
plan and potential value-added tax penalties by the Company's French subsidiary.
The unaudited pro forma financial information presented does not purport to
represent what the consolidated results of operations or financial condition of
the Company would actually have been if the transactions reflected therein had
in fact occurred on the assumed dates or to project the future consolidated
results of operations or financial condition of the Company. The Company's pro
forma results of operations for the six months ended March 31, 1996 do not
include extraordinary charges in connection with the Offering and related
transactions, including approximately $2.7 million net of tax of premium payable
upon redemption of Subordinated Notes, the non-cash write-off of approximately
$1.25 million net of tax of related debt issuance costs and a $0.8 million
charge, net of tax, in connection with the termination of the Management
Advisory Agreement, which the Company expects to record in the fourth quarter of
fiscal 1996. See "Risk Factors -- Nonrecurring Charges in Connection with the
Offering." The following summary unaudited pro forma financial data of the
Company should be read in conjunction with "Selected Unaudited Pro Forma
Financial Data," "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial information for the Company, including notes
thereto, and other financial information appearing elsewhere in this Prospectus.
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR MARCH 31,
ENDED ----------------------------
SEPTEMBER 30, 1995 1995 1996
------------------ ----------- -----------
(DOLLARS IN MILLIONS,
EXCEPT SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................................ $255.7 $121.8 $136.5
Gross profit............................................................. 110.7 51.5 61.2
Operating income......................................................... 26.9 10.3 16.0
Interest expense, net.................................................... 22.2 11.0 10.6
Net income (loss)........................................................ 1.9 (1.4) 2.7
Net income (loss) per share(1)........................................... $ .12 $ (.09) $ .18
Weighted average number of common shares outstanding(1).................. 15,492,856 15,492,856 15,492,856
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................................. $323.6
Total debt(2)............................................................ 205.9
Redeemable preferred stock(3)............................................ --
Common stockholders' equity.............................................. 75.3
OTHER DATA:
Depreciation............................................................. $ 9.8 $ 5.6 $ 4.8
Amortization............................................................. 8.5 4.3 4.2
Capital expenditures..................................................... 14.5 5.8 4.7
<FN>
- ---------------
(1) Computed using the weighted average number of shares of Common Stock and
common stock equivalents outstanding during the period. Pro forma net income
per share reflect the issuance of the 5,500,000 shares of Common Stock in
the Offering and the application of the estimated net proceeds therefrom and
the Exchange Transaction. See "Use of Proceeds." Weighted average shares
also include the dilutive effect of certain options issued to management on
June 26, 1996.
(2) Adjusted to reflect the application of the estimated net proceeds from the
Offering. See "Use of Proceeds" and "Capitalization."
(3) All outstanding shares of Redeemable Preferred Stock, including accrued and
unpaid dividends, will be redeemed or exchanged for Common Stock in
connection with the Offering and the Exchange Transaction. See "The
Offering," "Use of Proceeds" and "Certain Relationships and Related
Transactions."
</TABLE>
9
<PAGE> 13
RISK FACTORS
The following risk factors should be carefully considered in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby.
RISKS ASSOCIATED WITH INDEBTEDNESS
The Company is significantly leveraged, resulting in indebtedness being
substantial in relation to stockholders' equity. Such leverage could have
important consequences to the Company, including the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of interest; (iii) certain of
the Company's borrowings are and will continue to be at variable rates of
interest, which exposes the Company to the risk of higher interest rates; (iv)
the Company may be substantially more leveraged than certain of its competitors,
which may place it at a competitive disadvantage; and (v) the Company's
substantial degree of leverage may hinder its ability to adjust rapidly to
changing market conditions and could make it more vulnerable in the event of a
downturn in general economic conditions or its business.
The Company's ability to repay or refinance its indebtedness and comply
with the covenants contained in the Company's senior secured credit facilities
provided by Bankers Trust Company, as Administrative Agent (the "Senior Bank
Facilities"), and the Subordinated Notes will depend on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. 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. 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. The Senior Bank Facilities and the
Subordinated Notes contain a number of significant covenants that, among other
things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into investments or
acquisitions, engage in mergers or consolidations, make capital expenditures, or
engage in certain transactions with subsidiaries and affiliates and otherwise
restrict corporate activities. In addition, under the Senior Bank Facilities the
Company is required to comply with specified financial ratios and tests,
including minimum fixed charge coverage, minimum interest coverage and maximum
leverage ratios. The breach of any of such covenants or restrictions could
result in a default under the Senior Bank Facilities and/or the Subordinated
Notes, which may lead to such indebtedness becoming immediately due and payable,
and the lenders' commitments to make further extensions of credit under the
Senior Bank Facilities being terminated. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Senior Bank Facilities."
UNCERTAINTIES OF ACQUISITION STRATEGY
The Company has pursued and intends to continue to pursue acquisitions as
an important component of its strategy. The Peltor Acquisition involves the
incurrence of significant additional debt and significant amortization expense
in future periods related to goodwill and other intangible assets. No assurance
can be given that in the future other suitable acquisition candidates can be
acquired on acceptable terms or that future acquisitions, if completed, will be
successful. Future acquisitions by the Company could result in the incurrence of
additional debt, the potentially dilutive issuance of equity securities and the
incurrence of contingent liabilities and amortization expenses related to
goodwill and other intangible assets, which could materially adversely affect
the Company's business, operating results and financial condition. The success
of any completed acquisition, including the Peltor Acquisition, will depend on
the Company's ability to integrate effectively the acquired businesses into the
Company. The process of integrating acquired businesses may involve
10
<PAGE> 14
numerous risks, including difficulties in the assimilation of operations and
products, the diversion of management's attention from other business concerns,
risks of entering markets in which the Company has limited or no direct prior
experience and the potential loss of key employees of the acquired businesses.
See "Business -- Operating Strategy" and "Acquisition of Peltor."
NONRECURRING CHARGES IN CONNECTION WITH THE OFFERING
The Company expects to incur extraordinary charges in the fourth quarter of
fiscal 1996 in connection with the consummation of the Offering and related
transactions, including approximately $2.2 million, $1.3 million net of tax, in
connection with the non-cash write-off of previously capitalized debt issuance
costs and $4.4 million, $2.7 million net of tax, of expense for redemption
premium payable in connection with the redemption of a portion of the
Subordinated Notes out of a portion of the proceeds of the Offering. See "Use of
Proceeds". The Company also expects to incur an expense of approximately $1.25
million, $0.8 million net of tax, in connection with the termination of a
management advisory agreement among Vestar, Cabot and the Company entered into
upon the Formation Acquisition (the "Management Advisory Agreement"). Pursuant
to the Management Advisory Agreement, Vestar and Cabot provided advisory and
consulting services with respect to strategic financial planning during the
period following the Formation Acquisition. The Company believes that such
services are no longer required, as twelve months have elapsed since the Company
became an independent entity, and the Company does not anticipate any adverse
impact or increased ongoing costs from the termination of the Management
Advisory Agreement. See "Certain Relationships and Related Transactions -- Other
Relationships -- Management Advisory Agreement." In addition, on June 26, 1996,
the Company granted to officers and key employees options to acquire 400,000
shares of Common Stock at a price of $7.50 per share and in connection with the
grant of these options will record unearned compensation totaling approximately
$1.4 million, $0.8 million net of tax. The non-cash compensation expense will be
recognized over the ten year life of the options, subject to earlier recognition
if the vesting of the options is accelerated in accordance with their terms. See
"Management -- Employee Stock and Other Benefit Plans -- Executive Stock Option
Plan." These charges are not reflected in the pro forma financial information
for the year ended September 30, 1995 or the six months ended March 31, 1996
included elsewhere in this Prospectus. The market price of the Common Stock
could be negatively impacted when the Company reports these charges.
HIGH LEVEL OF COMPETITION IN ISSUER'S MARKETS; IMPORTANCE OF PRODUCT INNOVATION
The PPE market is highly competitive. The Company believes that
participants in the PPE market compete primarily on the basis of product
characteristics (such as design, style and functional performance), product
quality, service, brand name recognition and, to a lesser extent, price. Some of
the Company's competitors have greater financial and other resources than the
Company, and the Company's cash flows from operations could be adversely
affected by competitors' new product innovations and pricing changes made by the
Company in response to competition from existing or new competitors. The level
of competition in the markets in which the Company operates can have a
substantial detrimental effect on the prices that the Company can charge for its
products and, consequently, can adversely impact the Company's revenues and
profitability. The Company's future results will depend in part on continued
enhancement of its existing products and introduction of new products. New
product designs can be unsuccessful, and successful product designs can be
displaced by product designs subsequently introduced or imitated by competitors.
As a result of these and other factors, there can be no assurance that the
Company will successfully maintain its market position. See
"Business -- Competition."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company operates manufacturing, distribution and sales facilities in
eight foreign countries and sells its products in more than 85 countries.
Approximately 29.6% of the Company's fiscal 1995
11
<PAGE> 15
net sales were made in foreign countries, and such percentage is expected to
increase as a result of the Peltor Acquisition. As a result, the Company is
subject to risks associated with operating in foreign countries, including
fluctuations in currency exchange rates, imposition of limitations on conversion
of foreign currencies into dollars or remittance of dividends and other payments
by foreign subsidiaries, imposition or increase of withholding and other taxes
on remittances and other payments on foreign subsidiaries, hyperinflation in
certain foreign countries and imposition or increase of investment and other
restrictions by foreign governments. Although such risks have not had a material
adverse effect on the Company, no assurance can be given that such risks will
not have a material adverse effect on the business, results of operations and
financial condition of the Company in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
PRODUCT LIABILITY EXPOSURE
The Company faces an inherent business risk of exposure to product
liability claims arising from the potential failure of its products to prevent
the types of personal injury or death against which PPE is intended to protect.
Although the Company has not experienced any material uninsured losses due to
product liability claims, there can be no assurance that it will not experience
such losses in the future. Also, in the event any of the Company's products
prove to be defective, the Company may be required to recall or redesign such
product. The Company maintains insurance against product liability claims (with
the exception of certain asbestosis and silicosis cases, for which coverage is
not commercially available), but there can be no assurance that such insurance
coverage will continue to be available on terms acceptable to the Company or
that such coverage will be adequate for liabilities actually incurred. A
successful claim brought against the Company in excess of available insurance
coverage, or any claim or product recall that results in significant expense or
adverse publicity against the Company, may have a material adverse effect on the
Company's business, operating results and financial condition.
RELIANCE ON SINGLE SOURCES OF SUPPLY AND AVAILABILITY OF POLYCARBONATE RESIN
The Company uses single sources for the supply of several raw materials,
including General Electric Plastics, a division of General Electric Company, for
polycarbonate resin, the primary raw material used in the production of the
Company's non-prescription optical lenses. The loss of any such single source,
any disruption in such source's business or failure by it to meet the Company's
needs on a timely basis could cause shortages in raw materials and could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that precautions taken by the
Company will be adequate or that alternative sources of supply can be located or
developed in a timely manner. At this time, demand for polycarbonate resin on a
worldwide basis is straining the industry's production capacity. If worldwide
demand continues to exceed the available supply, the Company's ability to obtain
required quantities of this product could be adversely affected, which could
adversely affect the Company's business, operating results and financial
condition. See "Business -- Raw Materials."
EFFECTIVE CONTROL BY PRINCIPAL STOCKHOLDERS
After the Offering, Cabot, Vestar and the Management Investors
(collectively, the "Principal Stockholders") will own, directly or indirectly,
28.1%, 28.1% and 7.8%, respectively, of the then outstanding Common Stock.
Pursuant to a stockholders' agreement entered into in connection with the
Formation Acquisition (the "Stockholders' Agreement"), the Principal
Stockholders have agreed, among other things, to vote all of the capital stock
owned by them so as to elect a Board of Directors of the Company consisting of
nine members, of which three will be designated by Vestar, two will be
designated by Cabot, two will be designated by the Management Investors and two
will be independent directors who are not affiliated with Vestar or Cabot and
are not employees of the Company (the "Independent Directors"), plus, at
Vestar's option, an additional four directors
12
<PAGE> 16
designated by Vestar with the approval of Cabot. So long as the Stockholders'
Agreement remains in effect, and subject to continued ownership by Vestar, Cabot
and the Management Investors of a specified proportion of the outstanding Common
Stock, all directors other than the Independent Directors can be removed, with
or without cause, and replaced by the stockholders who have the right to
designate them. In addition, the Stockholders' Agreement provides for so called
"drag along" and other rights for the benefit of Vestar in connection with
certain fundamental transactions involving the Company. By reason of their
ownership of Common Stock and the Stockholders' Agreement, the Principal
Stockholders as a group will have the ability to control the outcome of
fundamental corporate transactions requiring stockholder approval, including
mergers and sales of assets, and will have the ability to elect all of the
members of the Company's Board of Directors. Subsequent to the Offering, the
Principal Stockholders may dispose of shares publicly or privately, including
sales of significant blocks, in accordance with various restrictions. To the
extent such dispositions occur, they will reduce the level of such influence and
may cause the rights of the Principal Stockholders under the Stockholders'
Agreement to terminate. See "Certain Relationships and Related
Transactions -- Stockholders' Agreement" and "Shares Eligible for Future Sale."
MATERIAL BENEFIT TO INSIDERS
In connection with the Formation Acquisition, Vestar and Cabot invested $45
million in Redeemable Preferred Stock. In connection with the Offering, the
Company will redeem approximately $25.3 million of Redeemable Preferred Stock
(including approximately $2.8 million of accrued dividends since July 1995)
using a portion of the proceeds from the Offering. Vestar and Cabot have agreed,
effective upon the consummation of the Offering, to exchange the remaining $25.3
million of Redeemable Preferred Stock outstanding (including approximately $2.8
million of accrued dividends) for shares of Common Stock at an exchange price
equal to the initial public offering price of the Common Stock in the Offering.
See "Certain Relationships and Related Transactions -- The Formation
Acquisition."
UNPREDICTABILITY OF PATENT PROTECTION AND OTHER INTELLECTUAL PROPERTY
The Company's success depends, in part, on its ability to obtain and
enforce patents, maintain trade secret protection and operate without infringing
on the proprietary rights of third parties. While the Company has been issued
patents and has registered trademarks with respect to many of its products,
there can be no assurance that others will not independently develop similar or
superior products or technologies, duplicate any of the Company's designs,
trademarks, processes or other intellectual property or design around any
processes or designs on which the Company has or may obtain patents or trademark
protection. In addition, it is possible that third parties may have or acquire
licenses for other technology or designs that the Company may use or desire to
use, so that the Company may need to acquire licenses to, or to contest the
validity of, such patents or trademarks of third parties. There can be no
assurance that any such license would be made available to the Company on
acceptable terms, if at all, or that the Company would prevail in any such
contest. In addition to patent and trademark protection, the Company also relies
on trade secrets and proprietary know-how that it seeks to protect. There can be
no assurance that the Company will be successful in protecting such trade
secrets or know-how against unauthorized use by others or disclosure by persons
who have access to them, such as employees of the Company. See
"Business -- Patents and Trademarks."
DEPENDENCE ON KEY PERSONNEL
The operations of the Company depend significantly upon the efforts of
certain members of senior management, particularly John D. Curtin, Jr., Chairman
of the Board of Directors and Chief Executive Officer, and Albert F. Young, Jr.,
President. The extended loss of the services of these or other officers could
have a material adverse effect upon the Company's business, results of
operations and financial condition. See "Management."
13
<PAGE> 17
ADVERSE EFFECT OF ECONOMIC AND REGULATORY CONDITIONS ON SALES
The primary end-users of the Company's products are industrial workers in
the United States and abroad, and decreases in general employment levels,
particularly in the United States, may have an adverse effect on the Company's
sales. The Company's sales may also be adversely affected by changes in safety
regulations covering industrial workers in the United States and abroad and in
the level of enforcement of such regulations. Changes in regulations could
reduce the utility of certain products manufactured by the Company, thereby
necessitating the Company to re-engineer such products and creating
opportunities for its competitors. See "Business -- Government Regulation."
RISKS ASSOCIATED WITH ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes.
While the Company believes that it is currently in material compliance with
those laws and regulations, there can be no assurance that the Company will not
incur significant costs to remediate violations thereof or to comply with
changes in existing laws and regulations (or the enforcement thereof). Such
costs could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Environmental Matters."
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BYLAWS
Certain provisions of the Company's Second Amended and Restated Certificate
of Incorporation and Amended and Restated By-laws, certain sections of the
Delaware General Corporation Law, and the ability of the Board of Directors to
issue shares of preferred stock and to establish the voting rights, preferences
and other terms thereof, may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors
(including takeovers which certain stockholders may deem to be in their own best
interests). These provisions and the ability of the Board of Directors to issue
preferred stock without further action by stockholders could delay or frustrate
the removal of incumbent directors or the assumption of control by stockholders,
even if such removal or assumption of control would be beneficial to the
Company's stockholders. These provisions also could discourage or make more
difficult a merger, tender offer or proxy contest, even if such events would be
beneficial to the interests of stockholders. Such provisions include, among
other things, a classified Board of Directors serving staggered three-year
terms, the elimination of stockholder voting by consent, the removal of
directors only for cause, the vesting of exclusive authority in the Board of
Directors to determine the size of the Board and (subject to certain limited
exceptions) to fill vacancies thereon, the vesting of exclusive authority in the
Board of Directors (except as otherwise required by law) to call special
meetings of stockholders, and certain advance notice requirements for
stockholder proposals and nominations for election to the Board of Directors.
The Company will be subject to Section 203 of the Delaware General Corporation
Law which, in general, imposes restrictions upon certain acquirors (including
their affiliates and associates) of 15% or more of the Company's Common Stock.
See "Description of Capital Stock -- Certain Provisions of Second Amended and
Restated Certificate of Incorporation and Amended and Restated By-laws" and "--
Statutory Business Combination Provisions."
POTENTIAL ADVERSE EFFECTS ON MARKET PRICE DUE TO SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
Offering could adversely affect the market price of the Common Stock. In
addition to the 5,500,000 shares of Common Stock offered hereby, 9,815,142
shares of the Common Stock expected to be owned by current stockholders of the
Company (including shares issued in the Exchange Transaction) will be eligible
for sale in the public market beginning in July 1997 pursuant to Rule 144 ("Rule
144") under the Securities Act of 1933, as amended (the "Securities Act"). The
Securities and Exchange Commission is currently contemplating amendments to Rule
144 which, if enacted, would permit the
14
<PAGE> 18
Company's current stockholders to sell their shares of Common Stock sooner. Such
holders have agreed, however, not to sell or otherwise dispose of any of their
shares of Common Stock for 180 days after the closing of the Offering without
the consent of the representatives of the Underwriters. If such stockholders
should sell or otherwise dispose of a substantial amount of shares of Common
Stock in the public market, the prevailing market price for the Common Stock
could be adversely affected. See "Shares Eligible for Future Sale."
NO PRIOR MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. The public offering price will be determined through negotiations among
the Company, Goldman, Sachs & Co. and Donaldson, Lufkin & Jenrette Securities
Corporation, and may not be indicative of the market price for the Common Stock
after the Offering. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price of the Common Stock.
There can be no assurance that any active public market for the Common Stock
will develop or be sustained after the Offering, or that the market price of the
Common Stock will not decline below the initial public offering price. The
trading price of the Common Stock may be volatile and may fluctuate based upon a
number of factors, including business performance, news announcements or changes
in general market conditions.
ADVERSE EFFECTS OF DILUTION
Purchasers of the Common Stock will experience immediate and substantial
dilution in the pro forma tangible book value per share of Common Stock from the
public offering price. At the assumed initial public offering price of $14.00
per share, investors in the Offering will incur dilution of $20.32 per share.
See "Dilution."
15
<PAGE> 19
THE COMPANY
The Company is one of the leaders in the hearing, eye, face, head and
respiratory protection segments of the PPE market worldwide through its Safety
Products operating unit, which manufactures and sells hearing protection
devices, prescription and non-prescription safety eyewear, face shields,
reusable and disposable respirators, hard hats and first aid kits in more than
85 countries under its well-known brand names: AOSafety, E-A-R, Eastern and
Peltor. With the Peltor Acquisition, the Company is a global leader in the
specialty communications ear muff market. Through its Specialty Composites
operating unit, the Company also manufacturers a wide array of energy-absorbing
specialty composite materials. Such materials are incorporated into other
manufacturers' products to control noise, vibration and shock.
Cabot started its E-A-R (Energy Absorbing Resins) Division (the "E-A-R
Division") and introduced its first foam ear plug in 1972. In 1989 Cabot
acquired Specialty Composites and integrated it into its E-A-R Division,
increasing its casting and engineering capabilities. In 1990 Cabot acquired the
AOSafety Division, a leader in the manufacture and marketing of safety eyewear,
from American Optical Corporation and merged it with the E-A-R Division into Old
Cabot Safety Corporation. In July 1995, Vestar, Cabot and the Management
Investors effected through the Company the acquisition of substantially all of
the assets and certain liabilities of Old Cabot Safety Corporation and certain
of its affiliates from Cabot. On May 29, 1996, Cabot Safety Holdings Corporation
changed its name to Aearo Corporation and the Subsidiary subsequently changed
its name from Cabot Safety Corporation to Aearo Company.
The Company's principal executive offices are located at One Washington
Mall -- 8th Floor, Boston, Massachusetts 02108-2610, and its telephone number is
(617) 371-4200.
USE OF PROCEEDS
The estimated net proceeds to the Company from the Offering (based on an
assumed initial public offering price of $14.00 per share, the mid-point of the
range set forth on the cover page of this Prospectus, and after deducting
underwriting discounts and estimated offering expenses) will be approximately
$70.3 million ($81.0 million if the Underwriters' over-allotment option is
exercised in full). Such net proceeds will be used as follows: (i) approximately
$39.4 million will be used to redeem $35.0 million principal amount of
Subordinated Notes at a redemption price equal to 112.5% of principal, plus
accrued and unpaid interest; (ii) approximately $25.3 million will be used to
retire outstanding shares of Redeemable Preferred Stock, including accrued
dividends since July 1995; and (iii) the balance will be used to reduce
borrowings under the Senior Bank Facilities.
All indebtedness to be repaid with proceeds from the Offering was incurred
in July 1995 to fund in part payments to Cabot and its subsidiaries in
connection with the Formation Acquisition. The Subordinated Notes bear interest
on the annual rate of 12.5% and mature on July 15, 2005, unless redeemed prior
to such date. Indebtedness outstanding under the Senior Bank Facilities bears
interest at a variable rate equal to, at the Company's option, LIBOR plus 2.25%
or the prime rate plus 1.00% (approximately 8% as of June 30, 1996) and
amortizes quarterly over seven years, with a final maturity in July 2002. See
"Certain Relationships and Related Transactions -- The Formation Transaction"
and "Description of Senior Bank Facilities." It is anticipated that each of
Vestar and Cabot will receive approximately $12.7 million with respect to the
redemption of a portion of the Redeemable Preferred Stock held by them.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and is largely restricted from doing so under its financing agreements. The
Company intends to continue this policy for the foreseeable future and retain
earnings for repayment of indebtedness and investment in its business. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors of the Company and will be dependent on the Company's results
of operations, financial condition, contractual restrictions (including
restrictions in the indenture governing the Subordi-
16
<PAGE> 20
nated Notes and the Senior Bank Facilities), legal restrictions and other
factors deemed to be relevant by the Board of Directors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DILUTION
<TABLE>
The historical tangible net deficit (total stockholders' equity less
intangible assets and deferred financing costs) of the Company at March 31, 1996
was $(68.2) million or $(8.53) per share. The pro forma tangible net deficit of
the Company at March 31, 1996 after giving effect to the Peltor Acquisition was
$(139.8) million, or $(17.47) per share of outstanding Common Stock. After
giving effect to the Offering and the Exchange Transaction, deducting estimated
underwriting discounts, giving effect to the transactions referred to under "Use
of Proceeds" and applying the net proceeds therefrom, the pro forma tangible net
deficit at March 31, 1996 would have been $(96.7) million or $(6.32) per share
of outstanding Common Stock. This represents an immediate dilution in net
tangible book value of $20.32 per share to new investors purchasing shares in
the Offering. The following table illustrates the per share dilution:
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock......................................................... $14.00
------
Pro forma tangible net deficit per share before the
Offering(1)................................................... $(17.47)
--------
Pro forma tangible net deficit per share after the
Offering(2)................................................... $ (6.32)
--------
Dilution per share to investors in the Offering(3).............. $20.32
======
<FN>
- ---------------
(1) Pro forma tangible net deficit per share of Common Stock is determined by
dividing the Company's tangible net deficit (total assets excluding net
deferred financing costs and other intangible assets less total liabilities)
by the number of shares of Common Stock outstanding.
(2) Adjusted to reflect the Peltor Acquisition.
(3) Dilution is determined by subtracting net tangible book value per share of
Common Stock after the Offering from the assumed initial public offering
price per share.
</TABLE>
<TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1996,
the differences between the number of shares purchased from the Company, the
total consideration paid and the average price per share paid by the existing
holders of Common Stock (including shares to be issued in the Exchange
Transaction) and by the investors purchasing shares of Common Stock in the
Offering (based on an assumed initial public offering price of $14.00 per share,
the mid-point of the range set forth on the cover page of this Prospectus):
<CAPTION>
SHARES HELD TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 9,807,142 64.1% $ 45,300,000 37.0% $ 4.62
New investors................ 5,500,000 35.9 77,000,000 63.0 $14.00
---------- ----- ------------ -----
Total...................... 15,307,142 100.0% $122,300,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing tables assume no exercise of the Underwriters' over-allotment
option. See "Underwriting" for information concerning the Underwriters'
over-allotment option. As of the date of this Prospectus there are (i)
outstanding options to purchase 400,000 shares of Common Stock granted under the
Company's Executive Stock Option Plan (the "Executive Plan") at an exercise
price of $7.50 per share, none of which is exercisable as of the date of this
Prospectus, (ii) outstanding options to purchase 286,250 shares of Common Stock
granted under the Company's 1996 Stock Option Plan (the "1996 Plan") effective
as of the completion of the Offering at an exercise price equal to the initial
public offering price, none of which is immediately exercisable, and (iii) an
additional 513,750 shares of Common Stock reserved for future issuance under to
the 1996 Plan. See "Management -- Employee Stock and Other Benefit Plans." The
Executive Plan and the 1996 Plan are sometimes referred to herein collectively
as the "Stock Option Plans." To the extent that the outstanding options, or any
options granted in the future, are exercised, there will be further dilution to
new investors.
17
<PAGE> 21
CAPITALIZATION
<TABLE>
The following table sets forth the historical capitalization of the Company
as of March 31, 1996 and as adjusted to give effect to (i) the sale of 5,500,000
shares of Common Stock in the Offering and the application of the net proceeds
as set forth under "Use of Proceeds," (ii) the exchange of approximately $25.3
of Redeemable Preferred Stock including accrued dividends, for shares of Common
Stock at an exchange price equal to the initial public offering price of the
Common Stock in the Offering and (iii) the Peltor Acquisition and the financing
thereof. See "Certain Relationships and Related Transactions -- The Formation
Acquisition," "Use of Proceeds" and "Acquisition of Peltor." This table should
be read in conjunction with the "Selected Unaudited Pro Forma Financial Data,"
"Selected Historical Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and the financial statements of the Company, including notes
thereto, included elsewhere in this Prospectus.
<CAPTION>
MARCH 31, 1996
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Current portion of long-term debt.................................... $ 7.0 $ 7.0
====== ======
Long-term debt(1):
Revolving credit facility.......................................... $ 10.6 $ 1.0
Term loans......................................................... 34.0 126.8
Other.............................................................. 4.5 6.0
Subordinated notes................................................. 100.0 65.0
------ ------
Total long-term debt............................................ 149.1 198.8
------ ------
Stockholders' equity:
Redeemable preferred stock, $.01 par value, 200,000 shares
authorized and 45,000 shares issued and outstanding; none issued
and outstanding as adjusted..................................... 0.0 --
Preferred stock, $.01 par value, 10,000,000 shares authorized and
none issued and outstanding(2).................................. --
Common stock, $.01 par value, 50,000,000 shares authorized;
8,000,000 shares issued and outstanding; 15,307,142 shares
issued and outstanding as adjusted(2)(3)........................ 0.0 0.0
Additional paid-in capital......................................... 32.6 78.3
Retained earnings(4)............................................... 1.9 (2.8)
Foreign currency translation adjustment............................ (0.2) (0.2)
------ ------
Total stockholders' equity...................................... 34.3 75.3
------ ------
Total capitalization................................................. $183.4 $281.1
====== ======
<FN>
- ---------------
(1) See Note 8 of Notes to Financial Statements for additional information
relating to long-term debt.
(2) Reflects the Second Amended and Restated Certificate of Incorporation of the
Company, which increases the authorized Common Stock to 50,000,000 shares
and authorizes the issuance of undesignated preferred stock. See
"Description of Capital Stock."
(3) Excludes (i) 400,000 shares of Common Stock issuable upon exercise of
outstanding stock options granted under the Executive Plan at an exercise
price of $7.50 per share, none of which are exercisable as of the date of
this Prospectus, (ii) 286,250 shares of Common Stock issuable upon exercise
of outstanding stock options granted under the 1996 Plan effective as of the
completion of the Offering at an exercise price equal to the initial public
offering price, none of which is immediately exercisable, and (iii) an
additional 513,750 shares of Common Stock reserved for future issuance under
the 1996 Plan. See "Management -- Employee Stock and Other Benefit Plans --
Executive Stock Option Plan" and "-- 1996 Stock Option Plan."
(4) As adjusted, retained earnings reflects an extraordinary charge of $4.0
million, net of tax benefits, which the Company expects to record in the
fourth quarter of fiscal 1996 when the debt is paid, consisting of: (i) an
estimated redemption premium of $4.4 million ($2.7 million, net of tax
benefits) to be incurred in connection with the redemption of a portion of
the Subordinated Notes and (ii) a write-off of debt issuance costs of $2.2
million ($1.3 million, net of tax benefits). The Company also expects to
record a $1.25 million charge ($0.8 million net of tax) in connection with
the termination of the Management Advisory Agreement in the same quarter.
</TABLE>
18
<PAGE> 22
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Consolidated Financial Statements" and the
financial statements of the Company, including notes thereto, and other
financial information contained elsewhere in this Prospectus. The unaudited pro
forma financial data of the Company for the fiscal year ended September 30, 1995
and the six months ended March 31, 1995 and March 31, 1996 were derived from the
Company's historical financial statements included elsewhere in this Prospectus,
adjusted to give effect to the estimated effects of the Offering, the Exchange
Transaction, the Formation Acquisition, the Eastern Acquisition, the Peltor
Acquisition and related transactions as if they had occurred on October 1, 1994
for purposes of the pro forma consolidated income statement data and as of March
31, 1996 for purposes of the pro forma consolidated balance sheet data and the
elimination of certain fiscal 1995 non-recurring charges relating to the
allocation of purchase price to inventory, the termination of the Old Cabot
Safety Corporation stock option plan and potential value-added tax penalties by
the Company's French subsidiary. The Formation Acquisition, the Eastern
Acquisition and the Peltor Acquisition are referred to collectively as the
"Acquisitions." The unaudited pro forma financial data are provided for
informational purposes only and are not necessarily indicative of the financial
position or operating results that would have occurred had the Offering,
Exchange Transaction and Acquisitions been consummated on the dates, or at the
beginning of the period, for which the consummation of the Offering, Exchange
Transaction and Acquisitions is being given effect, nor is it necessarily
indicative of future operating results or financial position. The Company's pro
forma results of operations for the six months ended March 31, 1996 do not
include extraordinary charges in connection with the Offering and related
transactions, including approximately $2.7 million net of tax of premium payable
upon redemption of Subordinated Notes, the non-cash write-off of approximately
$1.3 million net of tax of related debt issuance costs and a $0.8 million
charge, net of tax, in connection with the termination of the Management
Advisory Agreement, which the Company expects to record in the fourth quarter of
fiscal 1996. See "Use of Proceeds" and "Risk Factors -- Nonrecurring Charges in
Connection with the Offering."
The unaudited pro forma financial data have been prepared using the
purchase method of accounting, whereby the total cost of the Acquisitions was
allocated to the tangible and intangible assets acquired and liabilities assumed
based upon their respective fair values at the effective date of the
Acquisitions. Such allocations will be based on studies and valuations which
have not yet been completed. Accordingly, the allocations reflected in the
unaudited pro forma financial data are preliminary and subject to revision.
19
<PAGE> 23
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31,
SEPTEMBER 30, -------------------------
1995 1995 1996
----------------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net sales............................................. $ 255.7 $ 121.8 $ 136.5
Cost of Sales(2)...................................... 145.0 70.3 75.3
----------- ----------- -----------
Gross profit........................................ 110.7 51.5 61.2
Selling and administrative(3)......................... 71.6 35.1 39.3
Research and technical service........................ 4.0 1.9 2.2
Amortization expense(4)............................... 8.6 4.3 4.1
Other charges (income), net........................... (0.4) (0.1) (0.4)
----------- ----------- -----------
Operating income.................................... 26.9 10.3 16.0
Interest expense, net(5).............................. 22.2 11.0 10.6
----------- ----------- -----------
Income (loss) before income taxes..................... 4.7 (0.7) 5.4
Provision for income taxes(6)......................... 2.8 0.7 2.7
----------- ----------- -----------
Net income (loss)................................... $ 1.9 $ (1.4) $ 2.7
=========== =========== ===========
Net income (loss) per share(7)........................ $ .12 $ (.09) $ .18
=========== =========== ===========
Weighted average number of common shares
outstanding(7)...................................... 15,492,856 15,492,856 15,492,856
BALANCE SHEET DATA (AT END OF PERIOD)(1)(8):
Total assets.......................................... $ 323.6
Total debt............................................ 205.9
Redeemable preferred stock(9)......................... --
Common stockholders' equity........................... 75.3
OTHER DATA:(10)
Depreciation.......................................... $ 9.8 $ 5.6 $ 4.8
Amortization.......................................... 8.5 4.3 4.2
Capital expenditures.................................. 14.5 6.8 4.7
<FN>
- ---------------
(1) Gives effect to the Acquisitions, the Offering and related transactions and
the Exchange Transaction. Pro forma income statement data do not reflect
the effect of an extraordinary charge to be recorded related to the early
retirement of certain debt which will be recorded in the period in which
the debt is repaid. See "Unaudited Pro Forma Consolidated Financial
Statements."
(2) Includes adjustments to reflect increases in depreciation resulting from
the preliminary purchase price allocation related to the Acquisitions. The
year ended September 30, 1995 reflects the elimination of a nonrecurring
increase in cost of sales resulting from the preliminary price allocation
which increased the estimated fair value of finished goods inventories with
respect to the Formation Acquisition.
(3) Includes an estimate of the increased costs to be incurred by the Company
on a stand-alone basis as a result of the Formation Acquisition offset by
the elimination of non-recurring charges related to taxes and penalties
resulting from delinquency in the remittance of value-added tax payments to
the French government and termination of the Old Cabot Safety Corporation
stock option plan.
(4) Includes adjustments resulting from increases in intangible assets and cost
in excess of the fair value of net assets acquired related to the
Acquisitions. Pro forma intangible assets include goodwill, non-compete
agreements and other intangible assets consisting primarily of trademarks
and tradenames. The non-compete agreements are being amortized over the
life of the agreements and goodwill and other intangibles are being
amortized over their estimated useful lives ranging from 15 to 25 years -
see Note 1(d) to Unaudited Pro Forma Consolidated Statements of Operations.
(5) Includes adjustments to reflect increases in interest expense on
indebtedness incurred in connection with the Acquisitions offset by
elimination of interest related to the Subordinated Notes to be redeemed in
connection with the Offering and the elimination of amortization on related
deferred financing costs to be written-off. See Note 1(e) to Unaudited Pro
Forma Consolidated Statements of Operations.
(6) The primary difference between the provisions calculated at statutory rates
and the effective rates is attributable to nondeductible goodwill
associated with the Peltor Acquisition.
(7) Computed using the weighted average number of shares of Common Stock and
common stock equivalents outstanding during the period. Pro forma net
income per share reflects the issuance of 5,500,000 shares of Common Stock
in the Offering, the Exchange Transaction and the application of the
estimated net proceeds therefrom as described in "Use of Proceeds."
Weighted average shares also include the dilutive effect of certain options
granted to management under the Executive Plan.
(8) Adjusted to reflect the application of the estimated net proceeds from the
Offering. See "Use of Proceeds" and "Capitalization."
(9) All outstanding shares of Redeemable Preferred Stock, including accrued and
unpaid dividends, will be redeemed or exchanged for Common Stock in
connection with the Offering and Exchange Transaction. See "Use of
Proceeds" and "Certain Relationships and Related Transactions -- The
Formation Acquisition."
(10) Gives effect to the Acquisitions, the Offering and related transactions and
the Exchange Transaction.
</TABLE>
20
<PAGE> 24
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of the Company for, and at the end of, each of the five fiscal years ended
September 30, 1995 and the six-month periods ended March 31, 1995 and 1996. The
selected historical financial data for each of the four fiscal years ended
September 30, 1994 were derived from the combined financial statements of Old
Cabot Safety Corporation, which have been audited by Coopers & Lybrand L.L.P.,
independent auditors. The income statement data for the periods ended July 11,
1995 and September 30, 1995 are derived from the consolidated financial
statements of the Company, which have been audited by Arthur Andersen LLP,
independent auditors. The balance sheet data for July 11, 1995 are unaudited
but, in the opinion of management, include all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the balance
sheet data at such date. The selected historical financial data for the six
months ended March 31, 1995 and March 31, 1996 are unaudited but, in the opinion
of management, include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial data for such
periods. The results for the six months ended March 31, 1996 are not necessarily
indicative of the results for the full fiscal year. The selected historical
consolidated financial data below present consolidated financial data of the
Company's predecessor for periods prior to the Formation Acquisition. See
"Certain Relationships and Related Transactions -- The Formation Acquisition."
Because of such transaction, certain aspects of the consolidated results of
operations for periods prior to July 12, 1995 are not comparable with those for
subsequent periods. Consequently, net income per share data are presented only
for the fiscal year ended September 30, 1995 and the six months ended March 31,
1996. The results of operations for the six months ended March 31, 1996 include
the results of Eastern after January 3, 1996, the date on which Eastern was
acquired by the Company. The following table should also be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements of the Company, including notes thereto,
the unaudited pro forma consolidated financial statements for the Company,
including notes thereto, and other financial information appearing elsewhere in
this Prospectus. Historical earnings per share is not presented, as these
amounts would not be meaningful after the changes in capital structure resulting
from the Offering and the Exchange Transaction.
21
<PAGE> 25
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------ COMPANY
-----------------------
FISCAL YEAR ENDED SIX MONTHS PERIOD PERIOD SIX MONTHS
SEPTEMBER 30, ENDED ENDED ENDED ENDED
------------------------------------ MARCH 31, JULY 11, SEPT. 30, MARCH 31,
1991 1992 1993 1994 1995 1995 1995 1996
------- ------ ------ ------ ---------- -------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................. $166.5 $168.2 $169.6 $178.3 $ 97.7 $154.7 $ 47.9 $112.7
Cost of sales.............. 86.4 88.5 96.7 99.5 55.2 87.7 29.3(1) 62.3
------ ------ ------ ------ ------ -------- ----- ------
Gross profit............. 80.1 79.8 73.0 78.8 42.5 67.0 18.6 50.4
Selling and
administrative........... 45.7 44.9 45.3 51.7 28.2 47.1(2) 13.1 33.4
Research and technical
services................. 1.9 2.1 2.3 2.7 1.6 2.3 0.6 1.6
Amortization expense....... 6.4 6.0 5.7 5.6 2.8 4.3 0.8 2.0
Other charges (income),
net...................... 0.4 (0.5) 0.1 (0.0) 0.0 (0.2) 0.1 (0.0)
------ ------ ------ ------ ------ -------- ----- ------
Operating income......... 25.7 27.3 19.6 18.8 9.9 13.5 4.0 13.4
Interest expense, net...... 9.9 5.9 4.8 5.8 3.6 5.7 4.1 9.1
------ ------ ------ ------ ------ -------- ----- ------
Income (loss) before
income taxes,
discontinued
operations, and
cumulative effect of
accounting charges..... 15.8 21.4 14.8 13.0 6.3 7.8 (0.1) 4.3
Provision for income
taxes.................... 5.2 8.8 5.7 5.0 2.3 3.0 0.5 1.9
------ ------ ------ ------ ------ -------- ----- ------
Income (loss) from
continuing
operations............. 10.6 12.6 9.1 8.0 4.0 4.8 (0.6) 2.4
Cumulative effect of
accounting change........ -- -- 0.3 -- -- -- -- --
------ ------ ------ ------ ------ -------- ----- ------
Net income (loss)........ $ 10.6 (3) $ 12.6 $ 9.4 $ 8.0 $ 4.0 $ 4.8 $ (0.6) $ 2.4
====== ====== ====== ====== ====== ======== ===== ======
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets............... $181.2 $168.0 $163.4 $171.2 $181.7 $177.5 $218.3 $226.2
Total debt................. 106.6 92.1 82.4 76.9 82.3 78.4 152.3 156.1
Stockholders' equity....... 35.0 46.2 51.0 35.2 39.4 40.1 32.0 34.3
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Depreciation............... $ 5.4 $ 5.7 $ 6.1 $ 6.1 $ 3.5 $ 4.9 $ 1.3 $ 4.1
Amortization............... 6.4 6.0 5.7 5.6 2.8 4.3 0.8 2.0
Capital expenditures....... 6.9 5.1 9.0 4.5 5.3 10.4 2.7 4.0
</TABLE>
- ---------------
(1) Includes a $3.6 million charge related to allocation of purchase price to
finished goods inventory. This amount was recorded in cost of sales as the
acquired inventory was sold during the period ended September 30, 1995.
(2) Includes a $1.1 million charge related to the termination of the Old Cabot
Safety Corporation stock option plan and a $0.8 million charge related to a
provision for potential value-added tax penalties by the Company's French
subsidiary. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Legal Proceedings."
(3) The results of operations for 1991 exclude the results of Rastronics, which
were presented as discontinued operations in the 1991 financial statements.
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical Consolidated Financial Data," and the financial statements of the
Company, including notes thereto, appearing elsewhere in this Prospectus. In
particular, the following discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference are discussed in "Risk Factors"
beginning on page 9 of this Prospectus.
GENERAL
Prior to the Formation Acquisition in July 1995, Old Cabot Safety
Corporation was a wholly-owned subsidiary of Cabot. In 1990, Cabot combined into
Old Cabot Safety Corporation the operations of its E-A-R Division with the
operations of the AOSafety Division, which Cabot acquired from American Optical
Corporation at such time. The combined financial statements of the Company
include the results of Old Cabot Safety Corporation and certain of its
affiliates whose operations are partially or exclusively related to the business
of the Company.
The Company's current senior management team was installed in mid-1994 to
address operational issues that had adversely affected the Company's sales and
profitability. Management focused on four primary areas: (i) strengthening
relationships with distributors and product end-users, (ii) increasing the
Company's participation in projected high-growth markets, such as the
consumer/DIY and catalog supply markets and the emerging international markets
of Latin America and the Pacific Rim, (iii) expanding product innovation and
development efforts and (iv) pursuing acquisitions. Management believes that the
Company's performance in fiscal 1995 and the first six months of fiscal 1996
reflects the benefits of these initiatives, as well as the associated increased
investment in sales and marketing and information systems.
The operational issues addressed by management after 1994 included a
decline in profitability in fiscal 1993 and the early part of fiscal 1994
following the combination of the E-A-R Division and the AOSafety Division. While
the combination resulted in a larger company with broader product offerings,
giving E-A-R distributors access to AOSafety products, and vice versa, it
resulted in some long-standing relationships among the Company, distributors and
end-users being undermined. In addition, as part of the combination the Company
reduced its sales force while expanding the product line, which resulted in
decreased distribution focus and support of the Company's products by
distributors. During the late 1980s the Company had also suffered from a
prolonged lack of investment in product innovation and development. Because
end-users are relatively slow to switch products or brands, the combined effect
of the deteriorating distributor relations and the lack of new products did not
adversely affect financial results in fiscal 1991 and 1992. However, the
combined effect of such problems, coinciding with the introduction of new
products by competitors, began to result in some loss of market share in fiscal
1992. In an effort to retain market share, the Company began to offer price
promotions and reduced the prices of several products. While this aided
financial performance in fiscal 1992, it largely did so at the expense of fiscal
1993 results by pulling business forward. The reduction in pricing, however, did
not stem the market share erosion, as many end-users are more interested in
product performance and increased safety compliance than they are in discounted
prices. Operating profit in fiscal 1993 and the first half of fiscal 1994 was
also negatively affected by the costs of consolidating the prescription eyewear
manufacturing facilities from six locations to two and consolidating the
Company's other manufacturing facilities at its Southbridge, Massachusetts
location.
23
<PAGE> 27
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth the major components of the Company's
combined statements of income expressed as a percentage of net sales.
<CAPTION>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales:
Safety Products....................... 84.8% 84.0% 83.8% 83.9% 82.1%
Specialty Composites.................. 15.2 16.0 16.2 16.1 17.9
----- ----- ----- ----- -----
Total net sales.................... 100.0 100.0 100.0 100.0 100.0
Cost of sales........................... 57.0 55.8 56.0(1) 56.5 55.3
----- ----- ----- ----- -----
Gross profit.......................... 43.0 44.2 44.0(1) 43.5 44.7
Selling and administrative.............. 26.7 29.0 28.8(2) 28.9 29.6
Research and technical service.......... 1.3 1.5 1.4 1.6 1.4
Amortization expense.................... 3.4 3.1 2.6 2.9 1.8
Other charges (income), net............. 0.0 (0.0) (0.1) 0.0 0.0
----- ----- ----- ----- -----
Operating income...................... 11.6% 10.6% 11.3%(1)(2) 10.2% 11.9%
===== ===== ===== ===== =====
<FN>
- ---------------
(1) Excludes $3.6 million charged to cost of sales as a result of purchase price
allocated to acquired inventory. This amount was recorded in cost of sales
as the acquired inventory was sold during the period ended September 30,
1995.
(2) Excludes $1.1 million charged to selling and administrative expense for the
termination of the Old Cabot Safety Corporation stock option plan and $0.8
million charged to selling and administrative expense attributable to
penalties incurred by the Company's French subsidiary. See "Business--Legal
Proceedings."
</TABLE>
The Company's business is slightly seasonal. Traditionally, net sales
during the first fiscal quarter (October 1 - December 31) are slightly lower
than the other quarters. This is generally attributable to stock reductions by
distributors and plant shutdowns by end-users towards the end of each calendar
year.
OVERVIEW
The consolidated financial statements of the Company for the periods prior
to July 12, 1995 have been prepared on the historical cost basis. The
consolidated balance sheets of the Company at September 30, 1995 and March 31,
1996 reflect allocation of the purchase price to the assets acquired and thus
are not comparable with the historical balance sheets presented for prior
periods. Operating results subsequent to the Formation Acquisition are
comparable to prior periods, with the exception of cost of sales (due to the
$3.6 million charge in the period ended September 30, 1995 related to the
allocation of purchase price to inventory), depreciation expense, and
amortization of intangible assets. The net impact of changes in depreciation and
amortization on operating income for the six months ended March 31, 1996 and the
period ended September 30, 1995 was a reduction of $0.1 million and $0.5
million, respectively.
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
NET SALES. Net sales in the six months ended March 31, 1996 increased
15.4% to $112.7 million from $97.7 million in the six months ended March 31,
1995. The increase in net sales was due to increased sales by both Safety
Products and Specialty Composites. Safety Products' net sales in the six months
ended March 31, 1996 increased 12.9% to $92.5 million from $82.0 million in the
six months ended March 31, 1995. This $10.5 million increase was partially the
result of the acquisition of Eastern which contributed $3.3 million in revenue.
Of the remaining increase, the largest
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<PAGE> 28
contributor was an increase in hearing product sales due to the continued
success of the Company's Express product and better pricing and the next largest
contributor was increased pricing of eye & face and respiratory products. Growth
at Safety Products was also aided by continued growth in sales to the Far East
and Latin America, as well as growth in new areas such as healthcare
distributors. Specialty Composites' net sales in the six months ended March 31,
1996 increased 28.5% to $20.2 million from $15.7 million in the six months ended
March 31, 1995. This increase was primarily the result of a $2.3 million
shipment to a supplier of Sea Wolf submarines, as well as to increased demand
for the Company's products by precision equipment manufacturers and healthcare
product manufacturers.
GROSS PROFITS. Gross profits in the six months ended March 31, 1996
increased 18.5% to $50.4 million from $42.5 million in the six months ended
March 31, 1995. This increase was due to a combination of increased volumes and
higher prices, which more than offset material cost increases that occurred in
earlier periods. Gross profit as a percentage of net sales in the six months
ended March 31, 1996 was 44.7% as compared to 43.5% in the six months ended
March 31, 1995. Such percentage increased as the benefit of higher volumes and
prices more than offset the inclusion of Eastern's sales which are at lower
margins.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
in the six months ended March 31, 1996 increased 18.3% to $33.4 million from
$28.2 million in the six months ended March 31, 1995. This increase was the
result of increases in the company's sales force which primarily occurred
throughout fiscal 1995, higher incentive costs, and increases in administrative
expenses resulting from the Formation Acquisition. Selling and administrative
expenses as a percentage of sales in the six months ended March 31, 1996
increased to 29.6% of sales as compared to 28.9% of sales in the six months
ended March 31, 1995. This was primarily a result of the higher incentive and
administrative costs.
RESEARCH AND TECHNICAL SERVICE EXPENSES. Research and technical service
expenses in the six months ended March 31, 1996 were essentially flat at $1.6
million. While the Company has increased the product development effort towards
new products, this has been partially funded by decreased work on process and
production engineering.
AMORTIZATION EXPENSE. Amortization expense decreased by 30.2% to $2.0
million as the increase in amortization resulting from the allocation of the
purchase price to intangibles was more than offset by the absence of
amortization of a non-compete with the former owner of the AOSafety Division due
to its expiration in May 1995.
OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income in the six months ended March 31, 1996 increased 35.9% to $13.5
million from $9.9 million in the six months ended March 31, 1995.
INTEREST EXPENSE, NET. Interest expense, net, is not comparable with prior
periods as a result of the financing related to the Formation Acquisition.
Interest expense for the successor company for the six months ended March 31,
1996 was $9.1 million, reflecting the increased levels of debt.
NET INCOME. The significant improvement in operating results was more than
offset by higher interest expense resulting in net income for the six months
ended March 31, 1996 decreasing 38.3% to $2.5 million from $4.0 million in the
six months ended March 31, 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. Net sales in the year ended September 30, 1995 increased 13.6%
to $202.6 million from $178.3 million in the year ended September 30, 1994. The
increase in net sales was due to increased sales by both Safety Products and
Specialty Composites. Safety Products' net sales in the year ended September 30,
1995 increased 13.4% to $169.7 million from $149.7 million in the year ended
September 30, 1994. This increase was primarily a result of (i) increased volume
in its eye and face segment due to strong demand for the Company's Nassau Plus
eyewear which was
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<PAGE> 29
introduced in May 1994, (ii) increased volume in the hearing segment largely due
to increased European sales as a result of improving economies and the announced
Common European (CE) market standards and (iii) increased sales of prescription
safety eyewear due to an increase in realized prices from the sale of premium
frames and lenses partially due to the recently initiated Dispensing Manager
program, pursuant to which the Company employs (rather than independently
contracting for) eyecare professionals. Management believes the enhanced sales
and marketing efforts which commenced in the second half of fiscal 1994
contributed to these increases, which were achieved despite the loss of the
Company's only significant private label personal protection customer in March
1994. Specialty Composites' net sales in the year ended September 30, 1995
increased 15.3% to $32.9 million from $28.6 million in the year ended September
30, 1994. This increase was primarily the result of increased demand for the
Company's products by transportation and precision equipment manufacturers.
GROSS PROFIT. Excluding the $3.6 million negative effect of purchase
accounting, gross profit in the year ended September 30, 1995 increased 13.3% to
$89.2 million from $78.8 million in the year ended September 30, 1994. The
increase in cost of sales related to the Formation Acquisition was due to a $3.6
million charge related to allocation of purchase price to finished goods
inventory. This amount was recorded in cost of sales as the acquired inventory
was sold during the period ended September 30, 1995. The increase in gross
profit was primarily the result of increased volumes of both Safety Products and
Specialty Composites' sales. Gross profit as a percentage of net sales in the
year ended September 30, 1995 was 44.0% as compared to 44.2% in the year ended
September 30, 1994. Such percentage was essentially flat because increased
margins at Safety Products were partially offset by higher proportionate sales
growth at Specialty Composites, which has lower gross profit margins than Safety
Products, as well as the loss of the margin contribution from the private label
personal protection customer mentioned above.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
in the year ended September 30, 1995 increased 16.7% to $60.3 million from $51.7
million in the year ended September 30, 1994. This increase was primarily the
result of an approximately 10.0% increase in the Company's sales force, as well
as increased distribution costs resulting from greater shipments and the costs
of occupying a new U.S. distribution center and higher administrative costs
resulting from the Formation Acquisition. In addition, the Company incurred a
$1.1 million charge related to the termination of the Old Cabot Safety
Corporation stock option plan, as well as a $0.8 million charge relating to a
provision for tax penalties by the Company's French subsidiary (see
"Business -- Legal Proceedings"). Excluding these charges, selling and
administrative expenses as a percentage of net sales in the year ended September
30, 1995 would have declined to 28.8% as compared to 29.0% in the year ended
September 30, 1994. This was primarily the result of the increase in net sales
from the Company's enhanced sales and marketing efforts which commenced in
fiscal 1994. These efforts include the Sales Specialist program which targets
end-users of the Company's products, as well as the Dispensing Manager program,
which provides improved service and fulfillment to the Company's prescription
eyewear customers.
RESEARCH AND TECHNICAL SERVICES EXPENSES. Research and technical services
expenses in the year ended September 30, 1995 increased 3.3% to $2.8 million
from $2.7 million in the year ended September 30, 1994. This increase was
primarily the result of increased respiratory product development efforts, as
well as increased training development work with end-users, including the
reinstatement of hearing clinics.
OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income in the year ended September 30, 1995 decreased 7.2% to $17.5
million from $18.8 million in the year ended September 30, 1994. Excluding a
$1.1 million payment related to the termination of the Old Cabot Safety
Corporation stock option plan and a $0.8 million charge relating to a provision
for tax penalties by the Company's French subsidiary (see "Business -- Legal
Proceedings") and a $3.6 million charge related to the allocation of purchase
price to inventory, operating income would have been $23.0 million, a 22.2%
increase.
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<PAGE> 30
INTEREST EXPENSE, NET. Interest expense, net, is not comparable with prior
periods as a result of the financing related to the Formation Acquisition.
Interest expense for the Company after the Formation Acquisition was $4.1
million, reflecting the increased levels of debt.
NET INCOME. Primarily as a result of the factors discussed above, net
income in the year ended September 30, 1995 decreased 47.5% to $4.2 million from
$8.0 million in the year ended September 30, 1994. Excluding a $1.1 million
payment related to the termination of the Old Cabot Safety Corporation stock
option plan and a $0.8 million charge relating to a provision for tax penalties
by the Company's French subsidiary (see "Business -- Legal Proceedings") and a
$3.6 million charge related to the allocation of purchase price to inventory,
net income would have been $7.8 million, a 2.2% decrease.
FISCAL 1994 COMPARED TO FISCAL 1993
NET SALES. Net sales in fiscal 1994 increased 5.1% to $178.3 million from
$169.6 million in fiscal 1993. The increase in net sales was due to increased
sales by both Safety Products and Specialty Composites. Safety Products' net
sales in fiscal 1994 increased 4.0% to $149.7 million from $143.9 million in
fiscal 1993. This increase was primarily the result of increased volume in the
eye and face segment due to strong demand for the Company's Nassau Plus eyewear
following its introduction in May of 1994. This increase was partially offset by
the loss of the Company's only significant private label customer in the
Company's hearing segment in March 1994. Specialty Composites' net sales in
fiscal 1994 increased 11.3% to $28.6 million from $25.7 million in fiscal 1993.
This increase was primarily the result of increased demand from transportation
manufacturers and was partially offset by a decline in demand from a
defense-related manufacturer.
GROSS PROFIT. Gross profit in fiscal 1994 increased 8.0% to $78.8 million
from $73.0 million in fiscal 1993. This increase was primarily the result of
increased gross profit contribution in Safety Products' eye and face segment as
a result of new products and higher sales volumes. Gross profit as a percentage
of net sales in fiscal 1994 increased to 44.2% from 43.0% in fiscal 1993. This
increase was primarily the result of the higher margins in the prescription
eyewear segment in the second half of the fiscal year as a result of the
benefits of the consolidation of the Company's prescription eyewear
manufacturing facilities, which was completed in the first quarter of fiscal
1994 and resulted in additional costs of sales of approximately $1.5 million in
fiscal 1994. The percentage increase was achieved despite the lost margin
contribution from the private label customer mentioned previously.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
in fiscal 1994 increased 13.9% to $51.7 million from $45.3 million in fiscal
1993. This increase was primarily the result of (i) increased expenses
associated with increased volumes, (ii) new sales and marketing initiatives
including the Sales Specialist and Dispensing Manager programs and (iii)
severance and relocation costs related to several changes in senior management
positions of the Company. Selling and administrative expenses as a percentage of
net sales in fiscal 1994 increased to 29.0% from 26.7% in fiscal 1993. This
increase was primarily the result of the increased expenses in connection with
new sales and marketing initiatives described above which did not lead to
increased sales until the latter part of fiscal 1995 and the six months ended
March 31, 1996.
RESEARCH AND TECHNICAL SERVICES EXPENSES. Research and technical services
expenses in fiscal 1994 increased 20.0% to $2.7 million from $2.3 million in
fiscal 1993. This increase was primarily the result of increased product
development and end-user technical services and training programs.
OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income in fiscal 1994 decreased 3.9% to $18.8 million from $19.6
million in fiscal 1993.
INTEREST EXPENSE, NET. Interest expense, net, in fiscal 1994 increased
22.0% to $5.8 million from $4.8 million in fiscal 1993. This increase was
primarily the result of higher borrowings to finance the payment of a $25.0
million dividend to Cabot in December 1993.
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<PAGE> 31
NET INCOME. Primarily as a result of the factors discussed above, net
income in fiscal 1994 decreased 15.2% to $8.0 million from $9.4 million in
fiscal 1993. Net income in fiscal 1993 reflects a $0.3 million addition due to a
cumulative effect of accounting changes.
FISCAL 1993 COMPARED TO FISCAL 1992
NET SALES. Net sales in fiscal 1993 increased 0.8% to $169.6 million from
$168.2 million in fiscal 1992. This increase in net sales was primarily due to
an increase in Specialty Composites' sales, which was largely offset by a
decrease in Safety Products' sales. Safety Products net sales in fiscal 1993
decreased 3.4% to $143.9 million from $149.0 million in fiscal 1992. This
decrease was primarily the result of lower demand and reduced prices of the
Company's eye and face products due to a shift in demand from the Company's
Aerosite style product to higher-priced, higher-featured "blade-shaped" lens
products of a competitor. The decrease was also the result of lower sales of
hearing protection products due to the effect of a promotion in late fiscal
1992, increased price competition and the negative impact of currency rates in
Europe. Specialty Composites' net sales in fiscal 1993 increased 33.9% to $25.7
million from $19.2 million in fiscal 1992. This increase was primarily the
result of increased sales to a defense-related manufacturer, as well as
manufacturers of health-care and footwear products. These sales represented the
initial sales of the Company's thin sheet urethane foams to new health-care and
footwear manufacturing customers.
GROSS PROFIT. Gross profit in fiscal 1993 decreased 8.5% to $73.0 million
from $79.8 million in fiscal 1992. Gross profit as a percentage of net sales in
fiscal 1993 decreased to 43.0% from 47.4% in fiscal 1992. These decreases were
primarily the result of (i) decreased volumes and prices of Safety Products'
non-prescription eyewear due to the loss of sales to a new product of a
competitor as mentioned above, (ii) decreased volumes of hearing protection
products partially due to earlier promotions and (iii) higher material and
conversion costs resulting from safety prescription eyewear lab consolidations
which were in progress at such time. See "-- General."
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
in fiscal 1993 increased 0.9% to $45.3 million from $44.9 million in fiscal
1992. This increase was primarily the result of small increases in marketing
expenditures. As a percentage of net sales, selling and administrative expenses
were essentially flat at 26.7% in fiscal 1993 compared to fiscal 1992.
RESEARCH AND TECHNICAL SERVICES EXPENSES. Research and technical services
expenses in fiscal 1993 increased 10.2% to $2.3 million from $2.1 million in
fiscal 1992. This increase was primarily the result of increased product
development.
OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income in fiscal 1993 decreased 28.2% to $19.6 million from $27.3
million in fiscal 1992.
INTEREST EXPENSE, NET. Interest expense, net, in fiscal 1993 decreased
19.3% to $4.8 million from $5.9 million in fiscal 1992. This decrease was
primarily the result of lower interest rates and lower average debt balances
resulting from the repayment of long term debt.
NET INCOME. Primarily as a result of the factors discussed above, net
income in fiscal 1993 decreased 25.2% to $9.4 million from $12.6 million in
fiscal 1992. Net income in fiscal 1993 reflects a $0.3 million addition due to a
cumulative effect of accounting changes.
EFFECTS OF CHANGES IN EXCHANGE RATES
In general, the Company's results of operations are affected by changes in
exchange rates. Subject to market conditions, the Company prices its products in
Europe and in Canada in local currency. While many of the Company's selling and
distribution costs are also denominated in these currencies, a large portion of
the product costs are U.S. dollar denominated. As a result, a decline in the
value of the U.S. dollar relative to these other currencies can have a favorable
effect on the profitability of the Company and an increase in the value of the
U.S. dollar relative to these other currencies can have a negative effect on the
profitability of the Company. During fiscal 1993 and fiscal 1994 the U.S. dollar
increased in value relative to most of the European currencies, as well as the
Canadian dollar. The Company estimates that this had the effect of decreasing
operating profit
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<PAGE> 32
by $1.9 million in fiscal 1993 and $0.5 million in fiscal 1994. In the year
ended September 30, 1995, the U.S. dollar decreased in value relative to most of
the European currencies, but increased in value relative to the Canadian dollar.
The Company estimated that these changes had the effect of increasing operating
profit by $0.9 million in the year ended September 30, 1995. As a result of the
Peltor Acquisition, the Company's future results of operations will be affected
by changes in exchange rates relative to the Swedish Krona. A decline in the
value of the Krona relative to other currencies could have a positive effect on
the Company's results of operations, and an increase in the value of the Krona
relative to other currencies could have a negative effect on the Company's
result of operations.
EFFECTS OF INFLATION
In recent years, inflation has been modest and has not had a material
impact upon the results of the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of funds have consisted primarily of operating cash
flow and debt financing. The Company's uses of those funds consist principally
of debt service and capital expenditures.
The required amortization payments under the Senior Bank Facilities are:
$2.0 million for the balance of fiscal 1996, $8.2 million in fiscal 1997, $10.6
million in fiscal 1998, $13.0 million in fiscal 1999, $16.0 million in fiscal
2000, $20.7 million in fiscal 2001, $34.4 million in fiscal 2002 and $35.25
million in fiscal 2003. Other than upon a change of control or as a result of
certain asset sales, or in the event that certain excess funds exist at the end
of a fiscal year, the Company will not be required to make any principal
payments in respect of the Subordinated Notes until maturity. The Company will
also be required to make interest payments with respect to both the Senior Bank
Facilities and the Subordinated Notes. The Company typically makes capital
expenditures related primarily to the maintenance and improvement of
manufacturing facilities. The Company spent $13.2 million for the year ended
September 30, 1995 and $4.0 million for the six months ended March 31, 1996, as
compared to $4.5 million for the year ended September 30, 1994 and $5.3 million
for the six months ended March 31, 1995. Included in capital expenditures for
the year ended September 30, 1995 and the six months ended March 31, 1996 are
$3.6 million and $1.2 million, respectively, spent on the casting line under
construction at the Company's Newark, Delaware facility and $4.1 million and
$1.8 million, respectively, spent on management information systems. In fiscal
1992 and 1993, capital expenditures were $5.1 million and $9.0 million,
respectively.
The Company's capital spending is of a relatively short duration, with the
complete commitment process involving less than one year. Exceptions to this
circumstance are the Company's casting line at its Newark, Delaware facility,
with respect to which an additional approximately $0.4 million is scheduled to
be spent during the balance of Company's 1996 fiscal year, and the worldwide
information system with respect to which an additional $0.5 million to $0.75
million is anticipated to be spent during the same period. The Company does not
have any other material commitments for capital expenditures.
The Company's principal sources of cash to fund these capital requirements
are net cash provided by operating activities. The Company's net cash provided
by operating activities for the year ended September 30, 1995 and the six months
ended March 31, 1996 totaled $24.9 million and $1.1 million, respectively, as
compared to $17.9 million and $7.5 million, respectively, for the year ended
September 30, 1994 and for the six months ended March 31, 1995. The increase for
fiscal 1995 was due to a reduction in inventories of $5.1 million (of which $3.6
million was due to the purchase accounting effect), as compared to an increase
in inventories of $3.6 million in 1994. The decrease for the six months ended
March 31, 1996 was primarily due to the semi-annual interest payment on the
Subordinated Notes. In fiscal 1992, 1993 and 1994, the Company's net cash
provided by operating activities totaled $22.6 million, $25.8 million, and $17.9
million, respectively.
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<PAGE> 33
The decrease in net cash provided by operating activities in fiscal 1994 was
primarily caused by a $4.1 million increase in non-cash working capital in
fiscal 1994, as compared to a $1.6 million decrease in non-cash working capital
in fiscal 1993.
Net cash used by investing activities for the six months ended March 31,
1996 was $7.7 million as compared to $5.3 million for the six months ended March
31, 1995 principally due to the completion of the Eastern Acquisition as well as
higher levels of capital spending. For the year ended September 30, 1995, net
cash used by investing activities (excluding the Formation Acquisition) was
$16.2 million as compared to $4.5 million for the year ended September 30, 1994.
This increase was due to significantly higher levels of capital spending
including amounts related to the new casting line at the Newark, Delaware
facility, the installation of a new worldwide information system and an escrow
deposit for the Eastern Acquisition. In fiscal 1992 and 1993, net cash used by
investing activities was $5.0 million and $8.9 million , respectively. Spending
was higher during fiscal 1993 principally due to the consolidation of the
Company's prescription eyewear facilities from four locations into two
locations.
Net cash provided by financing activities for the six months ended March
31, 1996 was $4.4 million as compared to net cash used for financing activities
of $1.6 million for the six months ended March 31, 1995. This change was
primarily due to the requirement for financing the acquisition of Eastern. For
the year ended September 30, 1995 the primary activity was the financing of the
cash portion of the Formation Acquisition. The acquisition was financed by the
issuance of common and preferred stock totalling $32.5 million, the issuance of
subordinated notes totalling $100.0 million, borrowings of $45.0 million in term
loans, as well as borrowings of $3.1 million under the revolving credit
facility. These financings totalled $180.6 million and were used to finance the
cash paid for Cabot Safety Corporation of $169.2 million as well as financing
costs of $11.4 million. Excluding these amounts, net cash used by financing
activities would have been $4.6 million for the year ended September 30, 1995 as
compared to $13.6 million for the year ended September 30, 1994. This decrease
was due to the increase in net cash used by investing activities. In fiscal 1992
and 1993, net cash used by financing activities was $25.2 million and $15.8
million, respectively. The decrease of cash used by financing activities in 1993
was due to higher levels of capital spending.
The Company has a substantial amount of indebtedness. The Company relies on
internally generated funds and, to the extent necessary, on borrowings under the
revolving credit facility available under the Senior Bank Facilities, which
provides for borrowings up to $25.0 million, subject to certain customary
drawing conditions, to meet its liquidity needs. In January 1996, the Company
borrowed $6.8 million under the Senior Bank Facilities to finance in part the
$7.8 million Eastern Acquisition purchase price. In May 1996, the Company
amended the Senior Bank Facilities to provide for an additional $86.0 million of
term loans to finance the Peltor Acquisition. Upon completion of this
acquisition, the entire amount of the $25.0 million revolving credit facility
was unused and remains available for short term liquidity requirements. The
Company anticipates that operating cash flow will be adequate to meet its debt
service and capital expenditure requirements for the next several years,
although there can be no assurances that existing levels of sales and
profitability, and therefore cash flow, will be maintained in the future. While
softness in certain European economies may impede the Company's growth in those
markets, the outlook for most other operations remains positive and liquidity
appears to be adequate over the next several years. Levels of sales and
profitability will be impacted by continued new product development, worldwide
economic conditions, and competitive pressures. In addition, the Company may
make other acquisitions in the future and would rely on internally generated
funds and, to the extent necessary, on borrowings under such revolving credit
facility or from other sources to finance such acquisitions. The Company's
ability to borrow is limited by covenants in the Senior Bank Facilities and the
Subordinated Notes.
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<PAGE> 34
BUSINESS
GENERAL
The Company is one of the leaders in the hearing, eye, face, head and
respiratory protection segments of the PPE market worldwide through its Safety
Products operating unit, which manufactures and sells hearing protection
devices, prescription and non-prescription safety eyewear, face shields,
reusable and disposable respirators, hard hats and first aid kits in more than
85 countries under its well-known brand names: AOSafety, E-A-R, Eastern and
Peltor. Personal protection equipment encompasses all articles of equipment and
clothing worn for the purpose of protecting against bodily injury, including
safety eyewear and goggles, ear muffs and ear plugs, respirators, hard hats,
gloves, safety clothing and safety shoes. With the Peltor Acquisition, the
Company is a global leader in the industrial market for specialty communications
ear muffs. Safety Products accounted for approximately 84% of the Company's net
sales in fiscal 1995. The Company attributes its leading market positions to:
- Strong, well-recognized brand names
- A reputation for providing innovative, quality products
- Intensive coverage of multiple distribution channels targeting a wide
array of end-users
- One of the industry's broadest product offerings
- A commitment to providing the highest level of customer service
Through its Specialty Composites operating unit, the Company manufactures a
wide array of energy-absorbing materials which are incorporated into other
manufacturers' products to control noise, vibration and shock. Specific product
applications for such materials include noise-reducing and vibration-dampening
matting used in the lining of transportation equipment such as heavy truck cabs,
shock protection parts for electronic devices such as computer disk drives, and
durable energy-absorbent and cushioning foams used in footwear. Specialty
Composites also produces specially formulated foam used in the manufacturing of
Safety Products' PVC ear plugs. Specialty Composites accounted for approximately
16% of the Company's net sales in fiscal 1995.
Detailed information with respect to the Company's revenue, operating
profit, and identifiable assets by geographic area and amount of export sales is
presented in Note 16 of Notes to Financial Statements of Aearo Corporation.
OPERATING STRATEGY
The Company's goal is to become the leading safety products company in the
world. The Company's strategy to achieve this goal has three components:
- Increase market share and profitability through innovative new product
development
- Increase unit sales through focused sales and marketing programs to
penetrate existing and newly developing distribution channels
- Grow through strategic acquisitions worldwide
INNOVATIVE NEW PRODUCT DEVELOPMENT. The Company believes that an
innovative and disciplined new product development effort is critical to its
success. The Company's strategy is to increase market share and profitability by
focusing on both high-impact new products and enhancements to existing products
which will enable it to leverage its strong distribution network and well-
recognized brand names. New product research and design, development and
tooling, pricing, training, logistics, marketing and customer service on a
global basis are integrated in a disciplined product management system to
maximize the impact of new product introductions. Increased acceptance of safety
products by users, which increases regulatory compliance and reduces the
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<PAGE> 35
risk of injury, is driven in large part by design improvements, which increase
comfort, performance and styling. The Company's product managers work closely
with research and development personnel to develop comfortable, high performance
and stylish safety products, often incorporating proprietary materials or
designs. The Company has dedicated product managers leading each of the
Company's main product categories. Each product manager is teamed with a
technical director who provides engineering and design support.
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<TABLE>
The following chart describes certain of the products recently introduced
by Safety Products as a result of its research and development efforts.
<S> <C> <C> <C>
MODEL DESCRIPTION FEATURES INTRODUCTION
AOSAFETY
Fectoids High-style Unilens Wrap- - Proprietary optical design with wrap- May 1996
around Eyewear around lens
- Lightweight
- Adjustable temples
- Angle of inclination adjustment
- Dx Anti-fog coating
Scanners Low-cost, Coated Eyewear - DX Anti-fog coating May 1996
See-Pro High-style Unilens Eyewear - Attractive appearance April 1996
- Dx Anti-fog coating
- Wide selection of colors
- Lightweight
Arc Block High-style Eyewear for - Adjustable temples April 1996
Visual Protection Against - Replaceable lens
Electrical Arcs - Wide selection of colors
Comfort Eyes Computer Prescription - Special prescription to ease eye April 1996
Eyewear strain caused by frequent computer
use
- Wide selection of stylish frames
Hard hats Traditional Style, Bump - Six-point rachet April 1996
Caps, and Full-brim - Wide variety of new colors
- Custom imprinting
Nassau Plus High-style Unilens Eyewear - Adjustable temples May 1994
- Interchangable lenses
- Dx Anti-fog coating
- Wide selection of colors
E-A-R
Ultra-Tech Flat Attenuation Molded Ear - Patented design April 1996
Plug - Flat attenuation for enhanced hearing
Super-Soft Polyurethane Ear Plug - Specially formulated soft ear plug March 1996
Express Pod-type Ear Plugs - Patented design May 1994
- Stem design for sanitary insertion
- Corded and uncorded
- Stylish colors
</TABLE>
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FOCUSED SALES AND MARKETING PROGRAMS TO PENETRATE EXISTING AND NEWLY
DEVELOPING CHANNELS. The Company believes that its strength in managing multiple
distribution channels gives it a strategic advantage over more narrowly focused
competitors. The Company intends to continue to maximize penetration of existing
distribution channels and develop new channels. The Company covers its served
markets with eight different "channel-specific" sales forces:
- U.S. Industrial Distribution - Europe
- U.S. Industrial Direct - Canada
- Consumer - Export
- Healthcare - National Accounts
In existing distribution channels, the Company has developed and pursued
several focused marketing programs. In the U.S. Industrial Distribution channel,
the Company introduced its Dialog distributor relations program aimed at
creating a meaningful, mutually profitable relationship between the Company and
a select group of distributors. Also in the U.S. Industrial Distribution
channel, the Company introduced its Sales Specialist program, whereby the
Company now has 16 trained sales representatives calling directly on end-users
on behalf of its Dialog distributors. The Company has targeted the growing
catalog and telemarketing segment of the U.S. distributor market. The Company
has also implemented its Dispensing Manager program in which it uses its own
employee opticians to dispense prescription eyewear instead of depending on
local contract opticians. The Company has also aggressively pursued new, growing
markets such as consumer/DIY, healthcare and international.
STRATEGIC ACQUISITIONS WORLDWIDE. The Company believes that the current
structure of the global PPE market is likely to present numerous strategic
acquisition opportunities. The Company will continue to focus on opportunities
that offer one or more of the following three strategic advantages:
- Extension of existing product categories. This is illustrated by the
Peltor Acquisition, which strengthened the Company's position in the ear
muff hearing protection category
- New product categories. This is illustrated by the Peltor Acquisition
and the Eastern Acquisition, which added specialty communications ear
muffs and first aid kits, respectively, to the Company's product line
- Distribution strength. This is illustrated by the Eastern Acquisition,
which provided the Company a leading position in the growing consumer/DIY
market, and by the Peltor Acquisition, which strengthened the Company's
distribution network in Europe
PERSONAL PROTECTION EQUIPMENT MARKET
A 1996 study prepared by Frost & Sullivan (the "Frost & Sullivan Report")
estimates that the size of the U.S. segment of the PPE market in which the
Company competes (which excludes safety clothing, gloves and shoes) was
approximately $1.0 billion in 1995. Management estimates that annual sales
outside the United States for the segment of the PPE market in which the Company
competes were in excess of $1.0 billion in 1995. Historically, a large number of
relatively small, independent manufacturers with limited product lines served
the PPE market, and the industry remains highly fragmented. Management believes
that manufacturers offering a wide range of products having a high degree of
market acceptance and strong brand names, such as the Company, benefit from
several competitive advantages, including (i) economies of scale in
manufacturing, sales and distribution, (ii) greater appeal to large industrial
distributors and national retailers seeking to rationalize their sources of
supply and (iii) an extensive distribution network for introducing new product
categories and product enhancements.
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<PAGE> 38
Management believes the primary factors driving the growth of the PPE
market are:
- Increased employer safety awareness. Management believes that
employers are increasingly aware of the rising cost of insurance,
costs and liabilities relating to worker injuries and the savings in
insurance costs and workers' compensation payouts that can be
achieved through consistent use of effective PPE
- Continued regulatory enforcement and compliance. Extensive
government regulations are promulgated by agencies such as the
Occupational Health and Safety Administration ("OSHA"), the Mine
Safety and Health Administration ("MSHA") and the National Institute
of Occupational Safety and Health ("NIOSH") mandating the use of PPE
for certain job classifications and work environments. Increases in
regulatory enforcement and compliance programs could result in
significant growth in demand for PPE
- Increased user acceptance. Improvements in comfort, performance and
styling increase acceptance of personal safety products by users.
Management believes that industrial purchasers are inclined to
select functional PPE designed for greater comfort, performance and
styling, because employees and others are more likely to use such
products regularly, thereby increasing regulatory compliance and
reducing the risk of injury. User-friendly and stylish personal
safety products are particularly important in the consumer/DIY and
healthcare markets
- Market expansion opportunities. PPE is increasingly offered outside
the traditional U.S. industrial distributor market. Retail home
centers and mass merchandisers are offering a greater variety of PPE
for the consumer/DIY market. The catalog supply, healthcare and
other new markets continue to show growth potential. As
manufacturing employment and safety awareness grow outside the
United States and Europe, international demand for PPE could
increase
SAFETY PRODUCTS OPERATING UNIT
The Company operates through two separate operating units: Safety Products
and Specialty Composites. Within Safety Products, the Company classifies its
products in five main categories: hearing protection; safety prescription
eyewear; eye, face and head protection; first aid kits; and respiratory
protection.
HEARING PROTECTION. According to the Frost & Sullivan Report, which
predated the Peltor Acquisition, the Company is the largest producer of hearing
protection devices in the United States. Management believes that the Company is
the largest producer of hearing protection devices in the world. The Company's
hearing protection products primarily consist of disposable ear plugs, reusable
ear plugs and ear muffs.
The Company has been a leader in hearing conservation research and
development since 1972, when it first introduced the PVC disposable ear plug.
Today, this product is known as the "Classic" and its color yellow is a
registered trademark of the Company in the United States and Canada. This
product is designed to be "rolled down" or compressed before being inserted into
the ear, and, as a result of its unique time delay characteristics, the plug
slowly expands (or "recovers") to fill the ear canal and provide the desired
protection. The chemistries and processes utilized by the Company in the
manufacture of its PVC foam ear plugs are trade secrets of the Company, and
management believes that the Company is one of only three manufacturers
worldwide that produce PVC foam ear plugs with acceptable recovery
characteristics. The Company's PVC ear plugs are available corded and uncorded
and in a variety of packaging options. The Company also produces private label
versions of the PVC plug for many of the international airlines for inclusion in
their amenity kits. The Company also manufactures a full line of polyurethane
ear plugs, including E-Z-Fit and TaperFit products. These products serve the
same disposable ear plug category, but the PVC ear plugs have historically led
the market.
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<PAGE> 39
In the reusable ear plug segment of the market, the Company offers its
patented UltraFit product line, which the Company believes is the leading
product in this category. Recently, the Company introduced the E-A-R Express, a
patented product, which features a polyurethane pod and a short plastic stem to
facilitate easy, sanitary insertion of the plug in the ear, particularly in
"dirty" environments. The Company also recently introduced the Super-Soft
polyurethane ear plug, which the Company believes is the softest ear plug in the
industry, and the Ultra-Tech ear plug which provides flat attenuation of sound
(noise reduction without distortion) and is an ideal product for users with
pre-existing, noise-induced hearing loss.
The Company sells a full range of ear muffs, and with the Peltor
Acquisition, the Company's line of ear muffs has been greatly expanded and will
also include the new category of communications ear muffs. The Company also
offers auditory systems products, which are sold to audiologists and are used in
the testing of hearing.
<TABLE>
The following chart describes the Company's hearing protection products:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DISPOSABLE
EARPLUGS REUSABLE EARPLUGS POD PLUGS SEMI-AURALS EAR MUFFS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MODELS Classic UltraFit Express Pod EAR Caps Hearing protection:
TaperFit Tracers (metal Plugs Caboflex E-A-R models 820,
E-Z-Fit detectable) 1720, 1000, 3000
Super-Soft Ultra-Tech Peltor Models H9 and
(flat attenuation) H10, E-A-R9000 for
flat attenuation
Communications:
Peltor Models
- ------------------------------------------------------------------------------------------------------------------------
FEATURES Ease of use Patented design Patented For intermittent Ease of use
Ease of Excellent worker design use Ultra 9000 for impact
program acceptance Ease of Easy storage noise and
administration Patented triple insertion around neck communications
Excellent flange Stem design for
worker Fits all ear canal sanitary
acceptance sizes insertion
Low price Very economical
- ------------------------------------------------------------------------------------------------------------------------
MARKETS Industrial Industrial "Dirty" Airlines Industrial
Consumer Consumer industrial Industrial Consumer
Military Military environments Government
Food Military Sports enthusiasts
Food
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SAFETY PRESCRIPTION EYEWEAR. According to the Frost & Sullivan Report, the
Company is the largest supplier of safety prescription eyewear ("SRx") in the
United States. The Company's SRx products are designed to protect the eyes from
the typical hazards encountered in the industrial work environment. The Company
purchases component parts (lenses and the majority of its frames) from various
suppliers, grinds and shapes the lenses to the employee's prescription, and then
assembles the glasses using the employee's choice of frame. The Company recently
introduced a new line of prescription eyewear under the name Comfort Eyes, which
is specially designed for workers who use computer terminals. With Comfort Eyes,
the worker's prescription is altered from the traditional prescription to
enhance focusing on computer screens. This is an ideal product for wearers of
bi-focals, and it significantly increases the potential market for the Company's
prescription eyewear products.
EYE, FACE AND HEAD PROTECTION. According to the Frost & Sullivan Report,
the Company is the second largest producer of non-prescription safety eyewear in
the United States. Non-prescription eye and face protection is used in work
environments where a number of hazards present a danger to eyes, including dust,
flying particles, metal fragments, chemicals, extreme glare and radiation. The
Company offers a large number of task-specific non-prescription safety eyewear
products. The three basic categories of non-prescription eye and face protection
are non-prescription safety (or "plano") eyewear, goggles and faceshields.
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<PAGE> 40
- Plano (non-prescription) Eyewear. Plano eyewear accounts for the
majority of the Company's sales in this category and includes a wide
range of products from disposable visitor safety spectacles to several
lines of fashionable, reusable safety eyewear available in different
colors and with a variety of application specific lenses, frames and
sideshields. The Company's new line of high-style eyewear, Fectoids,
features a proprietary optical design. The Company has found that worker
acceptance, as opposed to cost, is often critical to its ability to
successfully market its plano eyewear. As a result, a number of its plano
product lines incorporate fashionable styling with comfort-enhancing
features in order to increase user acceptance. In addition, the lenses of
the Company's plano eyewear are generally made of impact resistant and
UV-protective clear or tinted polycarbonate. Certain lenses are available
with the Company's DX anti-fog lens coating. Although other competitors
offer anti-fog lens coatings, the Company believes its proprietary DX
coating is superior because of its combination of anti-fog, anti-scratch
and anti-static properties. The Company's safety eyewear frames range
from basic models, to wire-framed models, to the highly-styled "blade"
models with a wrap-around field of view. The Company's highly-styled and
lightweight Nassau Plus model also features adjustable temples to
customize the fit. In addition to Nassau Plus, the Company has several
well-known lines of plano eyewear, including Aerosite, Malibu and
Tourguard III/IV. In 1996, the Company introduced its AOSafety Scanners
coated eyewear, which the Company believes is one of the best price-value
offerings in its product category, and its AOSafety See-Pro high-style
eyewear, an attractive, lightweight, low-cost alternative to current
offerings.
- Goggles. The Company manufactures and sells a broad line of goggles,
which are typically preferred over plano eyewear in work environments
where a higher degree of impact protection is required, where increased
protection against dust, mist or chemical splash is needed and/or for use
in welding operations. To meet these requirements, the Company
manufactures a variety of vented and non-vented goggles with varying
fields of view. The Company has also developed a line of specialty
goggles and spectacles with special lens coatings and pigmentation for
healthcare professionals and industrial technicians who use lasers in a
variety of applications; these goggles will be marketed in the near
future under the brand name LaserMaster.
- Faceshields. Faceshields are designed to protect against heat, splash
and flying particles and are often worn in conjunction with other
protective equipment, such as plano eyewear and respirators. The Company
markets its faceshields under the AOTuffmaster and AO Hazardmaster brand
names.
- Hard Hats. The Company manufactures and sells a broad line of hard hats
and recently introduced a complete new line of hard hats. This new
offering includes "bump" caps, full-brim hats and traditional hard hats,
all with four- or six-point suspension, ratchet adjustment, a wide
selection of colors and custom imprinting.
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<PAGE> 41
<TABLE>
The following chart describes the Company's eye, face and head protection equipment:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
VISITORS 2-LENS SINGLE LENS
SPECTACLES SPECTACLES SPECTACLES GOGGLES FACESHIELDS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MODELS TourGuard III Aerosite Fectoids Centurion AOTuffMaster
TourGuard III Aerolite Nassau Plus Goggle AOTuffMaster (cap
Small Eurolite Malibu 710B Goggle mounted)
TourGuard IV F9800 Confetti 700A + 701A Hazard Master
F9900 See-Pro Goggles Hazard Master (cap
Scanners 488 Welders Goggle mounted)
- ------------------------------------------------------------------------------------------------------------------------
FEATURES Meet ANSI Z87.1 Classic Sports styling Full range of Wide variety of
requirements "Aviator" Very light goggles for all headgear
2 sizes styling weight applications Wide variety of
Excellent optics Excellent Proprietary "DX" Optional antifog windows,
Excellent low worker antifog coating including
priced value acceptance coating Dust or polycarbonate,
Patented hinge Fectoids optics chemical versions aluminized, etc.
system
Durable
Economical
- ------------------------------------------------------------------------------------------------------------------------
APPLICATIONS Impact Protection Impact Impact Impact or Chemical Impact or Chemical
Protection Protection Protection Protection
- ------------------------------------------------------------------------------------------------------------------------
MARKETS Industrial Industrial Industrial Industrial Industrial
Consumer Consumer Consumer Consumer Consumer
Military Military Military Military Military
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
FIRST AID KITS. The Eastern Acquisition added first aid kits as a new
product category for the Company. First aid kits are for general use or for
industrial or commercial uses. Currently, most of the Company's sales are to the
consumer/DIY market with limited distribution in the industrial market. The
Company plans to broaden the range of products in this category and aggressively
pursue the larger industrial market with kits designed for specific work
environments.
RESPIRATORY PROTECTION. Respiratory protection products are used to
protect against the harmful effects of atmospheric contamination and pollution
caused by dust, gases, fumes, sprays and other contaminants. The market for
respiratory protection products is segmented into two types: supplied air and
air-purifying. Supplied air respirators are further segmented into two types:
self-contained breathing apparatuses ("SCBA") and respirators supplied from a
remote source of air through a hose ("air line"). The Company competes in the
air-purifying and air line supplied segments of the respiratory protection
market. The Company manufactures and sells a broad line of respiratory
protection products consisting of disposable dust and mist masks,
cartridge-equipped quarter-, half- and full-face respirators, powered
air-purifying respirators (whereby a battery pumps air through cartridges), and
"escape" respirators (a single-use respirator for emergencies). Although the
Company does not currently hold a significant position in the respirator market,
the Company believes that significant opportunities for growth exist, including
further penetration of the growing consumer/DIY market and leveraging its
leadership positions in the hearing and eye protection product categories to
realize growth in the industrial market.
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<PAGE> 42
<TABLE>
The following chart describes the Company's respiratory protection product line:
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
DISPOSABLE HALF MASK FULL FACEPIECE ESCAPE AIR LINE
RESPIRATORS RESPIRATORS RESPIRATORS RESPIRATORS RESPIRATORS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MODELS R1010 AO 5-Star AO 7-Star Escape Artist AO 7-Star
R1050 FlexiStar AO Omnistar X-IT AO Omnistar
R1085
- --------------------------------------------------------------------------------------------------------------------------
FEATURES Disposable Replaceable Replaceable Low-profile Rubber or
Very lightweight cartridges cartridges Lightweight silicone
Very economical 3 sizes of Rubber or silicone Easy-to-use Facepieces
facepieces Facepieces Low-cost Available with
Rubber or silicone Broadest selection escape bottle
facepieces of cartridges
Broadest selection
of cartridges
- --------------------------------------------------------------------------------------------------------------------------
APPLICATIONS Dusty and misty Dusty and misty Dusty and misty Emergency Dusty and misty
environments environments environments protection environments
Gases and vapors Gases and vapors against Gases and
environments environments acid gas, vapors
Welding Welding dust and environments
mist, or Welding
ammonia,
methylamine
dust or mist
- --------------------------------------------------------------------------------------------------------------------------
MARKETS Industrial Industrial Industrial Industrial Industrial
Consumer Consumer Consumer Military Consumer
Military Military Military Military
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SPECIALTY COMPOSITES OPERATING UNIT
The Company's Specialty Composites operating unit manufactures a wide array
of impact-resistant, shock-absorbing and energy-absorbing materials for a
variety of noise, vibration and shock control applications using a wide range of
technologies, manufacturing processes and applications know-how. Specialty
Composites also produces the specially formulated foam used in the manufacture
of Safety Products' PVC ear plugs. The principal strengths of Specialty
Composites are its specialized polyurethane chemistry, its thin-sheet casting
capability, its composite technologies and its applications engineering. These
strengths allow the Company to manufacture in a single process, high value-added
materials and components with multiple chemistries and substrates using casting,
extrusion and molding processes.
In January 1995, the Company began construction of a new proprietary,
thin-sheet foam casting line, which will permit the casting of both sheet and
composite materials, including facings and substrates, in a single pass through
the line. The decision to invest in the new casting line is part of the
Company's plan to make Specialty Composites the low-cost manufacturer of
thin-sheet foams incorporating specialty chemistries and unique combinations of
materials. Management believes that the new casting line will provide Specialty
Composites with the technology and capability to manufacture efficiently a wide
variety of products designed for high value added applications, such as damping
and barrier composites for the transportation industry and thin-sheet castings
for the footwear market.
Specialty Composites' products fall into three broad categories: barriers
and absorbers for noise control; damping and isolation products for vibration
and shock control; and energy control products for shock and comfort management.
The Company's products include: Isoloss LS polyurethane high density cellular
foams, which are manufactured by three production lines in a variety of
thicknesses, widths, colors and densities for mechanical vibration reduction,
noise and shock control and high resilience cushioning and sealing applications;
the Confor heavily damped viscoelastic foam for ergonomic cushioning
applications; the Tufcote polyurethane and PVC thin sheet foams for acoustical,
absorption and noise control applications; and the Isodamp PVC foams for
mechanical vibration reduction and noise and shock control.
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<PAGE> 43
<TABLE>
The following chart describes the principal Specialty Composites products:
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRODUCT GROUP BRAND PRODUCT FUNCTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Barriers and Absorbers Tufcote Acoustical absorption and Transportation (e.g., heavy
noise control truck, automotive, marine,
aircraft); Original
equipment manufacturers
- ---------------------------------------------------------------------------------------------------------------------
Damping and Isolation Isodamp and Isoloss Mechanical vibration Original equipment
LS reduction; noise and manufacturers;
shock control Transportation
- ---------------------------------------------------------------------------------------------------------------------
Energy Control Confor and Isoloss LS Ergonomic cushioning and Healthcare; Transportation
sealing
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Specialty Composite's products are sold into four market segments:
transportation; health-related; footwear; and other original equipment
manufacturers ("OEM") in industries such as electronics and communications.
TRANSPORTATION SEGMENT. Specialty Composites' products are incorporated
into heavy trucks, automobiles, yachts, aircraft, buses, leisure vehicles and
defense, farm and construction equipment in order to control noise, vibration
and shock. For example, the Company supplies durable acoustical foams and
barriers that control sound and help meet noise standards for Class VI-VII heavy
trucks. The Company also provides complete noise and vibration control packages
for high-end yachts in order to contain engine room noise and to soundproof
passenger quarters. Specialty Composites applications also exist with respect to
executive and commuter aircraft, where relatively thin, lightweight,
multi-function composites efficiently control sound and vibration.
HEALTH-RELATED SEGMENT. Applications for the energy-absorbing
characteristics of Specialty Composites' products, particularly its line of
temperature-reactive foams, have been growing in the health-related segment.
Such materials enhance physical protection and improve comfort in many devices
including leg braces, orthotic devices, surgical pillows, wheelchair cushions,
bicycle helmets, keyboard wrist supports and occupational seating.
FOOTWEAR SEGMENT. Specialty Composites supplies a durable and highly
shock-absorbent polyurethane foam, which is incorporated into insoles for
high-wear cushioning applications, such as athletic shoes, dress shoes, military
boots and work boots. Specialty Composites also offers an energy-absorbent
material to help protect against skeletal shock in military boots, work boots
and orthotic insoles.
OEM SEGMENT. The Company produces an extensive assortment of polyurethane
and PVC die-cut and molded parts for vibration isolation and damping and for
shock protection and noise control in a wide range of other products, including
precision equipment and industrial machinery, computer disk drives, pagers,
industrial compressors and generator sets.
SALES AND MARKETING
The Company divides it sales force into two principal categories: Safety
Products and Specialty Composites.
SAFETY PRODUCTS OPERATING UNIT. Within Safety Products, sales are divided
into eight channels: U.S. Industrial Distribution; U.S. Industrial Direct;
Consumer/DIY; Healthcare; Europe; Canada; Export; and National Accounts. Each of
these channels has its own sales force and its own distinct sales strategies. In
addition, through the recent Peltor Acquisition, the Company has significantly
expanded its sales coverage, including a dedicated effort to serve the specialty
communications ear muff market. See "Acquisition of Peltor."
U.S. Industrial Distribution. This is the largest sales channel for safety
products and includes approximately 150 Dialog industrial distributors and
approximately 120 industrial dealers. Participation in the Dialog program
requires minimum purchase levels and support across the full product
40
<PAGE> 44
line, in return for rebates based on growth and volume and preferred treatment
regarding shipping terms, new products, field sales support, and cooperative
advertising. The Company also offers Dialog distributors financial incentives
for establishing electronic order entry/invoicing with the Company, for
developing a Company-specific training program for distributor sales personnel,
for full-product line support and for engaging in annual business planning with
the Company. The Dialog program has been very successful in establishing
meaningful and mutually profitable relationships with a select group of
distributors. Traditionally, the Company's distributors have been specialized
industrial safety distributors, but increasingly, larger full-supply industrial
distributors have begun distributing safety products. The Company's breadth of
offerings is particularly appealing to these larger distributors.
The Company also has sales specialists calling directly on end users on
behalf of its key Dialog distributors. In addition to enhancing relationships
with distributors, this approach allows the Company to gain additional market
insight while building brand name awareness.
U.S. Industrial Direct. Approximately 90% of the Company's safety
prescription eyewear is sold directly to more than 40,000 industrial companies,
including a majority of the industrial companies in the Fortune 500. The
remainder of the Company's SRx products are sold through the industrial
distribution channel. In most states, current laws require that prescription
eyewear be dispensed to the user by a licensed optical professional,
traditionally a local optician. As an alternative to this approach, in 1994 the
Company introduced its Dispensing Manager program, whereby the Company employs
its own opticians to dispense prescription safety eyewear. The Company pays
these Dispensing Managers a commission for sales of more profitable options. In
accounts where the Company uses Dispensing Managers, sales of these more
profitable items have increased substantially. Management believes that none of
its competitors offers a comparable program.
Consumer/DIY. Management believes that the Company is the leading supplier
of safety products to the consumer/DIY market and is the primary supplier to
such leading retailers as ACE, Home Depot, Lowe's, Sears and TrueValue. The
Company offers both its AOSafety brand of industrial grade products in consumer
packaging and its Eastern brand of consumer grade product in consumer packaging.
The Company serves the broad range of market needs with these two brands, from
the industrial user and professional tradesman to the casual do-it-yourselfer.
Healthcare. The Company has dedicated an experienced national sales
manager and an exclusive arrangement with an independent representative group to
pursue the rapidly growing use of PPE in the healthcare sector and has developed
a specialized line of healthcare products with the goal of building a national
distribution network. Use of the Company's products can assist in compliance by
healthcare professionals with recently introduced OSHA regulations designed to
reduce the risk of diseases associated with blood-borne pathogens and dealing
with splash control.
Europe. The Company has a significant presence in Europe with sales
offices in the U.K., Germany, France, Denmark, Italy and Spain. While the
Company's historical strength in this market has been in hearing protection
devices sold through industrial distributors, the Company has recently been
successful in pursuing sales of safety eyewear and has dedicated a full-time
eyewear product sales manager to lead and train the existing sales organization.
The Company has also dedicated a full-time consumer sales manager to replicate
in Europe the Company's strategy in the U.S. consumer/DIY market. The Company
has launched a European Dialog program and has begun a European Sales Specialist
program.
Canada. In Canada, the Company has a strong position in both stock safety
products and prescription safety eyewear. Just as in the United States,
prescription safety eyewear is sold primarily on a direct basis to industrial
firms, while stock safety products are sold through distributors.
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<PAGE> 45
Export. The Company exports its products around the world, and this
channel is managed through a sales representative located in each of Singapore
(covering Southeast Asia), Miami (covering Latin America), and Sydney (covering
Australia and New Zealand). The Company has aggressively pursued this market by
increasing sales coverage and recruiting new management.
National Accounts. The Company has two dedicated national accounts sales
managers calling on the U.S. Government and major PPE users such as Ford Motor
Company and General Motors.
SPECIALTY COMPOSITES OPERATING UNIT. The Company relies upon independent
manufacturer representatives and the Company's customer representatives to
identify OEM applications for Specialty Composites' products and technologies.
Once such applications have been identified, the Company's sales and technical
staff work closely with OEMs to provide the customer with a low-cost, integrated
solution for its noise, vibration, shock, cushioning and/or comfort management
problems. A recent example of the Company's ability to provide a low-cost,
integrated solution to an OEM is its successful effort to provide Freightliner
with an interior noise control package for Freightliner's new entry into the
Class VI-VII heavy truck market.
RESEARCH AND DEVELOPMENT.
SAFETY PRODUCTS OPERATING UNIT. The Company believes that its research and
development facilities, personnel and programs are among the best in the PPE
industry. Since its inception in 1972, the former E-A-R Division has been a
leader in the development of technology for understanding and measuring noise
and hearing loss and in developing products to protect against such loss. In
order to test the efficacy of its hearing protection products, the Company owns
and operates the only privately-owned National Voluntary Laboratory
Accreditation Program ("NVLAP") laboratory in the United States accredited for
testing the efficacy of hearing protection products. The Company also operates
sound chambers and testing facilities which measure the performance of its
materials and designs. Similarly, the Company believes that it has been a
pioneer and leader in the development and testing of safety eyewear and
maintains extensive facilities for the design and testing of safety eyewear. The
research and development personnel of the Company include recognized experts in
the safety products industry. The Company's product managers work closely with
research and development personnel to develop high performance safety products,
which often incorporate proprietary materials or designs.
SPECIALTY COMPOSITES OPERATING UNIT. The research and development efforts
of Specialty Composites focus on developing proprietary materials and enhancing
existing products in order to meet customer needs identified by the Company's
sales and technical staff. Products such as the Isoloss LS polyurethane high
density cellular foams and the Confor heavily damped viscoelastic foam are being
introduced in a growing number of applications across all markets served by
Specialty Composites. Innovative applications of Specialty Composites' products
include portable electronic communications devices, damping tiles used in
submarine ballast tanks and a PVC composite utilized as matting in heavy truck
cabs because of the composite's noise-reduction and vibration-dampening
properties.
The Company does not engage in any customer sponsored research and
development projects.
RAW MATERIALS
The Company consumes a wide variety of raw materials, supplies and
components, including, among others, paper products, chemicals, eyewear frames
and optical lenses. The paper products category includes corrugated paper,
folding cartons and packaging materials. The chemicals category includes plastic
resins such as polycarbonate and propionate, as well as polyols, plasticizers,
substrates, isocyanates and adhesives. The eyewear frames category includes
frames for both plano and SRx products.
The Company has a diversified base of raw material suppliers. The Company
does, however, use single sources for the supply of several raw materials,
including General Electric Plastics, a
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<PAGE> 46
division of General Electric Company, for polycarbonate resin, the primary raw
material used in the production of the Company's non-prescription optical
lenses. The Company has not experienced any significant delays or shortages in
obtaining raw materials in recent years and believes that alternative supplies
of raw materials can be located on commercially reasonable terms.
MANUFACTURING AND DISTRIBUTION OPERATIONS
The Company maintains a high degree of vertical integration, allowing it to
manufacture over 90% of the products that it sells. The Company's strengths
include the manufacture of foams (casting, molding and fabricating) for
Specialty Composite products (including the foam used in the manufacture of PVC
ear plugs); high speed assembly and packaging of ear plugs; plastic injection
molding, coating and assembly of non-prescription eyewear; and assembly,
grinding, polishing and coating of prescription eyewear. Consistent across all
of the Company's manufacturing operations is an emphasis on producing high
quality products. Currently, eight of the Company's manufacturing facilities
have been awarded ISO 9002 or ISO 9001 certification, indicating that the
Company has achieved and sustained a high degree of quality and consistency with
respect to its products. The Company believes that ISO certification is an
increasingly important selling feature both domestically and internationally,
and certain customers require ISO certification from all their vendors. The
Company expects to work closely with the Peltor management to achieve ISO
certification for Peltor's manufacturing facilities.
The Company is committed to enhancing its margins and minimizing
administrative expenses with no adverse effect on quality and service levels. In
the production process, the Company focuses on containing raw material price
increases; making investments in automation and other equipment to reduce
manufacturing costs, lower scrap levels, and increase efficiencies; and reducing
inventory costs. Recent examples are the move to in-house tipping of cords used
on corded ear plugs, which required an investment of less than $100,000, but is
anticipated to yield future annualized cost savings in excess of $600,000, and
the integration of the business of Eastern with that of the Company, which the
Company expects will eventually generate savings of approximately $1 million per
year. Information technology and re-engineering concepts are also being utilized
to reduce selling and administrative costs. The Company is in the final stages
of converting its worldwide information system to the SAP R/3 software, designed
to provide a totally integrated business system. The Company anticipates that
this development will automate numerous time-consuming procedures and provide a
valuable analysis tool to the Company's employees and management.
The Company's products are generally shipped within several days from the
receipt of a purchase order. As a result, backlog is not material to the
Company's business.
SAFETY PRODUCTS OPERATING UNIT. The Indianapolis, Indiana plant is the
largest ear plug manufacturing facility in the world. It fabricates, molds and
packages hundreds of millions of pairs of ear plugs annually, utilizing
automated, high speed assembly and packaging equipment. Because the economies of
scale present in this operation are unique in the hearing protection products
industry, management believes that they offer the Company a competitive
advantage of lower costs within the production process. The plant's high-speed
robotic fabrication, assembly and packaging of ear plugs facilitate cost-saving,
high-volume production and improve cycle time and inventory management.
In 1993, the Company consolidated manufacturing operations from three
separate manufacturing facilities into one at its Southbridge, Massachusetts
facility. The Company also invested over $2 million in industrial robotics and
cellular manufacturing at its Southbridge facility so that plano eyewear
products previously outsourced from southeast Asia could be produced at a lower
cost and with higher quality in the Company's Southbridge plant. In addition,
the Company is now able to differentiate itself from many of its competitors by
advertising and promoting these products as "Made in the USA."
43
<PAGE> 47
The Company fills virtually all of its domestic and certain of its
international orders, other than SRx, through its state-of-the-art distribution
center located in Indianapolis, Indiana. Opened in January 1995, this new
automated distribution center has efficient bar-coding and scanning capabilities
to assure rapid turn-around time and service levels for customer orders. The
recent creation of the Company's centralized packaging operation in Indianapolis
has allowed the Company to shift substantially all assembly and packaging
operations from Eastern's former plant in Maspeth, New York, which was closed,
and to generate significant savings, as well as inventory reductions.
Over the past three years the Company completed a major program to
consolidate and retool its SRx laboratory operations. The SRx production
operations of six different manufacturing facilities were consolidated into two
U.S. facilities that possess new lens surfacing, edging and grinding machinery
capable of handling glass, plastic and polycarbonate lenses. These two
facilities currently manufacture and distribute over 500,000 pairs of safety
prescription glasses annually.
The Company's international manufacturing operations are located in
Poynton, England, Mississauga, Ontario, Varnamo, Sweden and Montreal, Quebec.
The Poynton facility serves customers in Western Europe, producing and packaging
ear plugs and other hearing and eyewear products. In addition, Poynton has an
SRx laboratory that primarily serves the U.K. market. The Mississauga plant
fabricates prescription eyewear and, together with a small prescription eyewear
laboratory in Montreal, produces SRx products for the Canadian market. The
Varnamo, Sweden plant is the principal Peltor manufacturing location; finished
goods and components are shipped to customers and other Peltor subsidiaries from
this location.
SPECIALTY COMPOSITES OPERATING UNIT. Specialty Composites' products are
manufactured in Indianapolis, Indiana and Newark, Delaware. The Indianapolis
plant, which supplies specially formulated foam for the Company's PVC ear plugs,
manufactures and fabricates sheet and roll PVC and polyurethane materials and
molds polyurethane foams and solids. This facility also houses applications
engineering, research and development, quality assurance and customer service
support. The Newark, Delaware facility manufacturers polyurethane foams and
films and houses the Company's new proprietary, thinsheet foam casting line,
which will permit the casting of both sheet and composite materials, including
facings and substrates, in a single pass through the line. Management believes
that the new casting line will provide Specialty Composites with the technology
and capability to manufacture efficiently a wide variety of products designed
for high value added applications, such as damping and barrier composites. The
new casting line, which is estimated to cost approximately $5.0 million ($4.8
million of which had been spent as of March 31, 1996), is expected to be fully
operational before the end of September 1996. The decision to invest in the new
casting line is part of the Company's plan to make Specialty Composites the low
cost manufacturer of specialty materials.
COMPETITION
The PPE market is fragmented and highly competitive. The Company estimates
that there are 500 manufacturers of PPE (other than safety clothing, gloves and
shoes) in the United States, Europe and Southeast Asia. Participants in the
industry range in size from small, independent, single-product companies with
annual sales of less than $15 million, to a small number of multinational
corporations with annual sales in excess of $100 million. The Company believes
that participants in the PPE market compete primarily on the basis of product
characteristics (such as design, style and functional performance), product
quality, service and brand name recognition and, to a lesser extent, price. From
a positive competitive standpoint, the Company believes it is well situated,
primarily because of its large size and its broad product offerings, to compete
in a fragmented industry. The Company enjoys certain economies of scale which
are not available to smaller competitors. Many of the Company's customers,
particularly in the growing consumer/DIY channel, prefer the type of "one stop
shopping" that the Company can provide. The Company's advanced distribution
center further facilitates timely and accurate deliveries. The specialty com-
44
<PAGE> 48
posites industry is highly competitive, and participants compete on the basis of
being able to provide cost-effective solutions to the noise, shock and vibration
problems of OEMs.
EMPLOYEES
As of May 1, 1996, the Company had 1,383 employees, of whom 849 were
primarily engaged in manufacturing, 346 in sales, marketing and distribution, 31
in research and development and 157 in general and administrative. The Company
believes its employee relations are good. The Company has one facility that
employs union members. This facility, located in Plymouth, Indiana, employs 35
members of the International Union of Electronic, Electrical, Salaried, Maritime
and Furniture Workers (out of a total of 90 employees), and the Company's
relations with these union members are fully satisfactory. The union contract
expires on June 30, 1998.
PATENTS AND TRADEMARKS
The Company owns and has obtained licenses to various domestic and foreign
patents, patent applications and trademarks related to its products, processes
and business. The Company values particularly highly its trademark for the color
yellow for ear plugs in the United States and Canada and places significant
value on its overall patent portfolio. However, no single patent or patent
application is material to the Company. The Company's patents expire at various
times over the next 17 to 20 years.
GOVERNMENT REGULATION
As a manufacturer of safety products, the Company is subject to regulation
by numerous governmental bodies. Principal among the federal regulatory agencies
in the United States are: OSHA, which regulates the usage of all PPE, with the
exception of respirators; the Environmental Protection Agency, which regulates
hearing protection devices; MSHA and NIOSH, both of which certify respirators;
and the Food and Drug Administration, which regulates eye, face and respiratory
protection products for the healthcare industry. These agencies generally
mandate that the Company's products meet standards established by private
groups, such as American National Standards Institute. The Company's products
are also subject to foreign laws and regulations. In particular, they must
comply with the Canadian Standards Association, European Committee for
Normalization and Standards Australia. The Company believes it is in compliance
in all material respects with the regulations and standards of these
governmental bodies, and any failures to comply with such regulations and
standards in the past have not had a material adverse effect on its business.
ENVIRONMENTAL MATTERS
The Company is subject to various evolving federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous substances and wastes. The Company believes
that it is in substantial compliance with all such laws and regulations.
45
<PAGE> 49
PROPERTIES
<TABLE>
The Company owns and/or leases facilities in the United States, Canada,
Europe, Australia and Singapore. See also "Acquisition of Peltor." The following
table sets forth the location of each, its square footage and the principal
function of each.
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET FUNCTION
- --------------------------------------- ----------- ---------------------------------------
<S> <C> <C>
CORPORATE OFFICES
Boston, Massachusetts................ 8,031 Corporate Headquarters
U.S. SAFETY PRODUCTS
Southbridge, Massachusetts........... 295,000 Manufacturing/Administration
Indianapolis, Indiana(1)............. 220,564 Distribution/Customer Service
Indianapolis, Indiana................ 81,540 Packaging/Manufacturing
Boca Raton, Florida.................. (*) Telemarketing
Chickasha, Oklahoma.................. 15,000 Manufacturing/Customer Service
Plymouth, Indiana.................... 10,224 Manufacturing/Customer Service
Fresno, California................... 2,400 Customer Service
INTERNATIONAL SAFETY PRODUCTS
Poynton, England..................... 56,530 Manufacturing/Distribution/
Customer Service
Mississauga, Ontario, Canada......... 28,850 Manufacturing/Customer Service
Hanau, Germany....................... (*) Sales Office/Customer Service
Paris, France........................ 1,894 Sales Office
Montreal, Quebec, Canada............. 1,800 Manufacturing
Barcelona, Spain..................... (*) Sales Office
Milan, Italy......................... (*) Sales Office
Copenhagen, Denmark.................. (*) Sales Office
Sydney, Australia.................... (*) Sales Office
Singapore............................ (*) Sales Office
SPECIALTY COMPOSITES
Indianapolis, Indiana................ 156,000 Manufacturing/Distribution
Newark, Delaware..................... 82,300 Manufacturing/Distribution
<FN>
- ---------------
(1) This facility also serves as an international distribution center and
central packaging operation with respect to certain of the Company's
products.
(*) Less than 1,000 square feet.
</TABLE>
The Company believes that its facilities are suitable for its operations
and provide sufficient capacity to meet the Company's requirements for the
foreseeable future. All of the Company's facilities are leased except for the
following facilities owned by the Company: (i) the Safety Products'
manufacturing facility in Indianapolis, (ii) the Specialty Composites'
manufacturing/distribution facility in Indianapolis and (iii) the Specialty
Composites' manufacturing facility in Newark. The Company believes that it will
be able to renew each of its leases upon their respective expiration dates on
commercially reasonable terms. In addition, the Company believes that it would
be able to lease suitable additional or replacement space on commercially
reasonable terms.
LEGAL PROCEEDINGS
Various lawsuits and claims arise against the Company in the ordinary
course of its business. Most of these lawsuits and claims relate to the
Company's safety eyewear and respiratory product lines and primarily involve
accidents and/or exposures occurring after Old Cabot Safety Corpora-
46
<PAGE> 50
tion's acquisition of the AOSafety Division in April 1990. The Company is
contingently liable with respect to numerous lawsuits involving respirators
manufactured by American Optical Corporation prior to the acquisition of the
AOSafety Division in April 1990. These lawsuits typically involve plaintiffs
alleging that they suffer from asbestosis or silicosis, and that such condition
results in part from respirators which were negligently designed or
manufactured. The defendants in these lawsuits are often numerous, and include,
in addition to respirator manufacturers, employers of the plaintiffs and
manufacturers of sand (used in sand blasting) and asbestos. Responsibility for
legal costs, as well as for settlements and judgments, is shared contractually
by the Company, American Optical Corporation and a prior owner of American
Optical Corporation. The Company and Cabot have entered into an arrangement
relating to certain respirator claims asserted after the Formation Acquisition
whereby, so long as the Company pays to Old Cabot Safety Corporation an annual
fee of $400,000, which the Company has elected to make, Old Cabot Safety
Corporation will retain responsibility and liability for, and indemnify the
Company against, certain legal claims alleged to arise out of the use of
respirators manufactured prior to July 1995. The Company has the right to
discontinue the payment of such annual fee at any time, in which case the
Company will assume responsibility for and indemnify Cabot and Old Cabot Safety
Corporation with respect to such claims. See "Certain Relationships and Related
Transactions--The Formation Acquisition."
In 1995 the Company became aware that its French subsidiary had for a
period of at least one year been delinquent in the remittance of value added tax
payments to the French government. The Company believes that any required tax
payments and attendant penalties will not have a material adverse effect on the
Company's financial condition or results of operations. The Company is
indemnified by Cabot in respect of any such payments and penalties.
47
<PAGE> 51
ACQUISITION OF PELTOR
On May 30, 1996, the Company acquired Peltor for approximately $86.0
million, subject to possible decrease based on changes in Peltor's net worth and
working capital after December 31, 1995. The Company financed the Peltor
Acquisition using additional borrowings under the Senior Bank Facilities.
Peltor was founded in the early 1950s and is the world's leading
manufacturer of ear muff hearing protection devices, including specialty muffs
capable of two-way radio frequency communications. Peltor markets its products
worldwide through safety and industrial distributors to industry, government,
military and recreational markets. Its sales for the year ended December 31,
1995 were approximately $39 million. Peltor is based in Varnamo, Sweden, has
manufacturing facilities in Sweden, Rhode Island and Germany and has sales
offices in Scandinavia, Germany, France, England, and the United States. Mr.
Leif Palmaer, the President of Peltor, and Mr. Leif Anderzon, the Executive Vice
President of Peltor, who have been the principal operating officers of Peltor
since 1981, will continue in the same capacities.
Peltor manufactures, assembles and sells a broad line of ear muffs, hard
caps/visors, noise attenuation headsets and wireless and hardwire communication
headsets. Peltor's products serve a variety of end user markets where protection
from harmful high and low frequency noise is sought or the need for easy
communication in noisy or remote environment exists, such as in the
construction, heavy machinery, airport, forestry, textile and mining industries.
Peltor has recently focused on the high-end communications market, which has
recently grown faster than the market for traditional ear muffs. Peltor's
leadership position in innovation and product quality was attested by the
selection of its ear muff products as the basis for the new, pan-European
standards for ear muff hearing protection.
The acquisition of Peltor significantly broadens the Company's line of ear
muff style hearing protection devices and adds specialty ear muffs capable of
two-way radio frequency communications to the Company's product offerings.
Management believes that the Peltor Acquisition further establishes the Company
as the worldwide leader in all types of hearing protection and will allow the
Company to establish itself as a global leader in the specialty communications
ear muff market. As the ear muffs market is driven by availability of products
with different applications, weight and configuration, product breadth has
significant advantages, particularly in the high end of the market. The Company
expects that Peltor's products can be easily integrated into the Company's U.S.
marketing, sales and distribution network and that Peltor's European marketing,
sales and distribution network can provide a vehicle for increased sales of the
Company's other product lines. In addition, management believes that the
potential exists for further rationalization of the Company's costs in Europe
through consolidation of duplicative sales offices.
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<PAGE> 52
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of May 29, 1996.
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John D. Curtin, Jr....................... 63 Chairman of the Board of Directors and Chief
Executive Officer
Albert F. Young, Jr...................... 50 President, Chief Operating Officer and Director
Bryan J. Carey........................... 36 Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
James D. Hall............................ 45 Vice President, Product Management
W. Larry Lewis........................... 58 Vice President, Operations
M. Rand Mallitz.......................... 54 Vice President and General Manager, E-A-R
Specialty Composites
Ian Mitchell............................. 52 Vice President, Logistics
Daniel P. O'Connor....................... 51 Vice President, Sales
Mark V.B. Tremallo....................... 39 Vice President, General Counsel and Secretary
Norman W. Alpert*........................ 37 Director
Daniel S. O'Connell...................... 42 Director
Arthur J. Nagle.......................... 57 Director
John W. Priesing......................... 67 Director
Samuel L. Hayes, III..................... 61 Director
Kenyon C. Gilson......................... 52 Director
Margaret J. Hanratty*.................... 48 Director
<FN>
- ---------------
* Member of Audit Committee
</TABLE>
John D. Curtin, Jr. joined Cabot in 1989 as Chief Financial Officer. Mr.
Curtin was named Chief Executive Officer of the Company in April 1994, and
became a director of the Company in July 1995. Prior to joining Cabot he was
President, Chief Executive Officer and Director of Curtin & Co., Inc., a private
investment banking firm. Mr. Curtin is also a director of Augat Inc. and
Imperial Holly Corporation.
Albert F. Young, Jr. joined the Company in July 1994 as President, and
became a director of the Company in July 1995. Prior to joining the Company, he
spent sixteen years with Cooper Industries, Inc., most recently as Vice
President and General Manager of the Cooper Hand Tools Division.
Bryan J. Carey joined the Company as Chief Financial Officer in April 1994
from Cabot where he had been Director of Strategic Planning since August 1992.
Prior to joining Cabot, he was a principal with Chase Capital Partners and its
predecessor.
James D. Hall joined the Company in October 1994 and served as a consultant
to the Company from July 1994 to October 1994. Mr. Hall was previously Executive
Vice President of Uvex Safety L.L.C. from 1993 to July 1994 and Vice
President-Safety of Uvex Winter Optical, Inc. from 1990 to 1993.
W. Larry Lewis joined the Company in September 1995 as Vice President,
Operations. From 1993 until 1995 he was Vice President of Operations of Vanity
Fair Mills, a division of VF
49
<PAGE> 53
Corporation. Prior to that, he was Vice President of Manufacturing Operations of
Rawlings Sporting Goods from 1991 to 1993, and Executive Vice President of
Kleinert's Inc., from 1990 to 1991.
M. Rand Mallitz joined the Company in January 1992 as Vice President and
General Manager, E-A-R Specialty Composites. Previously he was Vice President
and General Manager of the Caulk Cartridge Division of Sunoco Products in 1991,
and prior to that he was President/CEO of Roth Office Products.
Ian Mitchell joined Cabot in 1979 and was a member of the management team
that developed the European operations for the E-A-R Division. In 1990 he became
Managing Director, Cabot Safety Limited (UK) and in 1992 became Vice President,
Logistics for the Company.
Daniel P. O'Connor joined the Company in 1991 and has held the positions of
Vice President, Sales & Distribution; Vice President, Global Sales & Marketing;
and Vice President and General Manager, Prescription Eyewear. Prior to joining
the Company in 1991, he was Vice President of Sales and Marketing, Residential
and Small Businesses Services Division, of Northern Telecom.
Mark V. B. Tremallo joined the Company as General Counsel and Assistant
Secretary in 1991 from Cabot's Law Department where he had worked since 1989. He
became Vice President and Secretary in July 1995.
Norman W. Alpert is a Managing Director of Vestar Capital Partners and was
a founding partner of Vestar at its inception in 1988. Mr. Alpert is Chairman of
the Board of Directors of International AirParts Corporation and a director of
Clark-Schwebel, Inc., Prestone Products Corporation, Remington Products Company,
L.L.C. and Russell-Stanley Corporation, all companies in which Vestar or its
affiliates have a significant equity interest. He became a director of the
Company in July 1995.
Daniel S. O'Connell is the Chief Executive Officer and founder of Vestar
Capital Partners. Mr. O'Connell is a director of Anvil Knitwear, Inc.,
Clark-Schwebel, Inc., Pinnacle Automation, Inc., Prestone Products Corporation,
Remington Products Company, L.L.C. and Russell-Stanley Corporation, all
companies in which Vestar or its affiliates have a significant equity interest.
He became a director of the Company in July 1995.
Arthur J. Nagle is a Managing Director of Vestar Capital Partners and was a
founding partner of Vestar at its inception in 1988. Mr. Nagle is a director of
Chart House Enterprises, Inc., Clark-Schwebel, Inc., La Petite Holdings
Corporation, Prestone Products Corporation, Remington Products Company, L.L.C.,
Russell-Stanley Corporation and Super D Drugs, Inc., all companies (other than
Chart House Enterprises, Inc.) in which Vestar or its affiliates have a
significant equity interest. He became a director of the Company in July 1995.
John W. Priesing has served as Chairman, President and Chief Executive
Officer of Russell-Stanley Corporation since 1993. Prior to joining
Russell-Stanley Corporation, he was a private investor. He became a director of
the Company in December 1995.
Samuel L. Hayes, III was elected a director of the Company in May 1996.
Since 1971, he has taught at the Harvard Business School, and he currently holds
the Jacob H. Schiff Chair in Investment Banking. His teaching and research have
focused on the capital markets and corporate financial management. Mr. Hayes is
also a director of Tiffany & Co., Ernst Home Centers, and certain Eaton Vance
mutual funds.
Kenyon C. Gilson has been Vice President of Cabot since 1989. He became a
director of the Company in July 1995.
Margaret J. Hanratty has been Vice President and Treasurer of Cabot since
September 1993, and served previously as Treasurer and Director of Corporate
Development. Prior to joining Cabot in 1990, she served as Vice President,
Mergers and Acquisitions for The First Boston Corporation. She became a director
of the Company in July 1995.
50
<PAGE> 54
The number of directors of the Company is currently fixed at nine.
Following the Offering, the Company's Board of Directors will be divided into
three classes, with the member of each class of directors serving for staggered
three-year terms. The Board will consist of three Class I Directors (Messrs.
Curtin, Gilson and O'Connell), three Class II Directors (Mr. Alpert, Ms.
Hanratty and Mr. Young), and three Class III Directors (Messrs. Hayes, Nagle and
Priesing), whose initial terms will expire at the 1997, 1998 and 1999 annual
meetings of stockholders, respectively.
Under the Stockholders' Agreement, subject to continued ownership of a
certain number of shares of Common Stock, Vestar, Cabot and the Management
Stockholders have agreed, among other things, to vote all the capital stock
owned by them so as to elect a Board of Directors of the Company consisting of
nine members, of which three will be designated by Vestar, two will be
designated by Cabot, two will be designated by the Management Investors and two
will be Independent Directors who are not affiliated with Vestar or Cabot and
are not employees of the Company, plus, at Vestar's option, an additional four
directors designated by Vestar with the approval of Cabot. So long as the
Stockholders' Agreement remains in effect and subject to continued ownership by
Vestar, Cabot and the Management Investors of a specified proportion of the
outstanding Common Stock, all directors other than the Independent Directors can
be removed, with or without cause, and replaced by the stockholders who have the
right to designate them. Messrs. Priesing and Hayes were originally designated
by Vestar and, pursuant to an amendment to the Stockholders' Agreement, now
serve as the Independent Directors. Messrs. Alpert, O'Connell and Nagle are the
directors designated by Vestar. Mr. Gilson and Ms. Hanratty are the directors
designated by Cabot. Messrs. Curtin and Young are the directors designated by
the Management Investors. See "Certain Relationships and Related
Transactions -- Stockholders' Agreement." Vestar has not exercised its right to
designate the four additional directors and the Company is not aware that Vestar
presently intends to exercise such right.
The Board of Directors has established an audit committee (the "Audit
Committee"). The Audit Committee recommends the firm to be appointed as
independent accountants to audit financial statements and to perform services
related to the audit, reviews the scope and results of the audit with the
independent accountants, reviews with management and the independent accountants
the Company's annual operating results, considers the adequacy of the internal
accounting procedures, considers the effect of such procedures on the
accountants' independence and establishes policies for business values, ethics
and employee relations.
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<PAGE> 55
EXECUTIVE COMPENSATION
<TABLE>
The compensation of executive officers of the Company is determined by the
Board of Directors of the Company. The following table sets forth certain
information concerning compensation received by the Chief Executive Officer and
the other four most highly-compensated executive officers of the Company for
services rendered to the Company in all capacities (including service as an
officer or director) in fiscal 1995. No stock options or similar awards had been
granted as of the end of fiscal 1995.
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
OTHER
FISCAL ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ------ -------- -------- ------------
<S> <C> <C> <C> <C>
John D. Curtin, Jr. ......................... 1995 $375,000(1) $150,000 $56,024(2)
Chairman of the Board of Directors
and Chief Executive Officer
Albert F. Young, Jr.......................... 1995 $230,004 $ 80,000 $13,758(3)
President, Chief Operating Officer
and Director
Daniel P. O'Connor........................... 1995 $160,483 $ 60,000 $46,332(4)
Vice President, Sales
James D. Hall................................ 1995 $150,000 $ 40,000 $ 7,968(5)
Vice President, Product Management
Bryan J. Carey............................... 1995 $146,387 $ 50,000 $12,323(6)
Vice President, Chief Financial
Officer, Treasurer and Assistant
Secretary
<FN>
- ---------------
(1) Mr. Curtin's compensation for fiscal 1995 represents $78,125 paid by the
Company after July 11, 1995 and $296,875 paid by Cabot Corporation for the
earlier period of the fiscal year and billed to the Company.
(2) Includes $3,125 contributed on behalf of Mr. Curtin to the Company's Cash
Balance Pension Plan and $2,655 contributed to the Company's Supplemental
Executive Retirement Plan. Also includes $50,244 contributed by Cabot
Corporation on behalf of Mr. Curtin to pension plans maintained by Cabot
Corporation.
(3) Includes contributions made on behalf of Mr. Young to the Company's 401(k)
Savings Plan ($2,300); to the Company's Cash Balance Pension Plan ($3,700);
and to the Company's Supplemental Executive Retirement Plan ($7,758).
(4) Includes contributions made on behalf of Mr. O'Connor to the Company's
401(k) Savings Plan ($2,433); to the Company's Cash Balance Pension Plan
($6,582); and to the Company's Supplemental Executive Retirement Plan
($4,704). Also includes relocation allowances in the amount of $32,613.
(5) Includes contributions made on behalf of Mr. Hall to the Company's 401(k)
Savings Plan ($1,232); to the Company's Cash Balance Pension Plan ($3,004);
and to the Company's Supplemental Executive Retirement Plan ($3,732).
(6) Includes contributions made on behalf of Mr. Carey to the Company's 401(k)
Savings Plan ($1,381); and to the Company's Supplemental Executive
Retirement Plan ($4,234).
</TABLE>
DIRECTOR COMPENSATION
Directors who are employees of the Company serve without compensation
(other than reimbursement of expenses) in connection with rendering services as
such. Non-employee directors receive $10,000 annually for their service as
directors and an additional $2,500 per board or committee meeting and $1,000 per
telephonic meeting, plus reimbursement of expenses. Also,
52
<PAGE> 56
under the 1996 Plan, non-employee directors are eligible to receive grants of
options to purchase Common Stock as described under "-- Employee Stock and Other
Benefit Plans -- 1996 Stock Option Plan."
EMPLOYEE STOCK AND OTHER BENEFIT PLANS
STOCK PURCHASE PLAN: In connection with the Formation Acquisition, the
Company adopted the Cabot Safety Holdings Corporation 1995 Stock Purchase Plan,
as amended and restated (the "Stock Purchase Plan"), in order to encourage
ownership of Common Stock by selected officers and employees of the Company.
Under the Stock Purchase Plan, the Company's executive officers and other senior
members of management were given the opportunity to purchase from the Company,
in the aggregate, up to 1,200,000 shares of Common Stock at $2.50 per share, the
same price paid by Vestar and Cabot, for an aggregate consideration of $3.0
million. Such shares comprised a portion of the newly issued shares of Common
Stock offered and sold in connection with the Formation Acquisition. In the
aggregate, 1,128,000 shares of Common Stock offered through the Stock Purchase
Plan were purchased simultaneously with the Formation Acquisition (including
396,000 shares by Mr. Curtin, 180,000 shares by Mr. Young, 84,000 shares by Mr.
O'Connor, 84,000 shares by Mr. Hall, and 120,000 shares by Mr. Carey) and paid
in part ($2,066,000) in cash and in part ($754,000) through the delivery of
promissory notes with a term ranging from 5 to 10 years, bearing interest at the
annual rate of 7% and secured by a pledge of the purchased shares. See "Certain
Relationships and Related Transactions -- Other Relationships -- Management
Loans." Of the remaining 72,000 shares of Common Stock offered through the Stock
Purchase Plan, 64,000 shares were purchased by W. Larry Lewis, the Company's
Vice President -- Operations, on February 15, 1996 at a price of $2.50 per share
paid in cash and 8,000 shares were purchased by John W. Priesing, a non-employee
director of the Company, on April 14, 1996 at a price of $2.50 per share paid in
cash. No shares of Common Stock remain available for purchase under the Stock
Purchase Plan. Upon his election as a director of the Company on May 27, 1996,
Mr. Hayes was offered the opportunity to purchase 8,000 shares of Common Stock
at a price of $7.50 per share, which he paid in cash on June 25, 1996, on terms
substantially identical to those of the Stock Purchase Plan.
Common Stock acquired under the Stock Purchase Plan is subject to
forfeiture through various puts and calls. In the event of death, permanent
disability or retirement, which retirement occurs at age 65 or older with at
least 3 years of service, such stock may be put to the Company by the holder at
fair market value and the Company has a call on such stock at the same price. In
the event of termination for cause, the Company has a call at the lesser of
initial cost and fair market value. In the event of termination by the Company
other than for cause and in the case of voluntary resignation, the Company has a
call (i) with respect to a percentage of such stock equal to the number of years
elapsed since the Formation Acquisition multiplied by 20% at fair market value,
and (ii) with respect to the remainder of such stock at the lesser of initial
cost and fair market value. Shares repurchased by the Company will be reserved,
and may be issued to existing and future employees or non-employee directors.
These puts and calls expire (i) on the date on which certain financial
performance benchmarks (which, following an initial public offering of the
Common Stock, depend in part on the future market value of the Common Stock) are
achieved by the Company or (ii) the fifth anniversary of the Formation
Acquisition. Each Management Investor is also required to be a party to the
Stockholders' Agreement. See "Certain Relationships and Related Transactions --
Stockholders' Agreement."
EXECUTIVE STOCK OPTION PLAN. In June 1996, the Company's Board of
Directors adopted and the stockholders subsequently approved the Executive Stock
Option Plan (the "Executive Plan") under which 400,000 shares of Common Stock
have been reserved for issuance. Non-qualified options to acquire all 400,000
shares at a price of $7.50 per share were granted on June 26, 1996 to officers
and key employees of the Company; of these options, 212,500 in the aggregate
were granted to executive officers, including Mr. Curtin (65,000 options), Mr.
Young (35,000 options), Mr. O'Connor (20,000 options), Mr. Hall (20,000 options)
and Mr. Carey (25,000 options). In
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<PAGE> 57
connection with the grant of these options, the Company will record unearned
compensation totaling approximately $1.4 million. The non-cash compensation
expense will be recognized over the ten year life of the options, subject to
earlier recognition if the vesting of the options is accelerated in accordance
with their terms.
The Executive Plan is administered by a committee of the Board of Directors
consisting of all non-employee directors. As of the date of this Prospectus no
such options are exercisable and no options remain available for future grant
under the Executive Plan. The options will vest and become exercisable upon the
earlier of: (i) the date on which certain financial performance benchmarks
(which depend in part on the future market value of the Common Stock) are
achieved by the Company and (ii) the tenth anniversary of the date of grant. The
option term will be 10 years; provided, however, that unexercised options shall
expire earlier in certain instances of termination of employment of the option
holder and may expire in the event of a merger or liquidation of the Company or
a sale of substantially all the assets of the Company. Common Stock acquired
upon exercise of options granted under the Executive Plan is subject to the same
restrictions, including puts and calls and drag-along rights as Common Stock
acquired under the Stock Purchase Plan . See "Stock Purchase Plan."
1996 STOCK OPTION PLAN. The 1996 Stock Option Plan (the "1996 Plan") was
adopted by the Board of Directors on June 26, 1996 and subsequently approved by
the Company's stockholders. The 1996 Plan permits the grant of options to
purchase shares of Common Stock intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("Incentive Options"), and the grant of options that do not so qualify ("Non-
Qualified Options"). Grants of Incentive Options may only be made to employees.
Grants of Non-Qualified Options may be made to employees, independent directors,
consultants and key persons of the Company and its subsidiaries. The 1996 Plan
provides for the issuance of up to 800,000 shares of Common Stock upon exercise
of options. On and after the date the 1996 Plan becomes subject to Section
162(m) of the Code, options with respect to no more than 200,000 shares of
Common Stock may be granted to any one individual in any calendar year. Options
to acquire 286,250 shares of Common Stock at a price equal to the initial public
offering price of the Common Stock in the Offering were granted on June 26,
1996, contingent upon completion of the Offering, to officers and key employees
of the Company; of these options, 112,500 in the aggregate were granted to
executive officers, including Mr. Curtin (30,000 options), Mr. Young (15,000
options), Mr. O'Connor (10,000 options), Mr. Hall (10,000 options) and Mr. Carey
(10,000 options). These options will vest and become exercisable over five years
at the rate of 20% on each anniversary of the date of grant. The option term
will be ten years; provided, however, that unexercised options shall expire
earlier in certain instances of termination of employment of the option holder
and may expire in the event of a merger or liquidation of the Company or a sale
of substantially all the assets of the Company. As of the date of this
Prospectus, 513,750 options remain available for future grant under the 1996
Plan.
The 1996 Plan is administered by the full Board of Directors of the Company
or by a committee appointed by the Board and consisting of disinterested
directors (the "Option Committee"). Subject to the provisions of the 1996 Plan,
the Option Committee has full power to determine from among the persons eligible
for grants under the 1996 Plan the individuals to whom options will be granted
and the specific terms of each option. Incentive Options may granted only to
officers or other employees of the Company or its subsidiaries, including
members of the Board of Directors who are also employees of the Company or its
subsidiaries.
The option exercise price of each option granted under the 1996 Plan is
determined by the Option Committee but may not be less than 100% of the fair
market value of the underlying shares on the date of grant. Incentive Options
may not be exercisable more than ten years from the date the option is granted.
If any employee of the Company or any subsidiary owns or is deemed to own at the
date of grant shares of stock representing in excess of 10% of the combined
voting power of all classes of stock of the Company or any subsidiary, the
exercise price for options granted to such
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<PAGE> 58
employee may not be less than 110% of the fair market value of the underlying
shares on that date and the option may not be exercisable more than five years
from the date the option is granted. No option may be exercised subsequent to
the termination of the optionee's employment or other business relationship with
the Company unless otherwise determined by the Option Committee or provided in
the option agreement. Upon the exercise of options, the option exercise price
must be paid in full either in cash or by delivery of shares of Common Stock
already owned by the optionee.
The Option Committee may, in its sole discretion, accelerate or extend the
date or dates on which all or any particular option or options granted under the
1996 Plan may be exercised or vest. In the event of a merger, liquidation or
sale of substantially all of the assets of the Company, the Option Committee has
the discretion to accelerate the vesting of options granted under the 1996 Plan.
ANNUAL BONUS. The Company provides performance-based compensation awards
to executive officers and key employees for achievement during each year as part
of an annual bonus plan. Such compensation awards are a function of individual
performance and consolidated corporate results. Business unit performance also
is a factor in determining compensation awards with respect to key employees who
are not executive officers. The specified qualitative and quantitative criteria
employed by the Board of Directors of the Company in determining bonus awards
varies for each individual and from year to year.
SUPPLEMENTAL SEVERANCE PAY PLAN. The Company has adopted a supplemental
severance pay plan providing certain executive officers and key employees with
salary continuation in the event of an eligible termination based on years of
service. The plan provides for one month's base pay for each full year of
service with a minimum amount payable of three months and a maximum amount
payable of twelve months.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company has adopted a
supplemental executive retirement plan, which is a non-qualified plan under the
Code, and which provides unfunded deferred compensation benefits to certain
executive officers and key employees. Pursuant to the plan, participants are
credited annually with amounts representing 4% of compensation in excess of that
amount of compensation subject to social security taxes.
401(K) PLAN. The Company has adopted a savings plan (the "Saving Plan"),
which is qualified under Section 401(a) and 401(k) of the Code. All regular
employees of the Company in the United States are eligible to participate in the
Savings Plan after six months of service. For each employee who elects to
participate in the Savings Plan and makes a contribution thereto, the Company
will make a matching contribution. The Company matches 40.0% of the first 5.0%
of compensation contributed. The maximum contribution for any participant for
any year is 15.0% of such participant's eligible compensation. Contributions to
the Savings Plan will be invested, as the employee directs, in a fixed income
fund, balanced fund, or equity fund.
PENSION PLAN. The Company has adopted a cash balance plan. Under such
plan, the Company will provide participants with annual credits of 4% of
eligible compensation. All balances in the accounts of participants will be
credited with interest based on the one-year U.S. Treasury bill rate. At
retirement, participants eligible for benefits may receive the balance standing
in their account in a lump sum or as a monthly pension having equivalent
actuarial value.
EMPLOYMENT AGREEMENTS
Each of Mr. Leif Palmaer, who has been the President of Peltor since 1981,
and Mr. Leif Anderzon, who has been the Executive Vice President of Peltor since
1981, has an employment agreement with Peltor, which was in existence when the
Company acquired Peltor on May 29, 1996. Each agreement will terminate on
December 31, 1999, and is renewable for additional twelve-month periods at the
election of the parties. During the term of the agreement, each of Mr. Palmaer
and Mr. Anderzon will be paid 900,000 Swedish Krona (approximately $138,500)
annually and will devote substantially all of his professional time and efforts
to Peltor. Their employment may be
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<PAGE> 59
terminated at any time for cause. During the term of employment and for two
years thereafter, each of Mr. Palmaer and Mr. Anderzon will be bound by
confidentiality and non-competition restrictions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee. Since July 1995, all
executive officer compensation decisions have been made by the full Board of
Directors of the Company, with Messrs. Curtin and Young abstaining with respect
to decisions affecting their own compensation. Mr. Curtin, one of the directors
of the Company, is the Chairman of the Board and Chief Executive Officer of the
Company. Mr. Young, one of the directors of the Company, is the President and
Chief Operating Officer of the Company. On July 11, 1995, Mr. Curtin acquired
396,000 shares of Common Stock under the Stock Purchase Plan at a price of
$990,000. On July 11, 1995, Mr. Young acquired 180,000 shares of Common Stock
under the Stock Purchase Plan at a price of $450,000 and as of March 31, 1996
was indebted to the Company in the amount of $157,500, consisting of a portion
of the purchase price of such shares. Mr. Gilson and Ms. Hanratty, two directors
of the Company, are officers of Cabot. On July 11, 1995, as part of the
Formation Acquisition, Cabot and its subsidiaries sold assets to the Company for
aggregate consideration of approximately $206.1 million. Messrs. Alpert,
O'Connell and Nagle, three directors of the Company, are officers of Vestar. On
July 11, 1995, as part of the Formation Acquisition, Vestar invested $31.0
million in capital stock of the Company. A portion of the proceeds from the
Offering will be used to redeem from each of Cabot and Vestar shares of
Redeemable Preferred Stock in the amount of approximately $12.7 million,
including accrued dividends. Simultaneously with the Offering, each of Cabot and
Vestar will exchange the balance of their Redeemable Preferred Stock
(approximately $12.7, including accrued dividends) for shares of Common Stock at
the same price as the initial public offering price of the Common Stock in the
Offering. See "Certain Relationships and Related Transactions" and "Use of
Proceeds."
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PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of June 30, 1996 by (i)
each person or entity who is known by the Company to beneficially own 5% or more
of the Company's voting capital stock, (ii) each of the executive officers named
in the Summary Compensation Table, (iii) each of the Company's directors and
(iv) all of the Company's directors and executive officers as a group. All
persons identified in the following table are parties to the Stockholders'
Agreement, pursuant to which they agreed to vote all capital stock owned by them
so as to elect a Board of Directors of the Company consisting of nine members,
of which three are designated by Vestar, two are designated by Cabot and two are
designated by the Management Investors. In addition, the Stockholders' Agreement
provides for so-called "drag-along" rights in favor of Vestar upon the sale of
Common Stock in certain circumstances, other voting agreements on certain
fundamental corporate transactions and registration rights, among other things.
See "Certain Relationships and Related Transactions -- Stockholders' Agreement."
As a result of the Stockholders' Agreement, all parties thereto may be deemed to
constitute a "group" as that term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
<CAPTION>
BEFORE OFFERING AFTER OFFERING
----------------------------- ----------------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
SHARES OF BENEFICIALLY SHARES OF BENEFICIALLY
NAME OF BENEFICIAL OWNER COMMON STOCK OWNED COMMON STOCK OWNED
- -------------------------------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Vestar Equity Partners, L.P.(2)....... 3,400,000 42.50% 4,303,571(3) 28.1%
245 Park Avenue
New York, N.Y. 10017
Cabot CSC Corporation(4).............. 3,400,000 42.50% 4,303,571(5) 28.1%
75 State Street, 13th Floor
Boston, MA 02109
John D. Curtin, Jr.................... 396,000 4.95% 396,000 2.6%
Albert F. Young, Jr. ................. 180,000 2.25% 180,000 1.2%
Bryan J. Carey........................ 120,000 1.50% 120,000 *
James D. Hall......................... 84,000 1.05% 84,000 *
Daniel P. O'Connor.................... 84,000 1.05% 84,000 *
Norman W. Alpert(6)................... 3,400,000 42.50% 4,303,571(3) 28.1%
Daniel S. O'Connell(6)................ 3,400,000 42.50% 4,303,571(3) 28.1%
Arthur J. Nagle(6).................... 3,400,000 42.50% 4,303,571(3) 28.1%
Kenyon C. Gilson(7)................... 3,400,000 42.50% 4,303,571(5) 28.1%
Margaret J. Hanratty(7)............... 3,400,000 42.50% 4,303,571(5) 28.1%
John W. Priesing...................... 8,000 * 8,000 *
Samuel L. Hayes, III.................. 8,000 * 8,000 *
Directors and executive officers as a
group (16 persons)(8)............... 1,128,000 14.09% 1,128,000 7.4%
- ---------------
<FN>
* Less than one percent.
(1) Assumes that the Underwriters' over-allotment option is not exercised.
(2) The general partner of Vestar is Vestar Associates L.P., a limited
partnership whose general partner is Vestar Associates Corporation
("V.A.C."). In such capacity, V.A.C. exercises sole voting and investment
power with respect to all of the shares held of record by Vestar. Messrs.
Alpert, O'Connell and Nagle, who are directors of the Company, are
affiliated with Vestar in the capacities described under
"Management -- Directors and Executive Officers" and are stockholders of
V.A.C. Individually, no stockholder, director or officer of V.A.C. is deemed
to have or share such voting or investment power within the meaning of Rule
13d-3 under the Exchange Act. Accordingly no part of the shares of Common
Stock owned of record
</TABLE>
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<PAGE> 61
by Vestar is beneficially owned by Messrs. Alpert, O'Connell or Nagle or any
other stockholder, director or officer of V.A.C.
(3) Vestar has agreed, effective upon the consummation of this Offering, to
exchange $12.65 million of Redeemable Preferred Stock, including $1.4
million of accrued dividends since July 1995, for shares of Common Stock at
an exchange price equal to the initial public offering price of the Common
Stock in the Offering (903,571 shares based on an assumed initial public
offering price of $14.00 per share, the mid-point of the range set forth on
the cover page of this Prospectus).
(4) The board of directors of Old Cabot Safety Corporation controls the voting
and investment of the shares of Common Stock held by Old Cabot Safety
Corporation. Old Cabot Safety Corporation is a wholly-owned subsidiary of
Cabot. Cabot appoints the directors of Old Cabot Safety Corporation and
exercises ultimate voting and investment power with respect to all shares
held of record by Old Cabot Safety Corporation. Cabot is a publicly held
company and, accordingly, no single stockholder, director or officer of
Cabot is deemed to have or share such voting or investment power within the
meaning of Rule 13d-3 under the Exchange Act. Accordingly, no part of the
shares of Common Stock owned of record by Old Cabot Safety Corporation is
beneficially owned by any stockholder, director or officer of Cabot.
(5) Cabot has agreed, effective upon the consummation of this Offering, to
exchange $12.65 million of Redeemable Preferred Stock, including $1.4
million of accrued dividends since July 1995, for shares of Common Stock at
an exchange price equal to the initial public offering price of the Common
Stock in the Offering (903,571 shares based on an assumed initial public
offering price of $14.00 per share, the mid-point of the range set forth on
the cover page of this Prospectus).
(6) Messrs. Alpert, O'Connell and Nagle are affiliated with Vestar in the
capacities described under "Management -- Directors and Executive officers."
Ownership of Common Stock for these individuals includes 3,400,000 shares
(4,303,571 shares after giving effect to the Offering) of Common Stock
included in the above table beneficially owned by Vestar, of which such
persons disclaim beneficial ownership. Each such person's business address
is c/o Vestar Equity Partners, L.P. at the address set forth above.
(7) Mr. Gilson and Ms. Hanratty are affiliated with Cabot, the parent of Old
Cabot Safety Corporation, in the capacities described under "Directors and
Executive Officers." Ownership of Common Stock for these individuals
includes 3,400,000 shares (4,303,571 shares after giving effect to the
Offering) of Common Stock included in the above table beneficially owned by
Old Cabot Safety Corporation, of which such persons disclaim beneficial
ownership. Each such person's business address is c/o Cabot CSC Corporation
at the address set forth above.
(8) Cabot, Vestar, the Management Investors, John W. Priesing and Samuel L.
Hayes, III have entered into a Stockholders' Agreement, the terms of which
are described more fully under "Certain Relationships and Related
Transactions -- Stockholders' Agreement."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE FORMATION ACQUISITION
The Formation Acquisition was consummated on July 11, 1995, and involved
aggregate consideration of $206.1 million, including certain post-closing
adjustments, consisting of (i) the payment to subsidiaries of Cabot of $169.2
million in cash at the closing, plus a post-closing adjustment of $1.1 million,
(ii) the assumption by the Company of approximately $4.8 million in existing
indebtedness of Cabot and a subsidiary of Cabot and (iii) the issuance by the
Company of equity, valued at $31.0 million, to a subsidiary of Cabot. The
sources for such consideration and the related fees and expenses were (1)
borrowings of $48.6 million under the Senior Bank Facilities, (2) the proceeds
of the sale of $100 million principal amount of Subordinated Notes, (3) the
above-mentioned assumption of $4.8 million of indebtedness and (4) the issuance
of an aggregate of $45.0 million of Redeemable Preferred Stock and 8,000,000
shares of Common Stock. Vestar
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<PAGE> 62
invested cash in the amount of $31.0 million in the Company and received $22.5
million of Redeemable Preferred Stock and 3,400,000 shares of Common Stock. A
subsidiary of Cabot received $22.5 million of Redeemable Preferred Stock and
3,400,000 shares of Common Stock as partial consideration for assets contributed
to the Company. The Management Investors invested $3.0 million through a
combination of cash and promissory notes and purchased 1,200,000 shares of
Common Stock. Dividends on the Redeemable Preferred Stock accrue, whether or not
declared and whether or not funds are legally available for the payment of such
dividends, at an annual rate of 12.5% compounded daily. At the option of the
Company, dividends may be paid in cash or in additional shares of Redeemable
Preferred Stock. Subject to certain exceptions, shares of Redeemable Preferred
Stock are redeemable at any time at the option of the Company at a redemption
price equal to the actual or implied purchase price thereof plus accrued
dividends through the date of redemption. The Subordinated Notes are unsecured
obligations of the Subsidiary, ranking subordinate in right of payment to all
senior indebtedness of the Subsidiary, are guaranteed on a subordinated basis by
Aearo Corporation, mature on July 15, 2005 and bear interest at the rate of
12.5% per annum, payable semi-annually on each January 15 and July 15. The
Subordinated Notes are redeemable, at the Company's option, in whole at any time
or in part from time to time, on and after July 15, 2000, upon not less than 30
nor more than 60 days' notice, at redemption prices (expressed as percentages of
the principal amount thereof) ranging from 106.25% in the year 2000 to 100% in
the year 2004 and thereafter, plus accrued interest to the date of redemption.
At any time on or prior to July 15, 1998, the Company may, at its option, use
the net cash proceeds of one or more equity offerings to redeem up to $35
million aggregate principal amount of the Subordinated Notes at a redemption
price of 112.5% of the principal amount thereof, plus accrued interest to the
date of redemption; provided that at least $65 million of Subordinated Notes
remain outstanding immediately after each such redemption. The Subordinated
Notes are publicly traded.
The Company is party to an asset transfer agreement dated as of June 13,
1995 (the "Asset Transfer Agreement") with Cabot and its subsidiaries, Old Cabot
Safety Corporation, Cabot Safety Limited, and Cabot Canada Ltd. Pursuant to the
Asset Transfer Agreement, the following transfers of assets and assumptions of
liabilities occurred on July 11, 1995: (i) certain assets of Old Cabot Safety
Corporation valued at $50.0 million were transferred to Aearo Corporation, and
such assets were immediately contributed by Aearo Corporation to the Subsidiary,
(ii) a newly-formed Delaware subsidiary (the "Delaware Subsidiary") of the
Subsidiary acquired certain intangible assets of Old Cabot Safety Corporation
and the capital stock of certain foreign subsidiaries of Old Cabot Safety
Corporation through which it conducts its business in such jurisdictions, (iii)
a newly-formed United Kingdom subsidiary of the Delaware Subsidiary acquired the
assets and assumed the liabilities of Cabot Safety Limited, (iv) a newly-formed
Canadian subsidiary of the Delaware Subsidiary acquired the assets and assumed
the liabilities of Cabot Canada Ltd. to the extent the same are related to its
safety products business and (v) the Subsidiary acquired the remaining assets
and assumed the remaining liabilities of Old Cabot Safety Corporation that
constitute its Safety Products and Specialty Composites operating units, in each
case subject to certain limited exceptions including, among other things,
certain indebtedness, pending and threatened litigation and pre-closing income
taxes. The Asset Transfer Agreement contained customary representations,
warranties and covenants. Cabot and certain of its subsidiaries, on the one
hand, and the Company on the other, also agreed to indemnify and hold each other
and their affiliates harmless against certain breaches of representations or
covenants and certain other liabilities. The Company has the right to pay an
annual fee of $400,000 to Old Cabot Safety Corporation, and has elected to make
this payment, with the result that Old Cabot Safety Corporation will retain
responsibility and liability for, and indemnify the Company against, certain
legal claims alleged to arise out of the use of respirators manufactured prior
to July 1995. The Company has the right to discontinue the payment of such
annual fee at any time, in which case the Company will assume responsibility for
and indemnify Cabot and Old Cabot Safety Corporation with respect to such
claims.
The Company intends to use the net proceeds from the Offering to redeem
$12.65 million of outstanding Redeemable Preferred Stock from each of Cabot and
Vestar, including $1.4 million of
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<PAGE> 63
accrued dividends since July 1995, and $35 million principal amount of
Subordinated Notes at a redemption price of approximately $39.4 million, plus
accrued and unpaid interest. Each of Cabot and Vestar have agreed, effective
upon the consummation of the Offering, to exchange the balance of their
Redeemable Preferred Stock for shares of Common Stock at an exchange price equal
to the initial public offering price of the Common Stock in the Offering. See
"Use of Proceeds."
STOCKHOLDERS' AGREEMENT
Cabot, Vestar, the Management Investors, Mr. Priesing and Mr. Hayes are
parties to the Stockholders' Agreement entered into in connection with the
Formation Acquisition, which provides for, among other things, the matters
described below.
ELECTION AND REMOVAL OF DIRECTORS. The Stockholders' Agreement provides
that the Board of Directors of the Company shall consist of nine members,
subject to increase at Vestar's option to 13 members. The parties agreed to vote
all shares of Common Stock owned or controlled by them so as to elect as members
of the Board of Directors persons designated as follows: (i) Vestar designates
three directors so long as the Vestar Relative Percentage (as defined below) is
at least 75% or Vestar and its affiliates beneficially own on a fully diluted
basis at least 1,700,000 shares of Common Stock (50% of the shares of Common
Stock acquired by them in the Formation Acquisition), (ii) Cabot may designate
two directors so long as the Cabot Relative Percentage (as defined below) is at
least 75% or Cabot and its affiliates own beneficially on a fully diluted basis
at least 1,700,000 shares of Common Stock (50% of the shares of Common Stock
acquired by them in the Formation Acquisition), (iii) two Independent Directors
who are neither partners, officers or employees of any of Vestar and its
affiliates, nor officers or employees of any of Cabot or its affiliates, nor
officers or employees of the Company are nominated by the Board of Directors of
the Company, (iv) the Management Investors may designate two directors so long
as the Management Investors together own beneficially on a fully diluted basis
at least 300,000 shares of Common Stock (25% of the shares of Common Stock
acquired by all Management Investors in the Formation Acquisition), provided
that the two designees of the Management Investors must be the principal
executive officer and the principal operating officer of the Company and (v)
Vestar, following exercise of its right to enlarge the Board of Directors of the
Company to 13 members, may designate four additional directors (the "Additional
Vestar Designees"), so long as the Vestar Relative Percentage is as least 75% or
Vestar and its affiliates beneficially own at least 2,550,000 shares of Common
Stock (75% of the shares of Common Stock acquired by them in the Formation
Acquisition), provided that Vestar must notify Cabot in writing in advance of
the identities of the Additional Vestar Designees and obtain Cabot's approval
thereof, which may not be unreasonably withheld. The election of the Additional
Vestar Designees can be effected at a special meeting of stockholders called at
the request of Vestar, at the next annual meeting of stockholders or by written
consent in lieu of a meeting of stockholders and thereafter at each subsequent
annual meeting until Vestar requests that the Board of Directors of the Company
be reduced to nine members and the Additional Vestar Designees cease to serve as
directors or is no longer entitled to designate the Additional Vestar Designees.
The foregoing provisions relating to the election of directors terminate in the
event that both Cabot and its affiliates, on the one hand, and Vestar and its
affiliates, on the other hand, own on a fully diluted basis fewer than 340,000
shares of Common Stock (10% of the shares of Common Stock acquired by them in
the Formation Transaction). The term "Vestar Relative Percentage" means a
percentage reflecting (a)(i) $31 million plus (ii) amount paid for capital stock
of Cabot Safety by Vestar and its Affiliates after the Formation Acquisition
less (iii) the value (based on price per share) of all shares of Common and
preferred stock of the Company acquired by Vestar and its affiliates in the
Formation Transaction and no longer held by them, less (iv) the value of all
shares of the Common Stock and preferred stock of the Company acquired by Vestar
and its affiliates after the Formation Acquisition and no longer held by them,
as a percentage of (b) the amount calculated pursuant to clause (a) for Cabot
and its affiliates for such date. The term "Cabot Relative Percentage" has a
correlative meaning focused on Cabot's remaining investment in the Company's
capital stock relative to Vestar's.
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<PAGE> 64
Messrs. Alpert, O'Connell and Nagle were designated by Vestar as described
in clause (i) above, Mr. Gilson and Ms. Hanratty were designated by Cabot as
described in clause (ii) above, and Messrs. Curtin and Young were designated by
the Management Investors as described in clause (iv) above. Messrs. Priesing and
Hayes were originally designated by Vestar and, pursuant to an amendment to the
Stockholders' Agreement, now serve as the Independent Directors pursuant to
clause (ii) above. Vestar has not exercised its right to designate the four
Additional Vestar Designees pursuant to clause (v) above and the Company is not
aware that Vestar presently intends to exercise such right. Although the
certificate of incorporation of the Company in general does not permit the
removal of directors without cause, it contains an exception pursuant to which,
so long as the Stockholders' Agreement remains in effect and subject to
continued ownership by Vestar, Cabot and the Management Investors of a specified
proportion of the outstanding Common Stock, all directors other than the
Independent Directors can be removed, with or without cause, and replaced by the
stockholders who have the right to designate them. Such removal and replacement
can be effected at a meeting of stockholders or by written consent in lieu of a
meeting of stockholders.
DRAG-ALONG RIGHTS. The Stockholders' Agreement provides that, so long as
Vestar and its affiliates beneficially own at least 1,700,000 shares of Common
Stock (50% of the shares of Common Stock acquired by them in the Formation
Acquisition) or the Vestar Relative Percentage is at least 75%, if Vestar
receives an offer from a third party to purchase all but not less than all
outstanding shares of Common Stock and such offer is accepted by Vestar, then
each party to the Stockholders' Agreement will transfer all shares of Common
Stock owned or controlled by such party on the terms of the offer so accepted by
Vestar, provided that all such transfers occur on substantially identical terms
and the number of shares to be acquired by the third party after giving effect
to all such transfers would be sufficient under the certificate of incorporation
and by-laws of the Company, any applicable agreements and applicable law to
permit such third party to eliminate all remaining minority interests through a
merger opposed by such minority interests. These so-called "'drag-along" rights
do not apply to sales in a public offering or to stock that has been sold by a
party to the Stockholders' Agreement in a public offering or pursuant to Rule
144.
If Vestar intends to transfer Common Stock to a third party in any
transaction in which these drag-along rights are invoked, Vestar must give Cabot
30 days' advance written notice and, at the request of Cabot must discuss the
possibility of Cabot, in lieu of the third party, acquiring such Common Stock,
provided that this provision does not obligate Cabot to purchase such Common
Stock or Vestar to sell such Common Stock either to Cabot or to the third party.
OTHER VOTING MATTERS. So long as the drag-along rights are in effect, the
parties to the Stockholders' Agreement are obligated to vote all shares of
Common Stock owned or controlled by them to ratify, approve and adopt the
following actions to the extent that they are adopted and approved by the Board
of Directors: (i) any merger or consolidation involving the Company that is, in
substance, an acquisition of another company by the Company or a sale of the
Company and in either case does not affect in any way the relative rights of
Cabot and Vestar or result in any benefit to Vestar other than the benefits to
it as a stockholder of the Company equal to the benefits received by other
stockholders, share for share, and (ii) any amendment to the certificate of
incorporation of the Company whereby such amendment does not adversely affect
such stockholder in a manner different from that in which any other stockholder
is affected.
In addition, so long as the voting agreements providing for the election of
directors remain in effect, the parties to the Stockholders' Agreement agreed
not to vote to approve, ratify or adopt any amendment to the by-laws of the
Company unless such amendment is expressly authorized by the Stockholders'
Agreement or recommended by the Board of Directors.
TRANSFERS OF COMMON STOCK. Subject to certain limitations, transfers of
Common Stock by parties to the Stockholders' Agreement are restricted unless the
transferee agrees to become a
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party to, and be bound by, the Stockholders' Agreement, provided that such
restrictions do not apply to sales in a public offering or pursuant to Rule 144.
APPROVAL OF AFFILIATE TRANSACTIONS. The Stockholders' Agreement provides
that the Company shall not, and shall cause its subsidiaries not to, enter into
any transaction with any affiliate of the Company unless such transaction (i) is
on fair and reasonable terms no less favorable to the Company or such subsidiary
than it could obtain in a comparable arm's length transaction, (ii) is
contemplated by the Stockholders' Agreement, the Asset Transfer Agreement or the
Management Advisory Agreement or (iii) is for the payment of reasonable and
customary regular fees to outside directors. In no event will the Company issue
Common Stock or other equity securities to Vestar or Cabot or any affiliate of
the Company, subject to certain limitations, below the fair market value of such
shares of Common Stock or equity securities.
TERMINATION. The Stockholders' Agreement will terminate as to any Common
Stock, subject to certain limitations, on the date such Common Stock is sold in
a public offering or pursuant to Rule 144. The rights of Vestar will terminate
under the Stockholders' Agreement when Vestar and its affiliates own no Common
Stock, common stock equivalents or Redeemable Preferred Stock. The rights of
Cabot under the Stockholders' Agreement will terminate on the earliest date when
Cabot or its affiliates own no Common Stock, common stock equivalents or
Redeemable Preferred Stock.
REGISTRATION RIGHTS. The Stockholders' Agreement also provides for
registration rights with respect to the Common Stock held by the parties. See
"Shares Eligible for Future Sale -- Registration Rights."
OTHER RELATIONSHIPS
TRANSACTION FEE. Upon consummation of the Formation Acquisition, the
Company paid to Vestar an investment banking fee of approximately $2.05 million,
plus out of pocket expenses, for Vestar's services in structuring the
transaction and providing financial advice in connection therewith. The Company
also paid on Cabot's behalf to Merrill Lynch & Co. an investment banking fee of
approximately $1.1 million, plus out of pocket expenses of Cabot of
approximately $250,000 incurred in connection with the Formation Acquisition.
MANAGEMENT ADVISORY AGREEMENT. In connection with the Formation
Acquisition, the Company became a party to the Management Advisory Agreement
with Vestar and Cabot, pursuant to which the Company was obligated to pay an
annual management fee, to be shared by Cabot and Vestar, in an aggregate amount
with respect to each fiscal year equal to the greater of (i) $400,000 and (ii)
1.25% of the consolidated net income of the Company before cash interest, taxes,
depreciation and amortization for such fiscal year to be shared by Cabot and
Vestar based on their relative equity ownership of the Company. Effective upon
consummation of the Offering, Cabot, Vestar and the Company have agreed to
terminate the Management Advisory Agreement in consideration of a $1.25 million
one time payment to be shared equally by Vestar and Cabot. Each of Vestar and
Cabot received $44,000 pursuant to the Management Advisory Agreement with
respect to fiscal 1995 and $100,000 with respect to the first six months of
fiscal 1996. Messrs. Alpert, O'Connell and Nagle, three of the directors of the
Company, are affiliated with Vestar in the capacities described under
"Management -- Directors and Executive Officers" and, accordingly, benefit from
any payments received by Vestar. Mr. Gilson and Ms. Hanratty, two of the
directors for the Company, are affiliated with Cabot in the capacities described
under "Management -- Directors and Executive Officers" and, accordingly, benefit
indirectly from any payments received by Cabot.
MANAGEMENT LOANS. The Company has loaned approximately $934,000 to certain
Management Investors, in order to provide such Management Investors with funds
to be applied to a portion of the purchase price of the Common Stock purchased
by such Management Investors under the Stock Purchase Plan in connection with
the Formation Acquisition. Such loans (i) are secured by the Common Stock
purchased with the proceeds thereof, (ii) have a term of between 5 and 10 years,
(iii) bear interest at an annual rate of 7%, and (iv) are subject to mandatory
prepayment in the event the employment of such Management Investor terminates.
At March 31, 1996, amounts
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outstanding under such loans to Messrs. Young, Carey, O'Connor, Hall, Mallitz,
and Tremallo were $157,500, $100,000, $81,000, $115,000, $97,380 and $64,000,
respectively.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of the Company upon completion of the Offering
will consist of 50,000,000 shares of Common Stock, of which 15,315,142 shares
will be issued and outstanding, and 10,000,000 shares of undesignated preferred
stock issuable in one or more series by the Board of Directors ("Preferred
Stock"), of which no shares will be issued and outstanding, after giving effect
to the Offering and the Exchange Transaction. After the Offering and the
Exchange Transaction all 200,000 currently authorized shares of Redeemable
Preferred Stock will be retired and the Redeemable Preferred Stock issued in
connection with the Formation Acquisition will be eliminated as a class of
capital stock of the Company. See "Use of Proceeds." The following summary
description of the capital stock of the Company is qualified in its entirety by
reference to the Company's Second Amended and Restated Certificate of
Incorporation, as amended (the "Certificate"), and Amended and Restated By-laws
(the "By-laws"), copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK. The holders of the Common Stock are entitled to one vote per
share on all matters to be voted on by stockholders and are entitled to receive
such dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefor. Any issuance of Preferred Stock
with a dividend preference over the Common Stock could adversely affect the
dividend rights of holders of the Common Stock. Holders of the Common Stock are
not entitled to cumulative voting rights. Therefore, the holders of a majority
of the shares voted in the election of directors can elect all of the directors
then standing for election, subject to any voting rights of the holders of any
then outstanding Preferred Stock. The holders of the Common Stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock. All
outstanding shares of the Common Stock, including the shares offered hereby,
are, or will be upon completion of the Offering, fully paid and non-assessable.
The Certificate and By-laws provide, subject to the rights of the holders
of any Preferred Stock then outstanding, that the number of directors shall be
fixed by the Board of Directors. The directors, other than those who may be
elected by the holders of any Preferred Stock and the Additional Vestar
Designees, if any, are divided into three classes, as nearly equal in number as
possible, with each class serving for a three-year term. Subject to any rights
of the holders of any Preferred Stock to elect directors and to remove any
director whom the holders of any Preferred Stock had the right to elect and the
right of Vestar, Cabot and the Management Investors to remove and designate a
replacement for certain directors originally designated by them pursuant to the
Stockholders' Agreement, any director of the Company may be removed from office
only with cause and by the affirmative vote of at least two-thirds of the total
votes which would be eligible to be cast by stockholders in the election of
directors. See "Certain Relationships and Related Transactions -- Stockholders'
Agreement -- Election and Removal of Directors."
UNDESIGNATED PREFERRED STOCK. The Board of Directors of the Company is
authorized, without further action of the stockholders, to issue up to
10,000,000 shares of Preferred Stock in one or more series and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereon as set forth in the Certificate. Any such
Preferred Stock issued by the Company may rank prior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of Common Stock.
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The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring or seeking to acquire, a significant portion of the outstanding Common
Stock.
CERTAIN PROVISIONS OF THE SECOND AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND AMENDED AND RESTATED BY-LAWS
A number of provisions of the Company's Certificate and By-laws concern
matters of corporate governance and the rights of stockholders. Certain of these
provisions, as well as the ability of the Board of Directors to issue shares of
Preferred Stock and to set the voting rights, preferences and other terms
thereof, may be deemed to have an anti-takeover effect and may discourage
takeover attempts not first approved by the Board of Directors, including
takeovers which stockholders may deem to be in their best interests. To the
extent takeover attempts are discouraged, temporary fluctuations in the market
price of the Company's Common Stock, which may result from actual or rumored
takeover attempts, may be inhibited. These provisions, together with the
classified Board of Directors and the ability of the Board to issue Preferred
Stock without further stockholder action, also could delay or frustrate the
removal of incumbent Directors or the assumption of control by stockholders,
even if such removal or assumption would be beneficial to stockholders of the
Company. These provisions also could discourage or make more difficult a merger,
tender offer or proxy contest, even if favorable to the interests of
stockholders and could depress the market price of the Common Stock. The Board
of Directors believes that these provisions are appropriate to protect the
interests of the Company and all of its stockholders. The Board of Directors has
no present plans to adopt any other measures or devices which may be deemed to
have an "anti-takeover effect."
MEETINGS OF STOCKHOLDERS. The Company's By-laws provide that a special
meeting of stockholders may be called only by the Board of Directors unless
otherwise required by law and subject to the rights of the holders of any
Preferred Stock then outstanding. The Company's By-laws provide that only those
matters set forth in the notice of the special meeting may be considered or
acted upon at that special meeting unless otherwise provided by law. In
addition, the Company's By-laws set forth certain advance notice and
informational requirements and time limitations on any director nomination or
any new proposal which a stockholder wishes to make at an annual meeting of
stockholders.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT. The Certificate provides that
any action required or permitted to be taken by the stockholders of the Company
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof, except that action with respect to the removal and
replacement of directors designated by Vestar, Cabot or the Management Investors
pursuant to the Stockholders' Agreement may be taken by written consent in lieu
of a meeting of stockholders provided that such consent is signed by Vestar,
Cabot or the Management Investors, as applicable, and the proposed action is
approved by holders of a majority of shares entitled to vote thereon. See
"Certain Relationships and Related Transactions -- Stockholders'
Agreement -- Election and Removal of Directors."
INDEMNIFICATION AND LIMITATION OF LIABILITY. The By-laws of the Company
provide that directors and officers of the Company shall be, and in the
discretion of the Board of Directors non-officer employees may be, indemnified
by the Company to the fullest extent authorized by Delaware law, as it now
exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with service for or on behalf of the Company.
The By-laws of the Company also provide that the right of directors and officers
to indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any statute, charter,
by-law, agreement, vote of stockholders or otherwise. The Certificate contains a
provision permitted by Delaware law that generally eliminates the personal
liability of Directors for monetary damages for breaches of their fiduciary
duty, including breaches involving negligence or gross
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negligence in business combinations, unless the director has breached his or her
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or a knowing violation of law, paid a dividend or approved a stock repurchase in
violation of the Delaware General Corporation Law or obtained an improper
personal benefit. This provision does not alter a Director's liability under the
federal securities laws and does not affect the availability of equitable
remedies, such as an injunction or rescission, for breach of fiduciary duty.
AMENDMENT OF THE CERTIFICATE. The Certificate provides that an amendment
thereof must first be approved by a majority of the Board of Directors and (with
certain exceptions) thereafter approved by a majority of the shares entitled to
vote on such amendment.
AMENDMENT OF BY-LAWS. The Certificate provides that the By-laws may be
amended or repealed by the Board of Directors or by the stockholders. Such
action by the Board of Directors requires the affirmative vote of a majority of
the Directors then in office. Such action by the stockholders requires the
affirmative vote of at least two-thirds of the shares present in person or
represented by proxy and entitled to vote on such amendment or repeal at an
annual meeting of stockholders or a special meeting called for such purpose
unless the Board of Directors recommends that the stockholders approve such
amendment or repeal at such meeting, in which case such amendment or repeal
shall only require the affirmative vote of a majority of shares present in
person or represented by proxy and entitled to vote on such amendment or repeal.
STATUTORY BUSINESS COMBINATION PROVISION
Upon completion of the Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or affiliate, or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that such by-law or
charter amendment shall not become effective until 12 months after the date it
is adopted. Neither the Certificate nor the By-laws contains any such exclusion.
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston will be the transfer agent and registrar
for the Common Stock.
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DESCRIPTION OF SENIOR BANK FACILITIES
The Senior Bank Facilities, pursuant to documentation that was amended and
restated as of May 30, 1996, consist of (a) a secured term loan facility
consisting of an A tranche and a B tranche providing for up to $90 million of A
term loans and $50 million of B term loans (collectively, the "Term Loans"); a
portion of the A tranche is denominated in an equivalent amount of foreign
currencies and (b) a secured revolving credit facility (the "Revolving Credit
Facility") providing for up to $25 million of revolving loans (a portion of
which may be denominated in foreign currencies) for general corporate purposes
and, as to $15 million thereof, to finance permitted acquisitions. As part of
the Revolving Credit Facility, the Senior Bank Facilities provide for the
issuance of letters of credit in an aggregate face amount of up to $5 million.
The full amount of the Term Loans and no advances under the Revolving Credit
Facility were outstanding immediately after giving effect to the Peltor
Acquisition. The Term Loans will amortize quarterly over a seven-year period.
Amounts repaid or prepaid in respect of the Term Loans may not be reborrowed.
Loans and letters of credit under the Revolving Credit Facility will be
available at any time prior to the maturity date of the Senior Bank Facilities
(as amended and restated).
The Company will be required to make mandatory prepayments of loans, and
letters of credit will be mandatorily reduced, in amounts and at times subject
to exceptions to be agreed upon, (a) in respect of 75% of consolidated excess
cash flow, or 50% if there is no default and if a certain leverage ratio is met
(after giving effect to debt service on the Senior Bank Facilities and the
Subordinated Notes), (b) in respect of 100% of the net cash proceeds from the
sale or other disposition of certain assets by the Company and (c) in respect of
100% of the net cash proceeds from the issuance of debt or equity securities by
the Company, provided : (i) that the Company may may make permitted acquisitions
and capital expenditures, subject to certain dollar limits; (ii) that the
proceeds received from an offering of Common Stock occurring on or prior to
December 31, 1996 may be used either to pay down Subordinated Notes pursuant to
the clawback provisions thereof or the Redeemable Preferred Stock of Aearo
Corporation, so long as the first $25 million of such proceeds are used either
to redeem the Subordinated Notes or to repay the Term Loans under the Senior
Bank Facilities; (iii) that with respect to any other equity issuance, $20
million may be used for permitted acquisitions; (iv) that the Company may incur
certain permitted indebtedness subordinated to the Senior Bank Facilities of up
to $25 million; and (v) that up to $15 million in excess cash flow may be used
to repay the Subordinated Notes. At the Company's option, loans may be
voluntarily prepaid, and revolving loan commitments and letter of credit
outstandings may be permanently reduced, in whole or in part, at any time in
certain minimum amounts.
At the Company's option, the interest rates per annum applicable to the
Senior Bank Facilities are either an adjusted rate based on the London Interbank
Offered Rate plus a margin of (x) 2.25% in the case of A Term Loans and
Revolving Loans and (y) 2.75% in the case of B Term Loans, or the Base Rate (as
defined herein) plus a margin of (x) 1.00% in the case of A Term Loans and
Revolving Loans and (y) 1.50% in the case of B Term Loans (in the case of A Term
and Revolving Loans, these margins shall be decreased if the Company, on a
consolidated basis, achieves certain leverage ratios). The Base Rate is the
higher of Bankers Trust Company's announced prime lending rate and the Overnight
Federal Funds rate plus 0.50%. The Company must pay certain fees in connection
with the Senior Bank Facilities, including a commitment fee (ranging from 0.375%
to 0.50%) on the undrawn portion of the commitments in respect of the Revolving
Credit Facility based upon the Company's leverage ratio, and fees relating to
the issuance of letters of credit.
The Senior Bank Facilities contain a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into leases,
investments or acquisitions, engage in mergers or consolidations, make capital
expenditures, create subsidiaries, issue capital stock or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities. In addition, under the Senior Bank Facilities, the Company is
required to comply with specified financial ratios and tests, including a
minimum fixed
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charge coverage ratio, a minimum interest coverage ratio, a maximum leverage
ratio and a maximum capital expenditures test. The Senior Bank Facilities also
contain provisions that prohibit modifications to the terms of the Subordinated
Notes and prohibit the Company from refinancing the Subordinated Notes, in each
case, without the consent of the lenders under the Senior Bank Facilities or as
otherwise provided for therein.
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon completion of the Offering and after giving effect to the Exchange
Transaction, the Company will have a total of 9,815,142 shares of Common Stock
outstanding that will be "restricted securities" as that term is defined by Rule
144 (the "Restricted Shares"). This amount excludes 686,250 shares that may be
issuable upon exercise of options granted under the Stock Option Plans. The
Restricted Shares were issued by the Company in private transactions in reliance
upon exemptions from registration under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding (approximately 153,151 shares upon completion
of the Offering) or the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements, and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, would be entitled to sell such shares under Rule 144(k) without regard to
the requirements described above. Rule 144 also provides that affiliates who are
selling shares that are not Restricted Shares must nonetheless comply with the
same restrictions applicable to Restricted Shares with the exception of the
holding period requirement. The Securities and Exchange Commission is currently
contemplating amendments to Rule 144 which, if enacted, would permit the
Company's current stockholders to sell their shares of Common Stock upon such
enactment.
The Company's executive officers and Directors, Vestar, Cabot and all of
the other stockholders of the Company other than investors in the Offering (who
in the aggregate will hold 9,815,142 Restricted Shares upon completion of the
Offering) have agreed, subject to certain limited exceptions, not to sell or
offer to sell or otherwise dispose of any shares of Common Stock currently held
by them, any right to acquire any shares of Common Stock or any securities
exercisable for or convertible into any shares of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
the representatives of the Underwriters. The representatives of the Underwriters
may, in their sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements. In addition, the
Company has agreed that for a period of 180 days after the date of this
Prospectus it will not, without the prior written consent of the representatives
of the Underwriters, issue, offer, sell, grant options to purchase or otherwise
dispose of any equity securities or securities convertible into or exchangeable
for equity securities except for shares of Common Stock offered hereby and
shares issued pursuant to the Stock Option Plans.
Prior to the Offering, there has been no public market for the Common Stock
and no predictions can be made as to the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair
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the Company's future ability to raise capital through an offering of its equity
securities. See "Risk Factors--No Prior Market for Common Stock and Possible
Volatility of Stock Price."
REGISTRATION RIGHTS
The Stockholders' Agreement provides that, subject to certain limitations,
upon a written request by Vestar or a written request by Cabot (but only in the
event that a period of one year or more has elapsed since a public offering
without Cabot having an opportunity to participate), the Company will use its
best efforts to effect the registration of all or part of Common Stock owned by
such requesting stockholder, provided that (i) the Company will not be required
to effect more than one registration within any 360 day period and (ii) neither
Vestar nor Cabot will be entitled to request more than two registrations.
Whether or not Vestar or Cabot exercise their registration rights, the Company
is obligated to effect a registration of all Common Stock owned by Vestar, Cabot
and the Management Investors in July 1998. Under certain circumstances, if the
Company proposes to register shares of Common Stock, it will, upon the written
request of any stockholder, use all reasonable efforts to effect the
registration of such stockholders' Common Stock.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Goodwin, Procter &
Hoar LLP, Boston, Massachusetts. Ropes & Gray, Boston, Massachusetts, will pass
upon certain legal matters relating to the Offering for the Underwriters.
EXPERTS
The combined statement of operations of Aearo Company for the period ended
July 11, 1995, the consolidated balance sheet of Aearo Corporation as of
September 30, 1995 and the consolidated statements of operations, cash flows and
stockholders' equity for the period ended September 30, 1995 have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto and is included herein in reliance upon the
authority of said firm as experts in giving said reports.
The combined balance sheet as of September 30, 1994 and the combined
statements of operations, stockholders' equity and cash flows for the years
ended September 30, 1994 and 1993 included in this Prospectus and elsewhere in
the Registration Statement, to the extent and for the periods indicated in their
reports, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P. given on the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of Peltor Holdings AB included in
this Prospectus, to the extent and for the periods indicated in their report,
have been audited by Deloitte & Touche AB Sweden, independent auditors, and are
included herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the Securities and Exchange Commission (the
"Commission"), this Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any agreement or other document referred to are
not necessarily complete. With respect to each such agreement or other document
filed as an exhibit to the Registration Statement,
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reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in all respects by
such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and
at the following regional offices of the Commission: Seven World Trade Center,
New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the public
reference section of the Commission at its Washington address upon payment of
the prescribed fees. In addition, the Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, and such
electronic versions are available to the public at the Commission's World-Wide
Web Site, http://www.sec.gov.
The Company is currently subject to the informational reporting
requirements of the Exchange Act and, in accordance therewith, files reports and
other information with the Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by the Company's independent accountants
and quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited interim financial information.
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<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
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<S> <C> <C>
1. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Consolidated Financial Statements............. F-2
Unaudited Pro Forma Consolidated Statements of Operations for the Year Ended
September 30, 1995................................................................ F-3
Unaudited Pro Forma Consolidated Statements of Operations for the Six Months Ended
March 31, 1996.................................................................... F-4
Unaudited Pro Forma Consolidated Statements of Operations for the Six Months Ended
March 31, 1995.................................................................... F-5
Notes to Unaudited Pro Forma Consolidated Statements of Operations................ F-6
Unaudited Pro Forma Consolidated Balance Sheet -- March 31, 1996.................. F-10
Notes to Unaudited Pro Forma Consolidated Balance Sheet........................... F-11
2. AEARO CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Public Accountants -- Arthur Andersen LLP.................. F-12
Report of Independent Accountants -- Coopers & Lybrand L.L.P...................... F-14
Balance Sheets -- As of September 30, 1995 and 1994 and March 31, 1996
(unaudited)....................................................................... F-15
Statements of Operations for the Periods Ended September 30, 1995, July 11, 1995
and the Years Ended September 30, 1994 and 1993 and the Six Months Ended March 31,
1996 and 1995 (unaudited)......................................................... F-16
Statements of Stockholders' Equity for the Periods Ended March 31, 1996
(unaudited), September 30, 1995, July 11, 1995 and the Years Ended September 30,
1994 and 1993..................................................................... F-17
Statements of Cash Flows for the Periods Ended September 30, 1995, July 11, 1995
and the Years Ended September 30, 1994 and 1993 and the Six Months Ended March 31,
1996 and 1995 (unaudited)......................................................... F-18
Notes to Financial Statements..................................................... F-19
3. PELTOR HOLDING AB CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report...................................................... F-39
Consolidated Balance Sheets, December 31, 1995 and 1994........................... F-40
Consolidated Income Statements for the Years Ended December 31, 1995, 1994 and
1993.............................................................................. F-41
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1994 and 1993............................................................... F-42
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993.......................................................................... F-43
Notes to Consolidated Financial Statements........................................ F-44
</TABLE>
F-1
<PAGE> 74
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements of the
Company for the fiscal year ended September 30, 1995 and the six months ended
March 31, 1996 and 1995 were derived from the Company's historical financial
statements included elsewhere in this Prospectus, adjusted to give effect to (i)
the Formation Acquisition and the financing thereof, (ii) the Eastern
Acquisition and related financing, (iii) the Peltor Acquisition and related
financing (collectively, the Acquisitions), (iv) the Offering and (v) the
Exchange Transaction. The pro forma balance sheet data give effect to the
Offering, the Exchange Transaction and the Acquisitions and the financing
thereof as if they had occurred on March 31, 1996. The pro forma consolidated
statements of operations of the Company for the six months ended March 31, 1996
and for the year ended September 30, 1995 reflect the Offering, the Exchange
Transaction and the Acquisitions as if they had occurred on October 1, 1994.
The pro forma consolidated financial statements are provided for
informational purposes only and are not necessarily indicative of the financial
position or operating results that would have occurred had the Offering, the
Exchange Transaction and the Acquisitions been consummated on the dates, or at
the beginning of the period, for which the consummation of the Offering, the
Exchange Transaction and the Acquisitions is being given effect, nor is it
necessarily indicative of future operating results or financial position. The
pro forma adjustments do not reflect any operating efficiencies and cost savings
which the Company believes are achievable or the cost of achieving any such
operating efficiencies and cost savings. The pro forma adjustments do include
the Company's estimate of incremental costs necessary to operate the Company on
a stand-alone basis as a result of the Formation Acquisition.
The unaudited pro forma consolidated financial statements have been
prepared using the purchase method of accounting, whereby the total cost of the
Acquisitions will be allocated to the tangible and intangible assets acquired
and liabilities assumed based upon their respective fair values at the effective
date of the acquisitions. Such allocations will be based on studies and
valuations which have not yet been completed. Accordingly, the allocations
reflected in the pro forma consolidated financial statements are preliminary and
subject to revision, however, the Company does not expect material changes to
the allocation of the purchase price.
The following unaudited pro forma consolidated financial statements have
been prepared from, and should be read in conjunction with, the Company's and
Peltor's historical consolidated financial statements, including the notes
thereto, included elsewhere in this Prospectus.
F-2
<PAGE> 75
AEARO CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR PELTOR YEAR EASTERN YEAR
OCTOBER 1, JULY 12, 1995 TO ENDED ENDED
1994 TO SEPTEMBER 30, DECEMBER 31, NOVEMBER 30, PRO FORMA PRO FORMA
JULY 11, 1995 1995 1995 1995 ADJUSTMENTS AS ADJUSTED
------------- ---------------- ------------ ------------ ----------- -----------
(NOTE 1)
<S> <C> <C> <C> <C> <C> <C>
Net Sales............................ $154,712 $47,900 $39,284 $13,813 $ -- $ 255,709
Cost of Sales........................ 87,674 29,319 18,930 10,114 (1,041) 144,996
-------- ------- ------- ------- -------- --------
Gross profit...................... 67,038 18,581 20,354 3,699 1,041 110,713
-------- ------- ------- ------- -------- --------
Operating Expenses:
Selling and administrative.......... 47,149 13,146 9,017 3,092 (808) 71,596
Research and technical service...... 2,273 551 1,227 -- -- 4,051
Amortization........................ 4,361 838 -- -- 3,397 8,596
Other charges (income), net......... (233) 70 1,219 41 (1,479) (382)
-------- ------- ------- ------- -------- --------
Operating profit.................. 13,488 3,976 8,891 566 (69) 26,852
Interest Expense, net................ 5,673 4,135 235 5 12,122 22,170
-------- ------- ------- ------- -------- --------
Income (loss) before income
taxes........................... 7,815 (159) 8,656 561 (12,191) 4,682
Provision (Benefit) for Income
Taxes............................... 3,009 425 2,967 41 (3,626) 2,816
-------- ------- ------- ------- -------- --------
Net income (loss)................. 4,806 (584) 5,689 520 (8,565) 1,866
Preferred Stock Dividend Accrued..... -- 1,283 -- -- (1,283) --
-------- ------- ------- ------- -------- --------
Earnings (Loss) Applicable to Common
Shareholders........................ $ 4,806 $(1,867) $ 5,689 $ 520 $ (7,282) $ 1,866
======== ======= ======= ======= ======== ========
Net Income (Loss) per Share (Note
2).................................. $ .12
========
Weighted average number of common
shares outstanding (Note 2)......... 15,492,856
</TABLE>
F-3
<PAGE> 76
AEARO CORPORATION
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
SUCCESSOR PELTOR EASTERN
OCTOBER 1, OCTOBER 1, OCTOBER 1, 1995
1995 TO 1995 TO TO DECEMBER 31, PRO FORMA PRO FORMA
MARCH 31, 1996 MARCH 31, 1996 1995 ADJUSTMENTS AS ADJUSTED
-------------- -------------- --------------- ----------- -----------
(NOTE 1)
<S> <C> <C> <C> <C> <C>
Net Sales......................................... $112,716 $20,707 $3,035 $ -- $ 136,458
Cost of Sales..................................... 62,340 10,442 2,320 190 75,292
-------- ------- ------ ------- -----------
Gross profit................................... 50,376 10,265 715 (190) 61,166
-------- ------- ------ ------- -----------
Operating Expenses:
Selling and administrative....................... 33,354 5,283 688 -- 39,325
Research and technical service................... 1,593 605 -- -- 2,198
Amortization expense............................. 1,956 -- -- 2,181 4,137
Other charges (income), net...................... (3) 1,111 (3) (1,565) (460)
-------- ------- ------ ------- -----------
Operating profit............................... 13,476 3,266 30 (806) 15,966
Interest Expense, net............................. 9,068 (50) 1 1,544 10,563
-------- ------- ------ ------- -----------
Income (loss) before income taxes.............. 4,408 3,316 29 (2,350) 5,403
Provision (Benefit) for Income Taxes.............. 1,938 1,061 12 (333) 2,678
-------- ------- ------ ------- -----------
Net income (loss).............................. 2,470 2,255 17 (2,017) 2,725
Preferred Stock Dividend Accrued.................. 3,033 -- -- (3,033) --
-------- ------- ------ ------- -----------
Earnings (Loss) Applicable to Common
Shareholders..................................... $ (563) $ 2,255 $ 17 $ 1,016 $ 2,725
======== ======= ====== ======= ===========
Net Income (Loss) per Share (Note 2).............. $ .18
===========
Weighted average number of common shares
outstanding (Note 2)............................. 15,492,856
</TABLE>
F-4
<PAGE> 77
AEARO CORPORATION
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
PREDECESSOR PELTOR EASTERN
OCTOBER 1, OCTOBER 1, DECEMBER 1,
1994 TO 1994 TO 1994 TO MAY 31, PRO FORMA PRO FORMA AS
MARCH 31, 1995 MARCH 31, 1995 1995 ADJUSTMENTS ADJUSTED
-------------- -------------- --------------- ----------- ------------
(NOTE 1)
<S> <C> <C> <C> <C> <C>
Net Sales......................................... $97,704 $17,181 $6,907 $ -- $ 121,792
Cost of Sales..................................... 55,182 8,482 5,057 1,589 70,310
------- ------- ------ -------- -----------
Gross profit................................... 42,522 8,699 1,850 (1,589) 51,482
------- ------- ------ -------- -----------
Operating Expenses:
Selling and administrative....................... 28,204 4,666 1,546 690 35,106
Research and technical service................... 1,585 328 -- -- 1,913
Amortization expense............................. 2,801 -- -- 1,547 4,348
Other charges (income), net...................... 12 (182) 23 -- (147)
------- ------- ------ -------- -----------
Operating profit............................... 9,920 3,887 281 (3,826) 10,262
Interest Expense, net............................. 3,577 173 -- 7,216 10,966
------- ------- ------ -------- -----------
Income (loss) before income taxes.............. 6,343 3,714 281 (11,042) (704)
Provision (Benefit) for Income Taxes.............. 2,343 1,004 21 (2,667) 701
------- ------- ------ -------- -----------
Net income (loss).............................. 4,000 2,710 260 (8,375) (1,405)
Preferred Stock Dividend Accrued.................. -- -- -- -- --
------- ------- ------ -------- -----------
Earnings (Loss) Applicable to Common
Shareholders..................................... $ 4,000 $ 2,710 $ 260 $ (8,375) $ (1,405)
======= ======= ====== ======== ===========
Net Income (Loss) per Share (Note 2).............. $ (.09)
===========
Weighted average number of common shares
outstanding (Note 2)............................. 15,492,856
</TABLE>
F-5
<PAGE> 78
AEARO CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(1) Pro forma adjustments to the consolidated statements of operations are
summarized in the following table and are described in the notes below:
<TABLE>
Pro forma adjustments for the year ended September 30, 1995 are as follows:
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------------
FORMATION
ACQUISITION PELTOR EASTERN OFFERING TOTAL
----------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Cost of sales........................... $(1,443) $ 357 $ 45 $ -- $(1,041)(a)
Selling and administrative.............. (808) -- -- -- (808)(b)/(c)
Amortization............................ (1,151) 4,177 371 -- 3,397 (d)
Interest expense, net................... 8,733 7,809 601 (5,021) 12,122 (e)
Preferred stock dividend accrued........ 4,903 -- -- (6,186) (1,283)(g)
Other charges (income), net............. -- (1,479) -- -- (1,479)(h)
</TABLE>
<TABLE>
Pro forma adjustments for the six months ended March 31, 1996 are as
follows:
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------
PELTOR EASTERN OFFERING TOTAL
------ ------- -------- -----
<S> <C> <C> <C> <C>
Cost of sales....................................... $ 179 $ 11 $ -- $ 190 (a)
Amortization expenses............................... 2,088 93 -- 2,181 (d)
Interest expense, net............................... 3,905 150 (2,511) 1,544 (e)
Preferred stock dividend accrued.................... -- -- (3,033) (3,033)(g)
Other charges (income), net......................... (1,565) -- -- (1,565)(h)
</TABLE>
<TABLE>
Pro forma adjustments for the six months ended March 31, 1995 are as
follows:
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------------
FORMATION
ACQUISITION PELTOR EASTERN OFFERING TOTAL
----------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Cost of sales............................ $1,388 $ 179 $ 22 $ -- $1,589(a)
Selling and administrative............... 690 -- -- -- 690(b)/(c)
Amortization............................. (727) 2,088 186 -- 1,547(d)
Interest expense, net.................... 5,522 3,905 300 (2,511) 7,216(e)
- ---------------
<FN>
(a) Adjustments reflect increases in depreciation resulting from the
preliminary purchase price allocation to fixed assets.
</TABLE>
The adjustment related to the Formation Acquisition for the year ended
September 30, 1995 also reflects the elimination of a nonrecurring increase
in cost of sales resulting from the preliminary purchase price allocation
which increased the estimated fair value of finished goods inventories by
$3,640 on October 1, 1994. This amount was recorded in cost of sales as the
acquired inventory was sold during the period ended September 30, 1995.
(b) Reflects the estimated increased costs (primarily insurance and other
administrative costs) to be incurred by the Company on a stand-alone basis
of $1,092 as a result of the Formation Acquisition for the year ended
September 30, 1995. With regard to the increased costs to be incurred, the
Company had been run as a separate entity when owned by Cabot Corporation
with separate information systems, benefits and a separate audit. The
primary areas of shared services were in insurance as the Company
participated in combined programs with Cabot Corporation as well as in tax
and legal oversight. The Company estimated the costs of obtaining
stand-alone insurance by obtaining quotes from underwriters and
subsequently placed insurance with these underwriters for similar amounts.
Similarly, the company has been
F-6
<PAGE> 79
AEARO CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995 -- (CONTINUED)
<TABLE>
obtaining tax and legal advice for amounts not materially different than
those estimated in the pro forma adjustments. The following is a detailed review
of these costs on an annual basis:
<CAPTION>
<S> <C>
Insurance Premiums/Deductibles.................................. $ 900
Tax Planning.................................................... 100
Management Fee.................................................. 400
------
Total Increase........................................ $1,400
======
</TABLE>
(c) Reflects the elimination of non-recurring charges of approximately $800 and
$1,100 related to taxes and penalties resulting from delinquency in the
remittance of value-added tax payments to the French government and the
termination of the Old Cabot Safety Corporation stock option plan,
respectively, for the year ended September 30, 1995.
<TABLE>
(d) A summary of pro forma intangible assets after the Acquisitions and their
related useful lives are as follows (dollars in millions):
<CAPTION>
ESTIMATED
ANNUAL
AMOUNT LIFE AMORTIZATION
------ ---- ------------
<S> <C> <C> <C>
Formation Acquisition:
Goodwill........................... $55.1 25.0 $2.2
Other Intangibles.................. 37.2 21.6 1.7
Eastern:
Goodwill........................... 3.1 25.0 .1
Non compete........................ .2 5.0 --
Consulting agreement............... .8 5.0 .2
Other intangibles.................. 2.0 25.0 .1
Peltor:
Goodwill and other intangibles..... 58.1 25.0 2.2
Non compete........................ 10.0 5.0 2.0
----
Pro forma amortization........ $8.6
====
</TABLE>
Estimated useful lives of intangibles are determined by management after
reviewing the nature of the item and other relevant business considerations such
as the rate of technological change in the Company's manufacturing processes and
products, the Company's strong market position, and the fragmented nature of the
industry. Non compete agreements are amortized over the life of the related
agreements. Other intangibles primarily consist of tradenames and trademarks.
The allocation of purchase price for the Peltor acquisition is preliminary and
subject to further studies and appraisals. Management does not, however, expect
the finalization of the purchase price to be materially different than the
allocation used for the pro forma financial statements.
F-7
<PAGE> 80
AEARO CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995 -- (CONTINUED)
(e) Reflects interest expense on indebtedness incurred in connection with the
Acquisitions as if they had been completed on October 1, 1994.
<TABLE>
The following table summarizes the Acquisition pro forma adjustments to
interest expense for the year ended September 30, 1995:
<CAPTION>
FORMATION
ACQUISITION PELTOR EASTERN OFFERING
----------- ------ ------- --------
<S> <C> <C> <C> <C>
Pro forma interest expense --
Senior secured revolving credit
facility(i).......................... $ 401 $ -- $ -- $ --
Senior secured term loan at 8.0% (ii)... 2,808 7,226 601 (441)
Senior subordinated notes at 12.5%
(ii)................................. 9,750 -- -- (4,375)
Other third-party debt.................. 423 -- -- --
Amortization of debt issuance
costs(iii)........................... 1,024 583 -- (205)
------- ------ ----
Pro forma interest expense (iv)...... 14,406 7,809 601 (5,021)
Historical interest expense.......... 5,673 -- --
------- ------ ---- -------
Net interest expense
adjustment.................... $ 8,733 $7,809 $601 $(5,021)
======= ====== ==== =======
</TABLE>
(i) Amounts include a commitment fee of .5% of the total unused portion of
available credit.
(ii) Interest expense is reduced as a result of using proceeds from the Offering
to redeem $35.0 million of Subordinated Notes and approximately $6.2
million of Senior Secured Term Loans.
(iii) The costs incurred that were associated with the Formation Acquisition
debt financing of $9,300 have been capitalized as deferred charges and are
being amortized over the assumed term of the related debt -- five years
for the Senior Secured Revolving Credit Facility and Senior Secured Term
Loan and ten years for the Subordinated Notes. Costs related to the Peltor
debt financing totaling $3,500 were capitalized and are being amortized
over the allowed six year term of the related debt.
(iv) Upon completion of the Offering, the Company expects to have approximately
$130 million in variable rate debt. A 1/8 of one percent change in the base
rate would change interest expense by approximately $163.
(f) Income tax adjustments have been calculated using estimated statutory
income tax rates. The tax adjustments related to Eastern include amounts
necessary to reflect its historical tax provisions as if it were operated
as a C Corporation. The primary difference between the provision calculated
at statutory rates and the amount reflected in the pro forma statements is
attributable to nondeductible goodwill associated with the Peltor
Acquisition.
(g) All outstanding shares of Redeemable Preferred Stock, including accrued and
unpaid dividends, will be redeemed or exchanged for Common Stock in
connection with the Offering and Exchange Transaction. See "The Offering"
and "Use of Proceeds." Accordingly, the pro forma consolidated statements
of income (as adjusted) for the year ended September 30, 1995 and six
months ended March 31, 1996 and 1995 are adjusted to eliminate preferred
stock dividends.
(h) Reflects the elimination of a management fee charged to Peltor by Active
(parent company) considered to be a non-recurring group contribution.
(i) Pro forma adjustments do not reflect the effect of an extraordinary charge
to be recorded related to the early retirement of certain debt which will
be recorded in the period in which the the debt is repaid. The Company
expects to record an extraordinary charge of approximately $4,000, net of
tax, or $.26 per share, in the fourth quarter of fiscal 1996 when the debt
is paid consisting of redemption premium and write-off of related debt
issuance costs. The Company also expects to record a charge of
approximately $800, net of tax, or $.05 per share, in connection with the
termination of the Company's management advisory agreement with Vestar and
Cabot.
F-8
<PAGE> 81
AEARO CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995 -- (CONTINUED)
(j) Pro forma adjustments do not reflect charges related to non-qualified stock
options, deemed to be "Cheap Stock", granted certain members of management
under the Executive Stock Option Plan. The Company expects to record a
total charge of approximately $1.4 million representing compensation cost
related to the difference between the option price and the fair value of
the shares at date of grant. The total charge will be charged to expense
over ten years, the service period covered by the options, subject to
earlier recognition if the vesting of the options is accelerated in
accordance with their terms.
(2) Pro forma earnings per common share give effect to the pro forma adjustments
described above the 80 to 1 stock split, issuance of 5,500,000 shares of
Common Stock in the Offering and the Exchange Transaction as if each such
transaction had occurred as of October 1, 1994. The weighted average number
of common shares outstanding include options qualifying as common stock
equivalents, deemed to be "Cheap Stock," related to the Company's Executive
Stock Option Plan.
F-9
<PAGE> 82
AEARO CORPORATION
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
PRO FORMA
COMPANY PELTOR ADJUSTMENTS
HISTORICAL HISTORICAL (NOTE 1) PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 2,447 $ 6,273 $ (5,273) $ 3,447
Accounts receivable, net........................ 35,907 6,201 -- 42,108
Inventories..................................... 28,087 9,711 1,000 38,798
Deferred and prepaid expenses................... 3,075 1,100 -- 4,175
-------- -------- -------- --------
Total current assets......................... 69,516 23,285 (4,273) 88,528
Property, Plant and Equipment, net................ 54,111 6,550 2,500 63,161
Intangible Assets................................. 95,434 -- 68,084 163,518
Other Assets...................................... 7,120 8 1,300 8,428
-------- -------- -------- --------
Total assets................................. $226,181 $ 29,843 $ 67,611 $323,635
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable................................... $ -- $ 5,910 $ (5,910) $ --
Current portion of long-term debt............... 7,039 2,952 (2,952) 7,039
Accounts payable and accrued liabilities........ 32,133 6,167 2,000 40,300
U.S. and foreign income taxes................... 731 1,188 (2,600) (681)
-------- -------- -------- --------
Total current liabilities.................... 39,903 16,217 (9,462) 46,658
-------- -------- -------- --------
Long-Term Debt.................................... 149,073 1,070 48,672 198,815
-------- -------- -------- --------
Deferred Income Taxes............................. -- 40 -- 40
-------- -------- -------- --------
Other Long-Term Liabilities....................... 2,860 -- -- 2,860
-------- -------- -------- --------
Stockholders' Equity:
Preferred stock................................. -- -- -- --
Common stock.................................... 1 620 (619) 2
Additional paid-in capital...................... 32,652 896 44,745 78,293
Retained earnings............................... 1,886 10,785 (15,510) (2,839)
Foreign currency translation adjustment......... (194) 215 (215) (194)
-------- -------- -------- --------
Total stockholders' equity................... 34,345 12,516 28,701 75,262
-------- -------- -------- --------
Total liabilities and stockholders' equity... $226,181 $ 29,843 $ 67,611 $323,635
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
F-10
<PAGE> 83
AEARO CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
(1) Pro forma adjustments to the Unaudited Pro Forma Consolidated Balance Sheet
are summarized in the following table and are described in the notes below:
<CAPTION>
PURCHASE PRICE
ALLOCATION/PELTOR TOTAL
FINANCING(A) OFFERINGS(B) ADJUSTMENTS
------------------- ------------ -----------
<S> <C> <C> <C>
Cash............................................... $ (5,273) $ -- $ (5,273)
Inventories........................................ 1,000 -- 1,000
Property, plant and equipment...................... 2,500 -- 2,500
Intangible assets.................................. 68,084 -- 68,084
Deferred charges................................... 3,500 (2,200) 1,300
Notes payable...................................... (5,910) -- (5,910)
Current portion of long-term debt.................. (2,952) -- (2,952)
Accrued liabilities................................ 2,000 -- (2,000)
U.S. and foreign income taxes...................... -- (2,600) (2,600)
Senior secured revolving credit facility........... 85,600 -- 85,600
Long-term loan..................................... 3,589 (5,517) (1,928)
Subordinated notes................................. -- (35,000) (35,000)
Common Stock....................................... (620) -- (620)
Additional paid-in capital......................... (896) 45,641 44,745
Retained earnings.................................. (10,785) (4,725) (15,510)
Foreign currency translation adjustment............ (215) -- (215)
<FN>
- ---------------
(a) Reflects the acquisition of assets and liabilities as follows:
</TABLE>
<TABLE>
<S> <C>
Cash paid to Peltor....................................................... $81,100
Acquisition costs......................................................... 4,500
-------
Total consideration and acquisition costs....................... 85,600
Historical Cost of Net Assets Acquired.................................... 12,516
-------
Excess of consideration paid over historical cost....................... $73,084
=======
Allocation of Excess of Consideration Paid over Historical Cost:
Inventories............................................................. $ 1,000
Property, plant and equipment, net...................................... 2,500
Deferred financing costs................................................ 3,500
Intangible assets....................................................... 68,084
Accrued liabilities..................................................... (2,000)
-------
$73,084
=======
<FN>
- ---------------
(b) Reflects the offering proceeds and uses as follows:
</TABLE>
<TABLE>
<S> <C>
Proceeds:
Estimated Proceeds...................................................... $77,000
Less -- Offering costs and expenses..................................... (6,700)
-------
$70,300
=======
Uses:
Preferred stock, including accrued dividends............................ $24,658
Repayment of Notes, including a prepayment penalty of $4,375............ 39,375
Termination of Management Advisory Agreement............................ 750
Repayment of Term Loans................................................. 5,517
-------
$70,300
=======
</TABLE>
The Company will record an extraordinary loss of approximately $4,000 or
$.26 per share as a result of the prepayment penalty and write off of deferred
financing costs associated with the early redemption of a portion of the
Subordinated Notes and repayment of bank debt in the period in which the Notes
are redeemed and bank debt is repaid. The Company also expects to record a
$1,250 charge ($750 net of tax) in connection with the termination of its
management advisory agreement with Vestar and Cabot in the same quarter.
F-11
<PAGE> 84
After the 80 for 1 stock split and increased share authorization described
in Note 17 to Aearo Corporation's financial statements is effected, we expect to
be in a position to render the following report.
Arthur Andersen LLP
July 8, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Aearo Corporation:
We have audited the accompanying balance sheet of Aearo Corporation (a
Delaware corporation) as of September 30, 1995, and the related statements of
operations, stockholders' equity and cash flows for the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aearo Corporation as of
September 30, 1995, and the results of its operations and its cash flows for the
period then ended, in conformity with generally accepted accounting principles.
Boston, Massachusetts
December 29, 1995 (except
for the matters discussed in
Note 17 as to which the
date is July , 1996)
F-12
<PAGE> 85
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Aearo Inc.:
We have audited the accompanying combined statement of operations,
stockholders' equity and cash flows of Aearo Inc. (the Company) as of July 11,
1995, and for the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Aearo Inc.
for the period ended July 11, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 29, 1995
F-13
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders of
Aearo Inc.
We have audited the accompanying combined balance sheet of Aearo Inc.,
formerly Cabot Safety Corporation (the "Predecessor") as of September 30, 1994
and the related combined statements of operations, cash flows, and stockholder's
equity for the fiscal years ended September 30, 1994 and 1993. These financial
statements are the responsibility of the Predecessor'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 combined financial position of the Predecessor as
of September 30, 1994, and the combined results of its operations and its cash
flows for the fiscal years ended September 30, 1994 and 1993, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 26, 1994
F-14
<PAGE> 87
AEARO CORPORATION
<TABLE>
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<CAPTION>
SEPTEMBER 30,
------------------------- MARCH 31,
1994 1995 1996
(PREDECESSOR (SUCCESSOR (SUCCESSOR
COMPANY) COMPANY) COMPANY)
----------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 2,020 $ 4,707 $ 2,447
Accounts receivable (net of reserve for doubtful
accounts of $1,016 in 1994, $1,221 in 1995 and
$1,165 at March 31, 1996)........................ 26,739 28,586 35,907
Inventories......................................... 27,985 25,914 28,087
Deferred and prepaid expenses....................... 816 2,830 3,075
-------- -------- --------
Total current assets........................ 57,560 62,037 69,516
-------- -------- --------
Property, Plant and Equipment, net.................... 32,448 53,069 54,111
Intangible Assets, net................................ 66,072 92,445 95,434
Other Assets.......................................... -- 10,712 7,120
Intercompany Balances Receivable...................... 15,073 -- --
-------- -------- --------
Total assets................................ $171,153 $218,263 $226,181
======== ======== ========
Current Liabilities:
Note payable to bank................................ 25,000 -- --
Current portion of long-term debt................... 167 5,837 7,039
Accounts payable and accrued liabilities............ 19,462 28,412 29,379
Accrued interest.................................... -- 3,090 2,754
U.S. and foreign income taxes....................... 5,691 262 731
Deferred income taxes............................... 735 -- --
-------- -------- --------
Total current liabilities................... 51,055 37,601 39,903
-------- -------- --------
Long-term Debt........................................ 76,761 146,460 149,073
Deferred Income Taxes................................. 7,883 -- --
Other Liabilities..................................... 250 2,248 2,860
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value --
Authorized -- 200,000 shares
Issued and outstanding -- 45,000 shares.......... -- --
Common stock, $.10 par value --
Authorized -- 30,000 shares
Issued and outstanding -- 9,500 shares........... 1 -- --
Common stock, $.01 par value --
Authorized -- 50,000,000 shares
Issued and outstanding -- 8,000,000 shares....... 1 1
Additional paid-in capital.......................... 21,228 32,530 32,652
Retained earnings................................... 18,249 (584) 1,886
Foreign currency translation adjustments............ (4,274) 7 (194)
-------- -------- --------
Total stockholders' equity.................. 35,204 31,954 34,345
-------- -------- --------
Total liabilities and stockholders'
equity.................................... $171,153 $218,263 $226,181
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 88
AEARO CORPORATION
<TABLE>
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>
PREDECESSOR COMPANY
----------------------------------------------- SUCCESSOR COMPANY
YEAR ENDED FOR THE SIX ----------------------------
SEPTEMBER 30, MONTHS ENDED PERIOD ENDED PERIOD ENDED FOR THE SIX
--------------- MARCH 31, JULY 11, SEPTEMBER 30, MONTHS ENDED
1993 1994 1995 1995 1995 MARCH 31,
---- ---- ------------ ------------ ------------ 1996
(UNAUDITED) ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Sales.................... $169,608 $178,295 $97,704 $154,712 $47,900 $112,716
Cost of Sales (Note 3)....... 96,651 99,532 55,182 87,674 29,319 62,340
-------- -------- ------- -------- ------- --------
Gross profit......... 72,957 78,763 42,522 67,038 18,581 50,376
Selling and Administrative... 45,339 51,659 28,204 47,149 13,146 33,354
Research and Technical
Services................... 2,277 2,733 1,585 2,273 551 1,593
Amortization Expense......... 5,692 5,593 2,801 4,361 838 1,956
Other Charges (Income),
net........................ 66 (45) 12 (233) 70 (3)
-------- -------- ------- -------- ------- --------
Operating income..... 19,583 18,823 9,920 13,488 3,976 13,476
Interest Expense, net........ 4,769 5,819 3,577 5,673 4,135 9,068
-------- -------- ------- -------- ------- --------
Income (loss) before
provision for income
taxes and cumulative
effect of accounting
changes.................. 14,814 13,004 6,343 7,815 (159) 4,408
Provision for Income Taxes... 5,695 5,018 2,343 3,009 425 1,938
-------- -------- ------- -------- ------- --------
Income (loss) before
cumulative effect of
accounting changes....... 9,119 7,986 4,000 4,806 (584) 2,470
Cumulative Effect of
Accounting Changes......... 303 -- -- -- -- --
-------- -------- ------- -------- ------- --------
Net income (loss).... $ 9,422 $ 7,986 $ 4,000 $ 4,806 $ (584) $ 2,470
======== ======== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE> 89
AEARO CORPORATION
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------ FOREIGN
ADDITIONAL CURRENCY
PREFERRED COMMON PAID-IN RETAINED TRANSLATION
STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS TOTAL
--------- ------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1992..... $ -- $ 1 $21,228 $ 25,841 $ (920) $ 46,150
Foreign currency translation
adjustments................ -- -- -- -- (4,617) (4,617)
Net income.................... -- -- -- 9,422 -- 9,422
---- ---- ------- -------- ------- --------
Balance, September 30, 1993..... -- 1 21,228 35,263 (5,537) 50,955
Foreign currency translation
adjustments................ -- -- -- -- 1,263 1,263
Net income.................... -- -- -- 7,986 -- 7,986
Dividend paid................. -- -- -- (25,000) -- (25,000)
---- ---- ------- -------- ------- --------
Balance, September 30, 1994..... -- 1 21,228 18,249 (4,274) 35,204
Foreign currency translation
adjustments................ -- -- -- -- 75 75
Net income.................... -- -- -- 4,806 -- 4,806
---- ---- ------- -------- ------- --------
Balance, July 11, 1995.......... $ -- $ 1 $21,228 $ 23,055 $(4,199) $ 40,085
==== ==== ======= ======== ======= ========
SUCCESSOR COMPANY
Issuance of common and
preferred stock in
connection with acquisition,
net......................... $ -- $ 1 $32,530 $ -- $ -- $ 32,531
Foreign currency translation
adjustments................ -- -- -- -- 7 7
Net loss...................... -- -- -- (584) -- (584)
---- ---- ------- -------- ------- --------
Balance, September 30, 1995..... -- 1 32,530 (584) 7 31,954
Repayment of shareholders
notes...................... -- -- 122 -- -- 122
Foreign currency translation
adjustment................. -- -- -- -- (201) (201)
Net income.................... -- -- -- 2,470 -- 2,470
---- ---- ------- -------- ------- --------
Balance, March 31, 1996
(unaudited)................... $ -- $ 1 $32,652 $ 1,886 $ (194) $ 34,345
==== ==== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 90
AEARO CORPORATION
<TABLE>
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------------------------------- ----------------------------
YEAR ENDED FOR THE SIX FOR THE SIX
SEPTEMBER 30, MONTHS ENDED PERIOD ENDED PERIOD ENDED MONTHS ENDED
------------------- MARCH 31, JULY 11, SEPTEMBER 30, MARCH 31,
1993 1994 1995 1995 1995 1996
---- ---- ------------ ------------ ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).......................... $ 9,422 $ 7,986 $ 4,000 $ 4,806 $ (584) $ 2,470
Adjustments to reconcile net income (loss)
to cash provided by operating
activities --
Depreciation and amortization............ 11,773 11,743 6,318 9,216 2,092 6,058
Deferred income taxes.................... 2,847 1,941 194 1,851 -- --
Cumulative effect of accounting
changes................................ (303) -- -- -- -- --
Other, net............................... 522 365 143 160 (27) 20
Changes in assets and liabilities --
Accounts receivable.................... 702 (2,111) (2,198) (410) (1,523) (6,225)
Inventory.............................. 2,574 (3,611) (1,235) 903 4,190 (911)
Accounts payable and accruals.......... (2,062) 1,069 (1,055) 991 7,229 (1,751)
Other, net............................. 369 542 1,366 (3,610) (368) 1,479
-------- -------- ------- -------- --------- -------
Net cash provided by operating
activities......................... 25,844 17,924 7,533 13,907 11,009 1,140
-------- -------- ------- -------- --------- -------
Cash Flows from Investing Activities:
Cash paid for Cabot Safety Corporation and
Eastern.................................. -- -- -- -- (169,200) (6,636)
Eastern escrow deposit..................... -- -- -- -- (3,000) 3,000
Additions to property, plant and
equipment................................ (9,040) (4,548) (5,320) (10,448) (2,719) (4,040)
Proceeds provided by disposals of property,
plant and equipment...................... 154 34 4 4 -- --
-------- -------- ------- -------- --------- -------
Net cash used by investing
activities......................... (8,886) (4,514) (5,316) (10,444) (174,919) (7,676)
-------- -------- ------- -------- --------- -------
Cash Flows from Financing Activities:
Issuance of common and preferred stock in
connection with acquisition, net......... -- -- -- -- 32,531 --
Proceeds from sale of notes.............. -- -- -- -- 100,000 --
Proceeds from term loan.................... -- -- -- -- 45,000 --
Proceeds from revolving credit facility,
net...................................... -- -- -- -- 3,800 6,800
Payment of financing costs................. -- -- -- -- (11,382) --
Repayment of term loan..................... -- -- -- -- (1,249) (2,480)
Proceeds from issuance of note payable to
bank..................................... -- 25,000 -- -- -- --
Repayment of external long-term debt....... (131) (161) (49) (122) (109) (75)
Increase (repayment) of note payable to
Cabot Corporation, net................... (10,054) (5,340) 5,338 1,412 -- --
Increase in intercompany receivables,
net...................................... (5,644) (8,137) (6,898) (5,381) -- --
Dividend paid.............................. -- (25,000) -- -- -- --
Repayment of shareholder notes............. -- -- -- -- -- 123
-------- -------- ------- -------- --------- -------
Net cash (used) provided by financing
activities......................... (15,829) (13,638) (1,609) (4,091) 168,591 4,368
-------- -------- ------- -------- --------- -------
Effect of Exchange Rate Changes on Cash...... (656) 886 376 78 26 (92)
-------- -------- ------- -------- --------- -------
Increase (Decrease) in Cash and Cash
Equivalents................................ 473 658 984 (550) 4,707 (2,260)
Cash and Cash Equivalents, beginning of
period..................................... 889 1,362 2,020 2,020 -- 4,707
-------- -------- ------- -------- --------- -------
Cash and Cash Equivalents, end of period..... $ 1,362 $ 2,020 3,004 $ 1,470 $ 4,707 2,447
======== ======== ======= ======== ========= =======
Noncash Investing and Financing Activities:
Capital lease obligations.................. $ 450 $ 71 $ -- $ 128 $ -- $ --
======== ======== ======= ======== ========= =======
Cash Paid for:
Interest................................... $ 342 $ 1,661 $ 1,041 $ 1,734 $ 794 $ 8,914
======== ======== ======= ======== ========= =======
Income taxes............................... $ 2,980 $ 3,013 $ 640 $ 2,265 $ 37 $ 407
======== ======== ======= ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 91
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) BASIS OF PRESENTATION
For periods prior to July 11, 1995, the accompanying financial statements
represent the combined results and financial position of Aearo Company (formerly
Cabot Safety Corporation) and certain affiliates (Predecessor) all of which were
wholly owned by Cabot Corporation (Cabot). On July 11, 1995, Cabot sold
substantially all of the assets and certain liabilities of the Predecessor to
Aearo Corporation (formerly Cabot Safety Holdings, Inc.) as described in Note 3
(Formation Acquisition). Financial statements for periods subsequent to July 11,
1995 represent the consolidated financial statements of Aearo Corporation and
subsidiaries (Successor). References to the Company refer to the Predecessor
prior to the Formation Acquisition and the Successor postacquisition.
Separate financial statements of Aearo Company are not presented because
they do not provide any additional information from what is presented in the
financial statements of Aearo Corporation that would be material to the holders
of the senior subordinated notes (see Note 8).
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly, in accordance with generally accepted accounting principles, the
Company's financial position, results of operations and cash flows for the
interim periods presented. Such adjustments consisted of only normal recurring
items. The results of operations for the interim periods shown in this report
are not necessarily indicative of results for any future interim period or for
the entire year. These condensed consolidated financial statements do not
include all disclosures associated with annual financial statements and
accordingly should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10K.
(2) ORGANIZATION
The Company manufactures and sells personal safety equipment, as well as
energy-absorbing, vibration-damping and impact-absorbing products for industrial
noise control and environment enhancement. Included in personal safety equipment
are hearing protection, safety eyewear and respiratory equipment.
Prior to 1990, Cabot operated its domestic and foreign safety products and
noise control businesses in several subsidiaries and divisions. During 1990,
Cabot contributed the capital stock and net assets of its E-A-R division to the
Company. In April 1990, Cabot purchased the assets of AOSafety, the Safety
Products Division of American Optical Corporation.
(3) ACQUISITION AND FINANCING
Aearo Corporation was formed by Vestar Equity Partners, L.P. (Vestar) in
June 1995 to effect the acquisition of substantially all of the assets and
liabilities of Aearo Company and its subsidiaries (the Acquisition). Aearo
Company was wholly owned by Cabot prior to the Acquisition. The acquisition
closed on July 11, 1995, when Aearo Corporation acquired substantially all of
the assets and certain liabilities of Aearo Company for cash, preferred stock
and a 42.5% common equity interest in Aearo Corporation, as more fully described
in Note 13. Aearo Corporation immediately contributed the acquired assets and
liabilities to Aearo Company, a wholly owned subsidiary of Aearo Corporation,
pursuant to an asset transfer agreement dated June 13, 1995. Aearo Corporation
has no other material assets, liabilities or operations other than those that
result from its ownership of the common stock of Aearo Company
F-19
<PAGE> 92
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
The total financing related to the Formation Acquisition was $217.5 million
(including transaction fees and expenses of $11.2 million), subject to final
closing adjustments, as defined, including the assumption of certain debt. A
summary of the Formation Acquisition financing is as follows (in millions):
<S> <C>
Implied fair value of equity issued to Cabot(a)..................... $ 65.0
Issuance of stockholder loans....................................... (0.9)
Borrowings under revolving credit facility.......................... 2.5
Borrowings under term loans......................................... 45.0
Borrowings under notes.............................................. 100.0
Assumed debt........................................................ 4.8
Closing adjustment payable to Cabot................................. 1.1
------
$217.5
======
<FN>
- ---------------
(a) The implied fair value of equity represents the implicit fair value of
Aearo Corporation's equity based on the cash paid by Vestar and
management for their equity interest in Aearo Corporation. The actual
amount recorded for Aearo Corporation's equity was reduced by
approximately $31.5 million to reflect predecessor basis for the
portion of equity retained by Cabot.
</TABLE>
The Acquisition has been accounted for as a purchase transaction effective
as of July 11, 1995, in accordance with Accounting Principles Board Opinion No.
16, Business Combinations, and EITF Issue No. 88-16, Basis in Leveraged Buyout
Transactions, and accordingly, the consolidated financial statements for the
periods subsequent to July 11, 1995 reflect the purchase price, including
transaction costs, allocated to tangible and intangible assets acquired and
liabilities assumed, based on their estimated fair values as of July 11, 1995,
which may be revised at a later date. The valuation of assets and liabilities
acquired reflect carryover basis for the percentage ownership retained by Cabot.
F-20
<PAGE> 93
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
The preliminary allocation of the $206.1 million purchase price plus $2.1
million of direct acquisition costs is summarized as follows (in millions):
<S> <C>
Cash paid to Cabot.......................................................... $169.2
Debt assumed................................................................ 4.8
Closing adjustment payable to Cabot......................................... 1.1
Fair value of 42.5% equity interest in Holdings issued to Cabot............. 31.0
------
Total............................................................. 206.1
Direct acquisition costs.................................................... 2.1
------
Total consideration and direct acquisition costs.................. 208.2
Predecessor historical cost of net assets acquired.......................... 134.0
------
Excess of consideration paid over predecessor historical cost..... 74.2
Less -- Adjustment to reflect predecessor basis for the 42.5% equity
interest retained by Cabot................................................ 31.5
------
Fair market value step up......................................... 42.7
Debt issuance costs......................................................... 9.3
------
Net adjustment.................................................... $ 52.0
======
Allocation of net adjustment --
Inventories............................................................... $ 3.6
Property, plant and equipment, net........................................ 13.6
Intangible assets......................................................... 31.7
Deferred charges.......................................................... 9.3
Liabilities and other..................................................... (6.2)
------
$ 52.0
======
</TABLE>
The $3.6 million allocated to inventory was charged to cost of sales in the
period ended September 30, 1995.
(4) SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. The significant accounting policies of
the Company are described below.
PRINCIPLES OF COMBINATION AND CONSOLIDATION
The combined financial statements of the Company for the period ended July
11, 1995 and the years ended September 30, 1994 and 1993 include Aearo Company
and the results of certain affiliates of the Company whose operations are
partially or exclusively related to the business of the Company. All significant
transactions and balances between affiliates have been eliminated. Transactions
with Cabot and its subsidiaries are reflected as intercompany balances.
The consolidated financial statements of the Company for the period ended
September 30, 1995 include the accounts of Holdings and its subsidiaries. All
significant intercompany balances and transactions have been eliminated.
F-21
<PAGE> 94
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
RISKS AND UNCERTAINTIES
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 EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all time
deposits and short-term investments with an original maturity of three months or
less at time of purchase to be cash equivalents.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign operations are translated
at year-end exchange rates. Revenues and expenses are translated at the average
rate during the year. Foreign currency gains and losses arising from
transactions are reflected in net income. Balance sheet translation gains and
losses are reflected as a separate component of stockholders' equity.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation of
property, plant and equipment is calculated using the straight-line method based
on estimated economic useful lives. Expenditures for maintenance and repairs and
minor renewals are charged to expense.
<TABLE>
Property, plant and equipment and their estimated useful lives consist of
the following:
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Buildings 25-40 Years
Leasehold improvements Life of the lease or useful
life, whichever is shorter
Machinery and equipment 3-10 Years
Furniture and fixtures 3-10 Years
</TABLE>
Upon the sale or retirement of assets, the cost and related accumulated
depreciation are removed from the financial statements, and any resultant gain
or loss is recognized.
INCOME TAXES
For the period ended September 30, 1995, the Company will file a
consolidated federal income tax return. The Company will file a consolidated
federal income tax return with Cabot for the period ended July 11, 1995 as in
each of the fiscal years ended September 30, 1994 and 1993. The provision for
federal income taxes reflected in these financial statements has been determined
as if the Company filed a separate federal income tax return. Deferred taxes are
recorded to reflect the
F-22
<PAGE> 95
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end.
In 1993, the Company adopted Statement of Financial Standards (SFAS) No.
109, Accounting for Income Taxes, retroactive to October 1, 1992. Under the new
method, deferred income taxes are provided based on the estimated future tax
effects of differences between financial statement carrying amounts and the tax
bases of existing assets and liabilities.
A summary of the estimated lives by major category of intangible assets at
March 31, 1996 is as follows:
<TABLE>
<S> <C>
Goodwill................... 25 Years
Patents.................... 17 Years
Non-compete agreement...... Life of agreement (5 years at March 31, 1996)
Trademarks, Tradenames and
Other.................... Various from 15 to 25 Years
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist primarily of the costs of patents and trademarks
purchased in business acquisitions. Intangible assets are amortized on the
straight-line basis over either 25 years or an estimated useful life, whichever
is shorter.
The Company accounts for long-lived and intangible assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of. The Company continually reviews its
intangible assets for events or changes in circumstances which might indicate
the carrying amount of the assets may not be recoverable. The Company assesses
the recoverability of the assets by determining whether the amortization of such
intangibles over their remaining lives can be recovered through projected
undiscounted future results. The amount of impairment, if any, is measured based
on projected discounted future results using a discount rate reflecting the
Company's average cost of funds. At September 30, 1995, no such impairment of
assets was indicated.
DEFERRED FINANCING COSTS
Deferred financing costs are stated at cost as a component of other assets
and amortized over the life of the related debt using the effective interest
method. Amortization of deferred financing costs is included in interest
expense.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share has been computed by dividing net income
(loss) for the period by the weighted average number of common shares
outstanding during the period.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform with the
current year's presentation.
F-23
<PAGE> 96
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) INVENTORIES
<TABLE>
Inventories consisted of the following (dollars in thousands):
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1994 1995 1996
PREDECESSOR SUCCESSOR SUCCESSOR
COMPANY COMPANY COMPANY
------------- ------------- -----------
<S> <C> <C> <C>
Raw materials............................. $ 8,711 $ 8,371 $10,606
Work in process........................... 5,094 3,332 3,598
Finished goods............................ 14,180 14,211 13,883
------- ------- -------
$27,985 $25,914 $28,087
======= ======= =======
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
Property, plant and equipment consisted of the following (dollars in thousands):
<CAPTION>
SEPTEMBER 30
------------------------- MARCH 31,
1994 1995 1996
PREDECESSOR SUCCESSOR SUCCESSOR
COMPANY COMPANY COMPANY
----------- --------- -----------
<S> <C> <C> <C>
Land........................................... $ 1,028 $ 2,167 $ 2,167
Buildings and improvements..................... 15,022 9,184 9,369
Machinery and equipment........................ 40,372 29,127 30,612
Furniture and fixtures......................... 4,644 2,709 3,639
Construction in progress....................... 2,597 11,381 14,652
------- ------- -------
63,663 54,568 60,439
Less -- Accumulated depreciation............... 31,215 1,499 6,328
------- ------- -------
$32,448 $53,069 $54,111
======= ======= =======
</TABLE>
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
Accounts payable and accrued liabilities consisted of the following at
September 30 (dollars in thousands):
<CAPTION>
SEPTEMBER 30
------------------------- MARCH 31,
1994 1995 1996
PREDECESSOR SUCCESSOR SUCCESSOR
COMPANY COMPANY COMPANY
----------- --------- -----------
<S> <C> <C> <C>
Accounts payable -- trade...................... $ 9,322 $13,208 $13,437
Accrued liabilities --
Employee compensation and benefits........... 5,395 5,745 7,070
Other........................................ 4,745 9,459 8,872
------- ------- -------
$19,462 $28,412 $29,379
======= ======= =======
</TABLE>
F-24
<PAGE> 97
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) DEBT
<TABLE>
The long-term debt balances consisted of the following at (dollars in thousands):
<CAPTION>
SEPTEMBER 30,
------------------------- MARCH 31,
1994 1995 1996
PREDECESSOR SUCCESSOR SUCCESSOR
COMPANY COMPANY COMPANY
----------- --------- -----------
<S> <C> <C> <C>
Revolving credit facility..................... $ -- $ 3,800 $ 10,600
Term loans, due 2000.......................... -- 43,784 40,839
Senior subordinated notes, due 2005, 12.5%.... -- 100,000 100,000
Note payable to Cabot Corporation............. 72,193 -- --
Note payable, other........................... -- 53 49
Mortgage note, due 1995 -- 2006, 10.1%........ 2,577 2,539 2,520
Industrial Revenue Bonds, due 1995 -- 2003,
6.4% less advance deposit of $121,715....... 663 600 598
Industrial Revenue Bonds, due 2002, 13.0%..... 1,000 1,000 1,000
Capitalized lease obligations --
Lease term 1995 -- 2003, 6.5%............... 405 363 347
Lease term 1995 -- 1997, 8.9%............... 90 58 42
Lease term 1995 -- 1998, 9.0%............... -- 100 85
Lease term 1995 -- 1999..................... -- -- 32
------- -------- --------
76,928 152,297 156,112
------- -------- --------
Less -- Current portion of long-term debt..... 167 5,837 7,039
------- -------- --------
Total............................... $76,761 $146,460 $149,073
======= ======== ========
</TABLE>
Revolving Credit and Term Loans
In July 1995, Aearo Company entered into a credit agreement (the Agreement)
that provides for secured borrowings from a syndicate of lenders consisting of
(i) a five-year revolving credit facility providing for up to $25.0 million in
revolving loans, $5.0 million of which may be used for letters of credit (the
Revolving Credit Facility) and (ii) a term loan facility providing for $45.0
million in term loans, consisting of a $28.5 million U.S. term loan, a $4.5
million term loan designated in Canadian dollars and a $12.0 million term loan
designated in Sterling (collectively, the Term Loans).
Amounts outstanding under the Term Loans currently bear interest, payable
quarterly in arrears, at a rate equal to the sum of the Eurodollar rate plus 2%.
At September 30, 1995, the rates on the Term Loans were 7.9% for the U.S. term
loan, 8.4% for the Canadian term loan and 8.8% for the Sterling term loan. The
weighted average interest rates paid during 1995 were 7.9%, 8.5% and 8.7% for
the US term loan, Canadian term loan and Sterling term loan, respectively.
Principal on the Term Loans is being paid in quarterly installments through
March 31, 2000 on the U.S. and Sterling term loans, and the principal on the
Canadian term loan is due on July 11, 2000. Aearo Corporation has the option to
convert all or a portion of the outstanding principal amount of Term Loans into
either a Eurodollar rate or a reference-rate loan. The amount outstanding at
September 30, 1995 on the Term Loans was $43.8 million.
F-25
<PAGE> 98
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Under the Revolving Credit Facility, only the U.S. and UK entities are
permitted to borrow funds. Interest on borrowings under the Revolving Credit
Facility is payable in arrears at a rate equal to either the sum of .75% plus
the reference rate or 2% plus the Eurodollar rate. At September 30, 1995, the
rate on the Revolving Credit Facility was 9.5%. At September 30, 1995, Aearo
Company had $3.8 million outstanding on the Revolving Credit Facility. During
the period from July 11, 1995 to September 30, 1995, the maximum amount
outstanding under the Revolving Credit Facility was $5.5 million with the
average amount being $2.7 million. The weighted average interest rate paid
during 1995 was 9.5%.
The Revolving Credit Facility also requires Aearo Company to pay a
commitment fee on the average daily aggregate unutilized portion of the
Revolving Credit Facility at a rate of .50% per annum. The fee is payable
quarterly in arrears as well as a commission on trade and standby letters of
credit of 2% per annum of the amount to be drawn under the Agreement. Amount
outstanding under the revolving credit are due on July 11, 2000.
Under the terms of the Agreement, Aearo Company is required to comply with
a number of affirmative and negative covenants. Among other things, Aearo
Company must satisfy certain financial covenants and ratios, including interest
coverage ratios, leverage ratios and fixed charge coverage ratios. The Agreement
also imposes limitations on certain business activities of Aearo Company. The
Agreement restricts, among other things, the incurrence of additional
indebtedness, creation of certain liens, sales of certain assets and limitations
on transactions with affiliates. As of September 30, 1995, Aearo Company is in
compliance with the covenants of the Agreement. The Agreement is unconditionally
guaranteed by Aearo Corporation and secured by first priority security interests
in substantially all the capital stock and tangible and intangible assets of the
Company.
Senior Subordinated Notes
In connection with the acquisition, Aearo Company issued $100.0 million of
Senior Subordinated Notes due 2005 (the Subordinated Notes). The Subordinated
Notes are unsecured obligations of Aearo Company. The Subordinated Notes bear
interest at a rate of 12.5% per annum and are payable semiannually on each
January 15 and July 15 commencing on January 15, 1996.
The Subordinated Notes are redeemable at the option of Aearo Company, on or
after July 15, 2000. From and after July 15, 2000, the Subordinated Notes will
be subject to redemption at the option of Aearo Company, in whole or in part, at
various redemption prices, declining from 106.3% of the principal amount to par
on and after July 15, 2004. In addition, on or prior to July 15, 1998, the
Company may use the net cash proceeds of one or more equity offerings to redeem
up to 35% of the aggregate principal amount of the Subordinated Notes originally
issued at a redemption price of 112.5% of the principal amount thereof plus
accrued interest to the date of redemption.
The Subordinated Note indenture contains affirmative and negative covenants
and restrictions similar to those required under the terms of the Agreement
discussed above. As of September 30, 1995, Aearo Company is in compliance with
the various covenants of the Subordinated Note agreement. The Subordinated Notes
are unconditionally guaranteed on an unsecured, senior subordinated basis by
Aearo Corporation.
Other Obligations
As of December 31, 1993, the Company borrowed $25,000,000 through an
unsecured note payable to a bank. The note, as amended, is due September 30,
1995 and includes provisions
F-26
<PAGE> 99
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
regarding minimum net worth requirements and certain expenditure and
indebtedness limitations. Interest is payable at either the Base Rate or
Eurodollar Rate, as defined, at the option of the Company. The weighted average
interest rates for fiscal 1994 and the period ended July 11, 1995 were, 6.88%
and 7.78%, respectively. The note was not acquired by Aearo Corporation in the
Acquisition.
During 1990, the Company borrowed $118,000,000 from Cabot Corporation to
finance the purchase of the Safety Products Division of American Optical
Corporation under a revolving credit arrangement. Interest is accrued monthly,
and is based on the prime rate; accordingly, the stated value of this variable
rate debt approximates its market value. Annually, accrued interest is added to
the note principal. The weighted average interest rates for fiscal 1993, 1994
and the period ended July 11, 1995 were 6.0%, 6.61% and 8.66%, respectively.
This debt was not acquired by Aearo Corporation in the Acquisition.
In 1991, the Company purchased and mortgaged land and a building previously
leased. The mortgage provides for monthly payments of $24,498 for principal and
interest at 10.125% per annum through 2006, at which time the remaining
principal balance of $1,853,000 will be due. The property purchased is pledged
as collateral. The net book value of such property was approximately $3,264,000
and $3,757,000 at September 30, 1995 and 1994, respectively.
In connection with the purchase in 1989 of Specialty Composites
Corporation, the Company assumed the liability for State of Delaware Industrial
Development Bonds, which are due in series through 2003, bear interest at an
average annual rate of approximately 6.38%, and provide for annual payments
averaging $117,500, including principal and interest, through 2003. All
property, plant and equipment purchased with the original proceeds of the bonds
is pledged as collateral. The net book value of such property was approximately
$1,971,000 and $1,432,000 at September 30, 1995 and 1994, respectively.
In 1982, an acquisition of land and building was financed in part by an
Indianapolis, Indiana, Industrial Revenue Bond Obligation. The Bond provides for
semiannual payments of $65,000 and interest at 13.0% per annum through 2002, at
which time the principal amount of $1,000,000 will be due. All property, plant
and equipment purchased with the original proceeds of the bond are pledged as
collateral. The net book value of such property was approximately $3,433,000 and
$3,222,000 at September 30, 1995 and 1994, respectively.
In 1993, the Company entered into a 10-year lease agreement for a new
safety eyewear production facility with discounted aggregate minimum lease
payments of $450,000.
<TABLE>
The following is a summary of maturities of all of the Company's debt
obligations due after September 30, 1995 (in thousands):
<CAPTION>
AMOUNT
------
<S> <C>
1996............................................................. $ 5,837
1997............................................................. 8,347
1998............................................................. 10,206
1999............................................................. 10,345
2000............................................................. 10,100
Thereafter....................................................... 107,462
--------
$152,297
========
</TABLE>
F-27
<PAGE> 100
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(9) INTEREST EXPENSE, NET
<TABLE>
Interest expense (income) comprises the following items (dollars in thousands):
<CAPTION>
PREDECESSOR COMPANY
----------------------------------
SUCCESSOR
YEAR ENDED COMPANY
SEPTEMBER 30, PERIOD ENDED PERIOD ENDED
----------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Expense --
Note payable to Cabot
Corporation.................... $5,229 $5,143 $ 5,058 $ --
External.......................... 354 1,663 1,802 4,160
------ ------ ------- ------
Total interest expense......... 5,583 6,806 6,860 4,160
------ ------ ------- ------
Income --
Intercompany...................... (788) (971) (1,164) --
External.......................... (26) (16) (23) (25)
------ ------ ------- ------
Total interest income.......... (814) (987) (1,187) (25)
------ ------ ------- ------
Interest expense, net............... $4,769 $5,819 $ 5,673 $4,135
====== ====== ======= ======
</TABLE>
(10) EMPLOYEE BENEFIT PLANS
The Company has two noncontributory defined benefit pension plans, the
Aearo Company Employees Retirement Account Plan (the Aearo Plan), which is a
cash balance plan, and the E-A-R Specialty Composites Division of Aearo Company
Non-Union Employees Retirement Plan (the Specialty Composites Plan). Benefits
provided under these plans are primarily based on years of service and the
employee's compensation.
The Aearo Plan, effective May 1, 1990, covers most employees in the United
States and is funded quarterly based on actuarial and economic assumptions
designed to achieve adequate funding of projected benefit obligations. Plan
assets are invested in a portfolio consisting primarily of debt and equity
securities. The Specialty Composites Plan resulted from a 1989 acquisition. As
of March 31, 1989, the benefits under this plan were frozen. Plan assets are
invested in money market and fixed-income investments.
<TABLE>
Net periodic pension cost for these plans comprises the following elements
(dollars in thousands):
<CAPTION>
PREDECESSOR COMPANY
--------------------------------
SUCCESSOR
YEAR ENDED COMPANY
SEPTEMBER 30, PERIOD ENDED PERIOD ENDED
--------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
----- ----- ------------ -------------
<S> <C> <C> <C> <C>
Service cost......................... $ 914 $ 911 $ 748 $ 217
Interest cost........................ 241 285 272 79
Return on plan assets................ (2) (143) (527) (251)
Net amortization and deferral........ (219) (143) 207 160
----- ----- ----- -----
Net periodic pension cost.......... $ 934 $ 910 $ 700 $ 205
===== ===== ===== =====
</TABLE>
F-28
<PAGE> 101
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
The following table sets forth the funded status of the pension plans at
September 30 (dollars in thousands):
<CAPTION>
1994 1995
PREDECESSOR SUCCESSOR
COMPANY COMPANY
----------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations --
Vested benefit obligation................................. $(3,847) $(5,471)
======= =======
Accumulated benefit obligation............................ $(4,696) $(6,592)
======= =======
Projected benefit obligation.............................. $(4,696) $(6,592)
Plan assets at fair value................................. 4,112 5,697
------- -------
Excess of projected benefit obligation over plan
assets.......................................... (584) (895)
Unrecognized net loss....................................... 309 --
Unrecognized net assets at transition....................... (67) --
Additional minimum liability................................ (108) --
------- -------
Pension liability (included in accrued liabilities)......... $ (450) $ (895)
======= =======
</TABLE>
At September 30, 1995, the pension liability of $895,000 comprised a
liability of $911,000 related to the Aearo Plan and a prepaid pension asset of
$16,000 related to the Specialty Composites Plan. The pension liability of
$450,000 at September 30, 1994 comprised a liability of $686,000 related to the
Aearo Plan and a prepaid pension asset of $236,000 related to the Specialty
Composites Plan.
<TABLE>
The following weighted average rates were used in the calculations at September 30:
<CAPTION>
1994 1995
PREDECESSOR SUCCESSOR
COMPANY COMPANY
----------- ---------
<S> <C> <C>
Discount rate -- projected benefit obligation............... 8.0% 6.5%
Expected rate of return on plan assets...................... 8.6 8.5
Assumed rate of increase in compensation.................... 4.0 4.0
</TABLE>
In addition, the Company has an unfunded, noncontributory defined benefit
pension plan, the Aearo Inc. Supplemental Executive Retirement Plan (the SERP
Plan) which is also a cash balance plan. The SERP Plan, effective January 1,
1994, covers certain employees in the United States. The costs to the Company
for this Plan were $9,000, $32,000 and $25,000 for the periods ended September
30, 1995, July 11, 1995 and the year ended September 30, 1994.
A 401(k) plan, the Aearo Company Sound Savings Plan, was established as of
May 1, 1990. Employees can join the plan after six months of service, during
which they work at least 500 hours and may contribute up to 15% of their
compensation. The Company contributes amounts equal to 40% of the employee's
contribution to a maximum of 2% of the employee's pay. The costs to the Company
for this Plan were $100,000, $345,000, $365,000 and $323,000 for the periods
ended September 30, 1995, July 11, 1995 and the years ended September 30, 1994
and 1993, respectively.
The Company has a defined contribution savings plan for U.K. employees,
under which eligible employees are allowed to contribute up to 15% of their
compensation. The Company contributes 5% of pay for all eligible employees and
additional amounts equal to 40% of the employee's contribution to a maximum of
2% of the employee's pay. For the periods ended September 30, 1995, July 11,
F-29
<PAGE> 102
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1995 and the years ended September 30, 1994 and 1993, the Company contributed
approximately $27,000, $79,000, $111,000 and $103,000, respectively.
Postretirement Benefits
The Company does not provide defined benefit postretirement plans for
retirees after age 65. All employees who elect early retirement at age 62 or
older are eligible to receive life insurance coverage that terminates on their
65th birthday. In addition, employees who were age 55 or older with 10 years of
service as of April 1, 1990 are eligible to receive limited health care and life
insurance coverage for themselves and their eligible dependents upon early
retirement at age 62 or older. These coverages terminate on the 65th birthday of
the retiree or his or her spouse. The health care benefit is a fixed dollar
contribution and the life insurance benefit is a fixed coverage amount.
Effective October 1, 1992, the Company adopted the provisions of SFAS No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions,
which requires accrual of these benefits during the years an employee provides
service. Prior to October 1, 1992, the expense for these benefits was recognized
as the actual costs or insurance premiums were incurred. As of October 1, 1992,
the cumulative effect of adopting SFAS No. 106 was a $139,000 after-tax charge.
As of September 30, 1995 and 1994, the accrued periodic postretirement
benefit cost was $215,000 and $250,000, respectively.
(11) RELATED PARTY TRANSACTIONS
An annual management fee, which is to be shared by Cabot and Vestar, will
be paid in aggregate amounts with respect to each fiscal year equal to the
greater of (i) $400,000 or (ii) 1.25% of the consolidated net income of the
Company and its subsidiaries before cash interest, taxes, depreciation and
amortization for such fiscal year. This annual management fee is shared by Cabot
and Vestar based on their relative equity ownership of the Company. At September
30, 1995, the Company has accrued $88,000 related to the management fee. This
amount is included in accounts payable and accrued liabilities in the
accompanying balance sheet.
The Company and Cabot have entered into an arrangement relating to certain
respirator claims asserted after the Acquisition whereby, so long as the Company
pays to Cabot an annual fee of $400,000, Cabot will retain responsibility and
liability for, and indemnify the Company against, certain legal claims alleged
to arise out of the use of repirators manufactured prior to July 1995. The
Company has the right to discontinue the payment of such annual fee at any time,
in which case the Company will assume responsibility for and indemnify Cabot
with respect to such claims.
Certain management investors (Management Investors) borrowed $934,000 to
fund a portion of the purchase price of Common Stock to be issued to such
management investors in connection with the Acquisition. Such loans are secured
by Common Stock, purchased with the proceeds thereof, are expected to have a
term of approximately 10 years, will bear interest at an annual rate determined
pursuant to Section 7872(f)(2) of the 1986 IRC, and will be subject to mandatory
prepayment in the event the employment of such management investors terminates.
Prior to the Acquisition, the Company engaged in various transactions with
Cabot and its affiliates that are characteristic of a combined group under
common control. Cabot had historically provided the Company with various
financial and administrative functions and services, including the continued
participation of the Company in certain insurance policies maintained by Cabot,
for which
F-30
<PAGE> 103
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
the Company is charged associated direct costs and expenses. In addition,
certain indirect administrative costs were allocated to the various business
units of Cabot, including the Company, principally based on a formula that
considered such proportionate variables as revenue, payroll and property
balances. Administrative costs of doing business on a stand-alone basis may have
been significantly different. Cabot also provided financing and cash management
for the Company through a centralized treasury system.
Operating expenses, as described above, were $1,728,000, $1,832,000 and
$1,313,000 for the period ended July 11, 1995 and the years ended September 30,
1994 and 1993, respectively.
At September 30, 1994, the net amount of $57,120,000 owed to Cabot is
included on the combined balance sheet in long-term debt of $72,193,000 and net
intercompany balances receivable of $15,073,000.
(12) INCOME TAXES
In 1993, the Company adopted SFAS No. 109, Accounting for Income Taxes,
retroactive to October 1, 1992. The cumulative effect of this adoption resulted
in an increase to net income for the year ended September 30, 1993 of
approximately $442,000.
<TABLE>
Income before income taxes and cumulative effect of accounting changes is
as follows (dollars in thousands):
<CAPTION>
PREDECESSOR COMPANY
---------------------------------- SUCCESSOR
COMPANY
YEAR ENDED -------------
SEPTEMBER 30, PERIOD ENDED PERIOD ENDED
--------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
---- ---- ------------ -------------
<S> <C> <C> <C> <C>
Domestic.......................... $ 6,936 $ 5,253 $(1,258) $(1,064)
Foreign........................... 7,878 7,751 9,073 905
------- ------- ------- -------
Total................... $14,814 $13,004 $ 7,815 $ (159)
======= ======= ======= =======
</TABLE>
<TABLE>
A summary of taxes on income is as follows (dollars in thousands):
<CAPTION>
PREDECESSOR COMPANY
---------------------------------- SUCCESSOR
COMPANY
YEAR ENDED ------------
SEPTEMBER 30, PERIOD ENDED PERIOD ENDED
---------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
---- ---- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Federal and State --
Current......................... $ 510 $ 36 $(2,335) $ 47
Deferred........................ 2,264 1,986 1,851 --
------ ------ ------- ----
Total................... 2,774 2,022 (484) 47
------ ------ ------- ----
Foreign --
Current......................... 2,338 3,041 3,493 378
Deferred........................ 583 (45) -- --
------ ------ ------- ----
2,921 2,996 3,493 378
------ ------ ------- ----
Total................... $5,695 $5,018 $ 3,009 $425
====== ====== ======= ====
</TABLE>
F-31
<PAGE> 104
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate is as follows (dollars
in thousands):
<CAPTION>
PREDECESSOR COMPANY
----------------------------------- SUCCESSOR
COMPANY
YEAR ENDED -------------
SEPTEMBER 30, PERIOD ENDED PERIOD ENDED
---------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
---- ---- ------------ ------------
<S> <C> <C> <C> <C>
Computed tax expense at the
expected statutory rate......... $5,148 $4,551 $2,735 $(56)
Change in federal rate............ 138 -- -- --
State taxes, net of federal
effect.......................... 350 385 61 31
Foreign income taxed at different
rates........................... 185 283 454 70
Increase in valuation allowance... -- -- -- 362
Other, net........................ (126) (201) (241) 18
------ ------ ------ ----
Provision for income taxes...... $5,695 $5,018 $3,009 $425
====== ====== ====== ====
</TABLE>
<TABLE>
Significant components of deferred income taxes are as follows (dollars in
thousands):
<CAPTION>
1994 1995
PREDECESSOR SUCCESSOR
COMPANY COMPANY
----------- ---------
<S> <C> <C>
Deferred tax liabilities
Intangible assets......................................... $ 6,974 $ --
Restructuring charges..................................... 1,959 --
Property, plant and equipment............................. 1,197 --
Pension and other benefits................................ 1,047 --
State and local taxes..................................... 1,018 --
Inventory................................................. 32 --
Other..................................................... 4 --
------- --------
Total deferred tax liabilities......................... $12,231 $ --
======= ========
Deferred tax assets
Pension and other benefits................................ $ 1,364 $ --
Property, plant and equipment............................. 442 2,513
Intangible assets......................................... -- 5,178
Restructuring charges..................................... 378 872
FSC commission............................................ 455 --
Inventory................................................. 249 294
Net operating loss carryforwards.......................... 135 1,030
Other..................................................... 725 878
------- --------
Subtotal............................................... 3,748 10,765
Valuation allowances........................................ (135) (10,765)
------- --------
Total deferred tax assets.............................. $ 3,613 $ --
======= ========
</TABLE>
F-32
<PAGE> 105
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The valuation allowance at September 30, 1995 relates to the uncertainty of
realizing the tax benefits of reversing temporary differences and net operating
loss carryforwards. Of this valuation allowance, approximately $10,375 will be
used to reduce goodwill or other intangibles related to the purchase. The
valuation allowance at September 30, 1994 relates to the uncertainty of
realizing certain foreign deferred tax assets.
United States income tax returns for fiscal years 1990 through 1994 are
currently under examination by the Internal Revenue Service.
(13) STOCKHOLDERS' EQUITY
Stock Ownership and Stockholders' Agreement
Prior to the Acquisition, Cabot owned 100% of the outstanding shares of the
Company. Currently, (i) Cabot owns 42.5% of Common Stock and 50% of Redeemable
Preferred Stock, (ii) Vestar owns 42.5% of Common Stock and 50% of Redeemable
Preferred Stock and (iii) the Management Investors own 15% of Common Stock.
Vestar, Cabot and Management entered into a stockholders' agreement (the
Stockholders' Agreement) as of the Acquisition date. The Stockholders' Agreement
contains stock transfer restrictions, as well as provisions granting certain
tag-along rights, drag-along rights, registration rights and participation
rights.
Common and Preferred Stock
To finance a portion of the Acquisition, Aearo Corporation issued 8,000,000
(3,400,000 each to Vestar and Cabot and 1,200,000 to Management Investors)
shares of Common Stock and 45,000 shares of Redeemable Preferred Stock (22,500
each to Vestar and Cabot). Management Investors received a loan from the Company
in the amount of $934,000 to fund a portion of its cost of the Acquisition. This
amount has been reflected as a reduction to additional paid-in capital related
to the issuance of Common Stock.
The Redeemable Preferred Stock is cumulative redeemable $.01 par value
stock. Dividends accrue whether or not dividends are declared or funds are
available at an annual rate of 12.5%, compounded daily. Accrued dividends may be
paid in cash or in additional shares of preferred stock. Shares are redeemable
for cash at any time, subject to certain exceptions, at the option of Holdings
at a redemption price equal to the actual or implied purchase price ($45
million) plus a redemption payment based on the dividend rate.
Aearo Company is permitted to pay cash dividends to Aearo Corporation for
taxes and expenses in the ordinary course of business. The maximum amount of
cash dividends paid to Aearo Corporation for ordinary business expenses may not
exceed $500,000 in any fiscal year. As long as no event of default would result,
Aearo Corporation and Aearo Company are permitted to pay dividends consisting of
shares of qualified capital stock as defined in the Credit Agreement, and Aearo
Corporation may redeem or purchase shares of its capital stock held by former
employees of Aearo Corporation or any of its subsidiaries following the
termination of their employment, provided that the aggregate amount paid by
Aearo Corporation in respect to such purchases or redemptions does not exceed
$1.5 million; Aearo Company may pay cash dividends to Aearo Corporation for the
latter purpose. Additionally, Aearo Corporation may pay dividends on its
preferred stock in additional shares of preferred stock.
In May 1993, the Board of Directors of Old Cabot Safety approved a
recapitalization plan, which increased the authorized common shares from
5,000,000 to 30,000,000. In connection with this plan, Old Cabot Safety issued
9,499,000 new common shares and reserved an additional 500,000 shares for
issuance under the 1993 Cabot Safety Corporation Stock Option Plan (the 1993
Plan). In
F-33
<PAGE> 106
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
April 1994, the Board of Directors approved canceling the authorization for the
preferred stock class, decreasing the number of authorized shares of common
stock from 30,000,000 to 30,000, reducing the par value per share of common
stock from $1.00 to $.10, and decreasing the number of common shares reserved
for the 1993 Plan from 500,000 to 500. In connection with the recapitalization,
$9,499,050 was reclassified from common stock to additional paid-in capital. The
combined financial statements have been retroactively adjusted for the 1994
recapitalization.
The 1993 Plan, adopted in May 1993, provides for the granting of stock
options to key employees. Options granted may be either incentive stock options,
within the meaning of Section 422A of the Internal Revenue Code, or nonqualified
stock options.
The stock options are exercisable over a period determined by the Board of
Directors, but no longer than five years after the date they are granted. The
latest date on which the options may be exercised is September 30, 2002.
Compensation expense of $30,000 was recognized during fiscal 1994, and $815,000
related to current and retroactive vesting periods was recognized in fiscal
1993. The 1993 Plan was terminated in connection with the Acquisition.
<TABLE>
Information with respect to options under the 1993 Plan follows:
<CAPTION>
PREDECESSOR COMPANY
---------------------------
YEARS ENDED
SEPTEMBER 30, PERIOD ENDED
------------- JULY 11,
1993 1994 1995
---- ---- ------------
(SHARES OF STOCK)
<S> <C> <C> <C>
Outstanding --
Beginning of year...................................... 0 410 430
Granted at $16.00 to $19.50 per share.................. 410 170 0
Exercised at $16.00 per share.......................... 0 (130) 0
Canceled............................................... 0 (20) (430)
--- ---- -----
End of year............................................ 410 430 0
=== ==== =====
Exercisable --
End of year............................................ 244 234 --
=== ==== =====
Available for Grant --
End of year............................................ 90 70 --
=== ==== =====
</TABLE>
On December 30, 1993, the Company declared and paid a $25,000,000 dividend
to Cabot, financed through a $25,000,000 note payable to a bank.
(14) COMMITMENTS AND CONTINGENCIES
Compensation Plans
The Company provides performance-based compensation awards to executive
officers and key employees for achievement during each year as part of an annual
bonus plan. Such compensation awards are a function of individual performance
and consolidated operating results. Business unit performance is also a factor
used in determining compensation awards with respect to key employees who are
not executive officers. The Company also has an overall incentive plan which
provides performance-based compensation awards to all employees based on
consolidated operating results.
F-34
<PAGE> 107
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Upon consummation of the Acquisition, the Company adopted a supplemental
severance pay plan providing certain executive officers and key employees with
salary continuation, based on years of service, in the event of an eligible
termination. The plan provides for one month's base pay for each full year of
service with a minimum amount payable of three months and a maximum amount
payable of 12 months.
Lease Commitments
<TABLE>
The Company leases certain transportation vehicles, warehouse facilities,
office space, and machinery and equipment under cancelable and noncancelable
leases, most of which expire within 10 years and may be renewed by the Company.
Rent expense under such arrangements totaled $4,362,000, $4,268,000, $2,805,000
and $768,000 for the years ended September 30, 1993 and 1994, the period ended
July 11, 1995 and the period ended September 30, 1995, respectively. Future
minimum rental commitments under noncancelable leases in effect at September 30,
1995 are as follows (dollars in thousands):
<CAPTION>
<S> <C>
1996.............................................................. $ 3,445
1997.............................................................. 3,226
1998.............................................................. 3,109
1999.............................................................. 3,060
2000.............................................................. 3,148
2001 and thereafter............................................... 11,993
-------
$27,981
=======
</TABLE>
Contingencies
The Company is a defendant in various lawsuits and administrative
proceedings which are being handled in the ordinary course of business. In the
opinion of management of the Company, these suits and claims should not result
in final judgments or settlements which, in the aggregate, would have a material
adverse effect on the Company's financial condition or results of operations.
During fiscal 1995, the Company became aware that its French subsidiary has
been delinquent in the remittance of value-added tax payments to the French
government. The Company believes that any required tax payments and attendant
penalties will not have a material adverse effect on the Company's financial
condition or results of operations.
(15) ACQUISITION
On January 3, 1996, the Company acquired the stock of Eastern Safety
Equipment, Inc. (Eastern) for $6,800,000, subject to final closing adjustments,
as defined. In addition, the Company entered into noncompete and consulting
agreements that provide an aggregate of $1,000,000 in consideration to the
former controlling stockholder of Eastern. The transaction will be accounted for
using the purchase method of accounting. The pro forma impact of the transaction
is not material to the results of the periods presented. Amounts allocated to
the non-compete and consulting agreements will be charged to expense over the
five year term of the agreements.
At September 30, 1995, the Company had $3,000,000 in deposit pursuant to an
escrow agreement with the former stockholders of Eastern. This amount is
included in other assets on the accompanying balance sheet. These funds together
with additional borrowings under the revolving credit agreement were used to
fund the acquisition.
F-35
<PAGE> 108
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(16) FINANCIAL INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
<TABLE>
All of Aearo Corporation's operations are included in the Safety and Energy
Absorbing Products industry segment. For the years ended September 30, 1993 and
1994, the period ended July 11, 1995 and the period ended September 30, 1995, no
single customer accounted for more than 10% of sales. Transfers between
geographic areas are recorded at cost plus markup or at market. Financial
information by geographic area for the years ended September 30, 1993 and 1994,
the period ended July 11, 1995 and the period ended September 30, 1995 is as
follows (dollars in thousands):
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------
SUCCESSOR
COMPANY
YEAR ENDED SEPTEMBER 30, PERIOD ENDED PERIOD ENDED
----------------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
---- ---- ------------ -------------
<S> <C> <C> <C> <C>
Sales:
United States --
Sales, excluding export sales..... $132,329 $138,336 $118,474 $ 36,366
Export sales...................... 8,903 11,959 9,599 3,818
-------- -------- -------- --------
Total U.S. sales............. 141,232 150,295 128,073 40,184
Canada............................... 11,713 11,834 10,098 3,102
Europe............................... 25,233 25,455 25,914 7,425
-------- -------- -------- --------
Total........................ 178,178 187,584 164,085 50,711
Less -- Eliminations................. 8,570 9,289 9,373 2,811
-------- -------- -------- --------
Net sales.................... $169,608 $178,295 $154,712 $ 47,900
======== ======== ======== ========
Operating Profit:
United States........................ $ 13,818 $ 15,213 $ 10,855 $ 4,624
Canada............................... 1,781 1,262 1,078 73
Europe............................... 6,727 6,253 6,585 1,208
-------- -------- -------- --------
Total operating profit....... 22,326 22,728 18,518 5,905
Interest expense, net................ 4,769 5,819 5,673 4,135
Unallocated corporate expenses(a).... 2,299 3,933 5,478 1,869
Foreign exchange (gain) loss......... 444 (28) (448) 60
-------- -------- -------- --------
Income before income taxes... $ 14,814 $ 13,004 $ 7,815 $ (159)
======== ======== ======== ========
Identifiable Assets:
United States........................ $119,998 $119,526 $189,328
Canada............................... 15,244 15,839 8,609
Europe............................... 28,200 35,788 20,326
-------- -------- --------
Total identifiable assets.... $163,442 $171,153 $218,263
======== ======== ========
- ---------------
<FN>
(a) Unallocated corporate expenses are corporate management costs and include
services provided by Cabot Corporation for the Predecessor.
</TABLE>
F-36
<PAGE> 109
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(17) SUBSEQUENT EVENTS
Common Stock Offering
On July , 1996, in connection with the Company's intention to complete an
initial public offering, the Company declared an 80 for 1 stock split effective
immediately and increased the number of authorized common shares to 50,000,000.
In addition, the Offering contemplates that 22,500 shares or 50% of the
Preferred Stock outstanding and related accrued dividends will be redeemed with
Offering proceeds and the remaining 50% will be converted into approximately
1,807,142 shares of common stock (based on an assumed initial public offering
price of $14.00 per share.) All previously reported share and per share amounts
have been retroactively restated to reflect the split. In addition, the proceeds
of the Offering will be used to redeem approximately $35 million in Subordinated
Notes and $4.6 million in loans under the Senior Bank Facilities. Historical
earnings per share is not presented, as this amount would not be meaningful
after the changes in capital structure resulting from the Offering and Exchange
Transaction and the use of Offering proceeds to redeem Preferred Stock and
retire debt.
Acquisition and Financing
On May 30, 1996, the Company acquired Peltor Holding AB for approximately
$86.0 million, subject to final closing adjustments, as defined. The transaction
will be acounted for using the purchase method of accounting. In connection with
the acquisition of Peltor Holding AB, the Company borrowed an additional $86
million under the Senior Bank Facilities, as amended.
The Senior Bank Facilities, as amended and restated as of May 30, 1996,
consist of (a) a secured term loan facility consisting of A and B term loans
providing for up to $90 million of A term loans and $50 million of B term loans
(collectively, the "Term Loans"); a portion of the A term loans is denominated
in an equivalent amount of foreign currencies and (b) a secured revolving credit
facility (the "Revolving Credit Facility") providing for up to $25 million of
revolving loans, a portion of which may be denominated in foreign currencies,
for general corporate purposes and, as to $15 million thereof, to finance
permitted acquisitions. As part of the Revolving Credit Facility, the Senior
Bank Facilities provide for the issuance of letters of credit in an aggregate
face amount of up to $5 million. The full amount of the Term Loans and no
advances under the Revolving Credit Facility were outstanding immediately after
giving effect to the Peltor Acquisition. The Term Loans will amortize quarterly
over a seven-year period. Amounts repaid or prepaid in respect of the Term Loans
may not be reborrowed. Loans and letters of credit under the Revolving Credit
Facility will be available at any time prior to the maturity date of the Senior
Bank Facilities as amended and restated.
At the Company's option, the interest rates per annum applicable to the
Senior Bank Facilities are either an adjusted rate based on the London Interbank
Offered Rate plus a margin of 2.25% in the case of A Term Loans and Revolving
Loans and 2.75% in the case of B Term Loans, or the Base Rate, as defined plus a
margin of 1.00% in the case of A Term Loans and Revolving Loans and 1.50% in the
case of B Term Loans. The Base Rate is the higher of Bankers Trust Company's
announced prime lending rate and the Overnight Federal Funds rate plus 0.50%.
The Company must pay certain fees in connection with the Senior Bank Facilities,
including a commitment fee ranging from 0.375% to 0.50% on the undrawn portion
of the commitments in respect of the Revolving Credit Facility based upon the
Company's leverage ratio, and fees relating to the issuance of letters of
credit.
F-37
<PAGE> 110
AEARO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The Senior Bank Facilities contain a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into leases,
investments or acquisitions, engage in mergers or consolidations, make capital
expenditures, create subsidiaries, issue capital stock or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities. In addition, under the Senior Bank Facilities, the Company is
required to comply with specified financial ratios and tests, including a
minimum fixed charge coverage ratio, a minimum interest coverage ratio, a
maximum leverage ratio and a maximum capital expenditures test. The Senior Bank
Facilities also contain provisions that prohibit modifications to the terms of
the Subordinated Notes and prohibit the Company from refinancing the
Subordinated Notes, in each case, without the consent of the lenders under the
Senior Bank Facilities or as otherwise provided for therein.
EXECUTIVE STOCK OPTION PLAN
On June 27, 1996, the Company adopted the Executive Stock Option Plan (the
Executive Plan) whereby the Company granted 400,000 (after the 80 to 1 stock
split) non-qualified options with an exercise price of $7.50 per share, to
certain members of management. The options will vest and become exercisable upon
the earlier of the date on which a stipulated return (as defined) is achieved by
Vestar on its investment in the Company and the tenth anniversary of the date of
grant. The option term will be ten years except that options shall expire in
certain instances of termination of employment and upon the sale of the Company.
In connection with the grant of these options, the Company expects to record a
total charge of approximately 1.4 million, representing compensation cost
related to the difference between the option price and the fair value of the
shares at date of grant. The compensation expense will be recognized over the
ten year life of the options, subject to earlier recognition if the vesting of
the options is accelerated in accordance with their terms.
F-38
<PAGE> 111
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PELTOR HOLDING AB
SWEDEN
We have audited the accompanying consolidated balance sheets of Peltor
Holding AB as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 such consolidated financial statements present fairly, in
all material respects, the financial position of Peltor Holding AB as of
December 31, 1994 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles in the United States of
America.
As discussed in Note 1, the consolidated financial statements of Peltor
Holding AB have been presented in United States of America Dollars using the
basis of translation described therein.
DELOITTE & TOUCHE AB
Malmo, Sweden
May 31, 1996
F-39
<PAGE> 112
PELTOR HOLDING AB
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<CAPTION>
MARCH 31,
1994 1995 1996
------- ------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents........................... $ 4,582 $ 6,475 $ 6,273
Accounts receivable, net of allowance for doubtful
accounts of $37 and $28 at December 31, 1995 and
1994, respectively................................ 4,004 4,778 6,201
Inventory........................................... 7,119 9,127 9,711
Prepaid expenses and deferred income................ 172 255 367
Deferred income taxes............................... 188 210 218
Receivable from related party....................... 2,082 -- --
Other current assets................................ 477 720 515
------- ------- -------
Total current assets........................... 18,624 21,565 23,285
------- ------- -------
Property, plant and equipment, net....................... 5,519 6,488 6,550
Long-term note receivable and other assets............... 47 8 8
Deferred income taxes.................................... 1,674 -- --
------- ------- -------
Total assets................................... $25,864 $28,061 $29,843
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 1,422 $ 2,343 $ 2,720
Accrued interest.................................... 42 1 --
Accrued expenses and other current liabilities...... 2,034 2,936 3,447
Due to related party................................ -- 1,174 5,910
Current tax liability............................... 305 679 1,188
Current portion of long-term debt................... 130 4,311 2,952
------- ------- -------
Total current liabilities...................... 3,933 11,444 16,217
Deferred income taxes.................................... -- 39 40
------- ------- -------
Long-term debt........................................... 8,778 950 1,070
------- ------- -------
Committments and Contingencies
Stockholders' equity:
Common Stock, par value of $.71 per share;
878,050 shares issued and outstanding............... 620 620 620
Contributed capital................................. 5,651 5,651 5,651
Capital deficiency at inception..................... (4,755) (4,755) (4,755)
Retained earnings................................... 11,850 13,690 10,785
Cumulative translation adjustments.................. (213) 422 215
------- ------- -------
Total stockholders' equity..................... 13,153 15,628 12,516
------- ------- -------
Total liabilities and stockholders' equity..... $25,864 $28,061 $29,843
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-40
<PAGE> 113
PELTOR HOLDING AB
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<CAPTION>
MARCH 31,
------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net Sales................................ $24,741 $30,126 $39,284 $9,620 $10,705
Cost of sales............................ 11,346 13,887 18,930 4,594 5,658
------- ------- ------- ------ -------
Gross profit............................. 13,395 16,239 20,354 5,026 5,047
------- ------- ------- ------ -------
Operating expenses:
Selling, general and
administrative.................... 6,645 7,632 9,017 2,215 2,551
Research and development............ 851 1,222 1,227 277 340
Management fee to related party..... -- -- 1,479 -- --
------- ------- ------- ------ -------
Total operating expenses....... 7,496 8,854 11,723 2,492 2,891
------- ------- ------- ------ -------
Operating profit......................... 5,899 7,385 8,631 2,534 2,156
------- ------- ------- ------ -------
Non-operating income (expenses):
Interest Income..................... 510 218 229 51 94
Interest expense.................... (1,618) (821) (464) (159) (62)
Currency (gain) loss................ (1,478) 146 260 -- 23
------- ------- ------- ------ -------
Total non-operating income
(expenses)................... (2,586) (457) 25 (108) 55
------- ------- ------- ------ -------
Income before income taxes............... 3,313 6,928 8,656 2,426 2,211
Income tax expense....................... (965) (2,247) (2,967) (776) (700)
------- ------- ------- ------ -------
Net income............................... $ 2,348 $ 4,681 $ 5,689 $1,650 $ 1,511
======= ======= ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-41
<PAGE> 114
PELTOR HOLDING AB
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE THREE MONTHS PERIOD ENDED
MARCH 31, 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
VOTING
COMMON STOCK CAPITAL CUMULATIVE
----------------- CONTRIBUTED DEFICIENCY RETAINED TRANSLATION
SHARES AMOUNT CAPITAL AT INCEPTION EARNINGS ADJUSTMENTS TOTAL
------- ------ ----------- ------------ -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993...... 878,050 $620 $2,277 $(4,755) $ 4,821 $ 31 $ 2,994
Net income............... 2,348 2,348
------- ---- ------ ------- ------- ----- -------
Balance, December 31, 1993.... 878,050 620 2,277 (4,755) 7,169 31 5,342
Net income............... 4,681 4,681
Cumulative Translation
Adjustment............. (244) (244)
Contributed Capital...... 3,374 3,374
------- ---- ------ ------- ------- ----- -------
Balance, December 31, 1994.... 878,050 620 5,651 (4,755) 11,850 (213) 13,153
Net income............... 5,689 5,689
Dividends................ (3,849) (3,849)
Cumulative Translation
Adjustment............. 635 635
------- ---- ------ ------- ------- ----- -------
Balance, December 31, 1995.... 878,050 620 5,651 (4,755) 13,690 422 15,628
(Unaudited)
Net income............... 1,511 1,511
Dividends................ (4,416) (4,416)
Cumulative Translation
Adjustment............. (207) (207)
------- ---- ------ ------- ------- ----- -------
Balance, March 31, 1996
(Unaudited)................. 878,050 $620 $5,651 $(4,755) $10,785 $ 215 $12,516
======= ==== ====== ======= ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE> 115
PELTOR HOLDING AB
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<CAPTION>
MARCH 31,
-----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net income.................................. $2,348 $ 4,681 $ 5,689 $ 1,650 $ 1,511
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation............................. 739 873 858 213 246
Deferred income taxes.................... 489 1,620 (1,790) -- --
Provision for doubtful accounts.......... 12 28 37 -- --
Gain (loss) on sale of assets............ (5) 3 45 -- --
Changes in assets and liabilities which
provided cash:
Decrease (Increase) in accounts
receivable............................. (686) 283 (314) (1,535) (1,393)
Decrease (Increase) in prepaid expenses
and other current assets............... (545) (1,423) 1,942 255 300
Increase in inventory.................... (385) (322) (1,144) (452) (562)
Increase in accounts payable and accrued
liabilities............................ 378 911 4,860 5,951 4,449
Other, net............................... -- 124 (33) -- --
------ ------- ------- ------- -------
Net cash provided by operating
activities........................ 2,345 6,778 10,150 6,082 4,551
------ ------- ------- ------- -------
INVESTING ACTIVITIES
Proceeds from sale of equipment............. 8 78 91 -- --
Additions to property, plant and
equipment................................ (889) (653) (1,326) (365) (299)
Deferred costs and other.................... 490 (210) 1,833 -- (214)
------ ------- ------- ------- -------
Net cash provided (used) in
investing activities.............. (391) (785) 598 (365) (513)
------ ------- ------- ------- -------
FINANCING ACTIVITIES
Cash dividends paid......................... -- -- (3,849) (3,849) (4,416)
(Payments) Increase of principal on amounts
borrowed................................. (918) (2,880) (4,703) (4,667) 346
------ ------- ------- ------- -------
Net cash used in financing
activities........................ (918) (2,880) (8,552) (8,516) (4,070)
------ ------- ------- ------- -------
Effect of exchange rate changes on cash and
short term investments................... 31 (46) (303) 575 (170)
------ ------- ------- ------- -------
Increase in cash and cash equivalents....... 1,067 3,067 1,893 (2,224) (202)
Cash and cash equivalents, beginning of
period................................... 448 1,515 4,582 4,582 6,475
------ ------- ------- ------- -------
Cash and cash equivalents, end of period.... $1,515 $ 4,582 $ 6,475 $ 2,358 $ 6,273
====== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes............................. $ 929 $ 508 $ 849 $ 247 $ 207
====== ======= ======= ======= =======
Interest, net............................ $1,111 $ 639 $ 284 $ 204 $ 62
====== ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-43
<PAGE> 116
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America. The
significant accounting policies of the Company are described below.
DESCRIPTION OF BUSINESS
Peltor Holding AB (Peltor or the Company) is incorporated in and has its
primary operations headquartered in Varnamo Sweden. The Company is primarily a
manufacturer and distributor of hearing protection equipment. The Company also
has operations in Germany, France, the United States of America, and the United
Kingdom. The accompanying consolidated financial statements include the accounts
of Peltor and its subsidiaries. All significant inter-company accounts and
transactions have been eliminated.
The Company was formed in 1991 when the Founding Shareholders capitalized
the Company with a stock issuance of approximately $280 and sold the underlying
operations to the Company for approximately $10,600. Contemporaneously, the
Company issued additional shares in exchange for approximately $2,500 to a then
unrelated third party (the Investor). Upon completion of these transactions, the
Founding Shareholders owned 64% of the outstanding stock of the Company, 31% of
the stock of the Company was owned by the Investor, and 5% of the stock of the
Company was owned by employees.
In 1994 the Investor exercised it's option to purchase all the stock of the
Company owned by the Founding Shareholders, including the 5% of previous
employee ownership that was acquired by the Founding Shareholders in 1994. In
connection with the Investors acquisition of the remaining 69% ownership of the
Company, the Founding Shareholders acquired an approximate 13% economic
ownership and 27% voting interest in the Investor. As a result of the Founding
Shareholders' continuing significant investment in the Company no change in the
basis of the underlying assets and liabilities of the Company have been
reflected in the consolidated financial statements of the Company, with all
assets and liabilities presented at historical amounts.
CASH AND CASH EQUIVALENTS consist of cash and highly liquid debt
instruments such as commercial paper and money market accounts purchased with an
original maturity date of less than three months.
INVENTORY is stated at the lower of cost or market, cost being determined
using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT are stated at cost. For financial reporting
purposes, depreciation is provided using the straight-line method over estimated
useful lives. Estimated useful lives are 25 years for building and improvements
and 3 to 8 years for machinery and equipment.
On an ongoing basis, management of the Company evaluates the carrying value
of property, plant and equipment by reviewing the performance of the underlying
operations, in particular, the future undiscounted operating cash flows
generated from the property, plant and equipment.
INCOME TAXES are recorded for all periods under the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
SFAS No. 109 requires an asset and liability approach that recognizes deferred
tax assets and liabilities for the differences between the financial statement
carrying amount and the tax basis of existing assets and liabilities.
F-44
<PAGE> 117
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for years in which these temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect of a change in tax rates on
deferred tax assets and liabilities is recognized in the period that includes
the enactment date. In addition, future tax benefits that result in deferred tax
assets are recognized to the extent realization of such benefits is more likely
than not.
SALES are recognized upon shipment of products to customers, when title and
risk of loss have passed to the customer.
FOREIGN CURRENCY TRANSLATION of the consolidated financial statements from
the Swedish Kronor, the Company's function currency, into United States of
America Dollars have been prepared pursuant to Rule 3-20 of Regulation S-X of
the Securities Act of 1933, as amended. Under these provisions, the consolidated
financial statements are translated into United States of America Dollars using
a methodology consistent with that established in SFAS No. 52, Foreign Currency
Translation. Under SFAS No. 52, assets and liabilities are translated at period
end exchange rates and revenues and expenses are translated at average rates.
Translations gains and losses are reflected as a separate component of
shareholders' equity. In connection with the translation of the consolidated
financial statements into United States of America Dollars, the cumulative
effect of translation on periods prior to January 1, 1993 has not been
recognized.
Foreign currency gains and losses arising from transactions are reflected
in the results of operations.
ESTIMATES are made in the preparation of consolidated financial statements
in accordance with accounting principles generally accepted in the United States
of America and in Sweden. In making these estimates the Company makes
assumptions about amounts reported in the consolidated financial statements.
These estimates include the allowance for doubtful accounts, obsolete inventory,
and deferred income taxes, among others. These assumptions could change based
upon future experience and, accordingly, actual results may differ from these
estimates.
INTERIM RESULTS included in the accompanying interim unaudited consolidated
financial statements as of March 31, 1996 and for the three-month periods ended
March 31, 1995 and 1996 have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the consolidated financial position and operating results
of the Company for such periods.
2. INVENTORY
<TABLE>
Inventory consisted of the following at December 31:
<CAPTION>
MARCH 31,
1994 1995 1996
------ ------ -----------
<S> <C> <C> <C>
(UNAUDITED)
Raw materials............................ $2,265 $3,244 $3,550
Work in process.......................... 2,449 2,506 2,750
Finished goods........................... 2,405 3,377 3,411
------ ------ ------
$7,119 $9,127 $9,711
====== ====== ======
</TABLE>
F-45
<PAGE> 118
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
Property, plant and equipment consisted of the following at December 31:
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Land............................................ $ 383 $ 477
Buildings and improvements...................... 5,115 5,993
Machinery and equipment......................... 4,372 5,495
------- -------
9,870 11,965
Less accumulated depreciation................... (4,351) (5,477)
------- -------
$ 5,519 $ 6,488
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1993, 1994 and 1995
was $739, $873 and $858, respectively.
The Company leases certain property and equipment under agreements
generally with terms of four years and certain renewal options. Rental expense
for the years ended December 31, 1993, 1994 and 1995 was approximately $58, $58
and $61, respectively.
<TABLE>
The minimum annual rental commitments under noncancelable operating leases
are as follows for each of the five years subsequent to December 31, 1995:
<S> <C>
1996.............................................................. $ 43
1997.............................................................. 43
1998.............................................................. 43
1999.............................................................. 25
2000.............................................................. 25
2001 and thereafter............................................... 177
</TABLE>
4. LONG-TERM DEBT
<TABLE>
Long-term debt consisted of the following on December 31:
<CAPTION>
1994 1995
------ -------
<S> <C> <C>
Industrikredit AB payable September 30, 1996........................ $ 383 $ 404
(10.35% effective rate at December 31, 1995)
Industrikredit AB payable April 30, 1998............................ 28 22
(12.25% effective rate at December 31, 1995)
Industrikredit AB (15.5% effective rate at December 31, 1994)....... 18 --
Gota Bank Currency Notes............................................ 7,410 3,817
Ostgota Bank $100,000 payable April 30, 1996
(6.75% rate at December, 1995)
Richard Bowen $466,891 payable March 1999........................... 589 565
(7.75% rate at December 1995)
Bezink Sparkasse Ettlingen payable March 31, 1997................... 480 453
(5.357% effective rate at December 31, 1995)
8,908 5,261
------ -------
Less current portion................................................ (130) (4,311)
====== =======
$8,778 $ 950
====== =======
</TABLE>
F-46
<PAGE> 119
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
At December 31, 1995 substantially all the assets of the Company are
pledged to collateralize the loans payable.
<TABLE>
The Gota Bank Currency Notes outstanding at December 31, 1994 and 1995 were
due in various foreign currencies, as follows:
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Deutsche Marks (DEM)..................................... $4,649 $3,068
Dutch Guilders (NLG)..................................... 1,801 --
(CHF)..................................... 960 749
------ ------
$7,410 $3,817
====== ======
</TABLE>
At December 31, 1995 certain loans payable, primarily loans from
Industrikredit AB and the Gota Bank Currency Notes, have been classified as
current based upon managements intent to repay these loans prior to December 31,
1996.
<TABLE>
Annual maturities of all indebtedness, giving effect to managements
intentions discussed above, at December 31, 1995 are as follows:
<S> <C>
1996.............................................................. $4,311
1997.............................................................. 414
1998.............................................................. 25
1999.............................................................. 511
------
$5,261
======
</TABLE>
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
Accrued expenses consisted of the following at December 31:
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Payroll and benefits.............................. $1,418 $1,795
Value added taxes and other payables.............. 616 1,141
------ ------
$2,034 $2,936
====== ======
</TABLE>
6. INCOME TAXES
<TABLE>
The provision for income taxes consisted of the following for the years
ended December 31:
<CAPTION>
1993 1994 1995
------ ------- ------
<S> <C> <C> <C>
Current:
Swedish...................................... $ 772 $ 3,002 $ 208
Foreign...................................... 682 865 969
Deferred....................................... (489) (1,620) 1,790
------ ------- ------
Total................................ $ 965 $ 2,247 $2,967
====== ======= ======
</TABLE>
F-47
<PAGE> 120
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
The components of the net deferred asset were as follows at December 31:
<CAPTION>
1994 1995
------ ----
<S> <C> <C>
Deferred Tax Assets:
Inventory...................................... $ 177 $210
Other assets................................... 22 --
Tax credits.................................... 1,673 --
----
-
------
Total..................................... 1,872 210
Deferred Tax Liability -- Net income carryforward... (10) (39)
----
-
------
Total..................................... $1,862 $171
====== ====
</TABLE>
<TABLE>
Deferred tax assets (liabilities) are reported in the consolidated balance
sheet as follows at December 31:
<CAPTION>
1994 1995
------ ----
<S> <C> <C>
Current.................................................. $ 188 $210
Non Current.............................................. 1,674 (39)
----
-
------
Total.......................................... $1,862 $171
====== ====
</TABLE>
<TABLE>
A reconciliation of the statutory Swedish income tax rate of 28% to the
effective rates of 34.3% , 32.4% and 29.1% for the years ended December 31,
1993, 1994 and 1995, respectively, is as follows:
<CAPTION>
1993 1994 1995
----- ------ ------
<S> <C> <C> <C>
Computed tax expense at the expected statutory
rate........................................... $ 929 $1,939 $2,422
Foreign income taxes at higher rates............. 246 300 339
Income tax adjustments........................... -- -- 201
Non deductible expenses and other................ (146) 22 5
Tax exempt income................................ (64) (14) --
----- ------ ------
Income tax expense............................... $ 965 $2,247 $2,967
===== ====== ======
</TABLE>
No valuation allowance has been established for deferred taxes, as all
deferred taxes most likely will be realized.
One of the Swedish subsidiaries has been the subject of a routine tax audit
by the Swedish tax authorities. The preliminary conclusion of the audit is that
the subsidiary should be charged up to an additional $2,557 in taxes, fees and
interest. The Company has consulted with outside legal advisors and as a result
has recognized $213 as an expense in 1995, representing the likely tax charge
related to this matter. In the opinion of management of the Company and its
legal advisors the ultimate outcome of this matter will not be materially
different from the estimate accrued in 1995.
7. RELATED PARTY TRANSACTIONS
The Company has entered into employment agreements extending for periods up
to 12 months with certain key officers of the Company. These officers are in
some cases also members of the Board of Directors and shareholders of the
Company.
F-48
<PAGE> 121
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
The Founding Shareholders of the Company, as defined in Note 1, jointly own
APAB AB. APAB AB has entered into a royalty agreement with Peltor. The royalties
paid in 1994 and 1995, respectively, amounts to $26 and $28. Certain other
former shareholders also have a royalty agreement with Peltor for the rest of
their lives. Royalties paid in 1994 and 1995 amounts to $41 and $44.
Subsequent to the Investor's additional investment in the Company in 1994
(see Note 1), the Investor, as defined in Note 1, provided various
administrative and strategic services. During 1995, the Company paid a
management fee of $1,470 to the Investor related to these services. At December
31, 1995, $1,174 of these fees remain outstanding and are reported as a current
liability. Such amounts are noninterest bearing.
During 1994, the Company purchased an investment from the Investor for
approximately $1,062, which represented the Investors carrying value and the
fair value of the investment at the date purchased. The investment had a tax
basis of approximately $13,005 which carried over from the Investor. During
1994, the Company sold this investment for the approximate carrying value of
$1,062 and received a tax benefit of approximately $3,374. As no amounts were
remitted by the Company to the Investor for this tax benefit, it has been
reflected as a capital contribution in the accompanying consolidated financial
statements.
8. FOREIGN EXCHANGE CONTRACTS
The Company periodically enters into foreign exchange contracts for hedging
purposes. At December 31, 1994 and 1995, there were no such contracts
outstanding. Gains and losses on the contracts which result from market risk
associated with changes in the market values of the underlying currencies are
deferred and reported as a part of the hedged item.
The Company does not enter into foreign exchange contracts for trading
purposes.
9. LITIGATION AND UNASSERTED CLAIMS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management of the Company, the
ultimate resolution of such legal proceedings and claims will not have a
material effect on the consolidated financial position or results of operations
of the Company.
10. RETAINED EARNINGS
Dividend distributions are required to be approved by a vote of the
shareholders. Dividends are allowed only to the extent of retained earnings,
based upon financial statements prepared in accordance with generally accepted
accounting principles in Sweden, which differ from accounting principles used to
prepare these consolidated financial statements. Retained earnings as determined
using accounting principles generally accepted in Sweden were approximately
$15,758 at December 31, 1995.
11. FINANCIAL INSTRUMENTS
Financial instruments include cash and cash equivalents, accounts
receivable and long term debt.
F-49
<PAGE> 122
PELTOR HOLDING AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
The estimated fair values of financial instruments are determined using
available market information and valuation methodologies. However, considerable
judgment is required in interpreting data to develop the estimates of fair
value. Accordingly, the estimates as of December 31, 1995 and 1994 are not
necessarily indicative of the amounts that the Company could realized in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
The fair value estimates are based on pertinent information available to
management as of December 31, 1995 and 1994. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
consolidated financial statements since that date, and current estimates of fair
value may differ significantly from the amounts estimated as of December 31,
1995 and 1994.
The Company places its cash and cash equivalents with high credit quality
financial institutions, thereby minimizing exposure to concentrations of credit
risk. Credit risk with respect to accounts receivable is limited due to the
number of customers comprising the Company's customer base.
At December 31, 1995 and 1994, the fair value of financial instruments
approximates the recorded amounts.
12. FOREIGN OPERATIONS
Approximately 30% of net sales for the years ended December 31, 1993, 1994
and 1995 were derived from operations outside of Europe. These net sales were
generated primarily in the United States of America. Cost of sales represents
approximately 48% of net sales outside of Europe for the years ended December
31, 1993, 1994 and 1995. The underlying net assets outside of Europe were less
than 10% for all periods presented.
F-50
<PAGE> 123
UNDERWRITING
<TABLE>
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co. and Donaldson, Lufkin &
Jenrette Securities Corporation are acting as representatives, has severally
agreed to purchase from the Company the respective number of shares of Common
Stock set forth opposite its name below.
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
-------------------------------------------------------------------- ----------------
<S> <C>
Goldman, Sachs & Co.................................................
Donaldson, Lufkin & Jenrette Securities Corporation.................
Total............................................................... 5,500,000
---------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 825,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 5,500,000 shares of Common
Stock offered.
The Company and all of the stockholders of the Company have agreed that,
during the period beginning from the date of this Prospectus and continuing to
and including the date 180 days after the date of this Prospectus, it will not
offer, sell, contract to sell or otherwise dispose of any securities of the
company (other than pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus) which are substantially similar to the shares of
Common Stock or which are convertible or exchangeable into securities which are
substantially similar to the shares of Common Stock without the prior written
consent of the representatives, except for the shares of Common Stock offered in
connection with this offering.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company and the
representatives. Among the factors to be considered in determining the initial
public offering price of Common Stock, in addition to prevailing market
conditions, will be the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management, and the
U-1
<PAGE> 124
consideration of the above factors in relation to market valuation of companies
in related businesses.
The Company has applied for listing of the Common Stock on the New York
Stock Exchange under the symbol "AER". In order to meet one of the requirements
for listing the Common Stock on the New York Stock Exchange, the Underwriters
have undertaken to sell lots of 100 or more shares to a minimum of 2,000
beneficial holders.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE> 125
(INSIDE BACK COVER)
(Photo: Six individual photos of each major product line)
HEARING PROTECTION: E-A-R is a brand name known worldwide for a wide variety
of ear plugs and semi-aural devices. Peltor is the world's leading manufacturer
of ear muff style hearing protection and devices.
PRESCRIPTION SAFETY EYEWEAR: AOSafety is a leading brand name for prescription
safety eyewear. AOSafety prescription eyewear programs are already in place
with a majority of the industrial companies in the Fortune 500.
PLANO EYEWEAR: AOSafety is also a leading brand name in plano (non-prescription
safety eyewear).
RESPIRATORY: Respirators are sold under the AOSafety brand name.
CONSUMER: The Company is a leading supplier of a broad range of personal
protection products to the consumer/DIY market. The Company's AOSafety and
Eastern-branded products can be found in major retailers such as ACE, Home
Depot, Lowe's, Sears, and TrueValue.
E-A-R SPECIALTY COMPOSITES: This line of custom-formulated, engineered
polymer materials has seen substantial growth in recent years.
<PAGE> 126
================================================================================
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 AN 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 SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary....................... 3
Risk Factors............................. 10
The Company.............................. 16
Use of Proceeds.......................... 16
Dividend Policy.......................... 16
Dilution................................. 17
Capitalization........................... 18
Selected Unaudited Pro Forma Financial
Data................................... 19
Selected Historical Consolidated
Financial Data......................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 23
Business................................. 31
Acquisition of Peltor.................... 48
Management............................... 49
Principal Stockholders................... 57
Certain Relationships and Related
Transactions........................... 58
Description of Capital Stock............. 63
Description of Senior Bank Facilities.... 66
Shares Eligible for Future Sale.......... 67
Legal Matters............................ 68
Experts.................................. 68
Additional Information................... 68
Index to Financial Statements............ F-1
Underwriting............................. U-1
===============================================================================
5,500,000 SHARES
AEARO
CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------
[LOGO]
------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
REPRESENTATIVES OF THE UNDERWRITERS
================================================================================
<PAGE> 127
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
Set forth below is an estimate of the fees and expenses payable by the
Company in connection with the issuance and distribution of the shares of Common
Stock:
<S> <C>
Securities and Exchange Commission registration fee...................... $32,716
NYSE filing fees......................................................... 86,350
NASD filing fees......................................................... 9,988
Blue Sky fees and expenses............................................... *
Printing expenses........................................................ *
Legal fees and expenses.................................................. *
Accounting fees and expenses............................................. *
Transfer Agent fees...................................................... *
Miscellaneous............................................................ *
-------
Total.......................................................... $ *
=======
- ---------------
<FN>
* To be completed by Amendment.
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"Law") provides as follows:
"(a) A corporation may indemnify any 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
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
II-1
<PAGE> 128
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefits plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
II-2
<PAGE> 129
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
of disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees)."
Section 102(b)(7) of the Law provides as follows:
"(b) In addition to the matters required to be set forth in the certificate
of incorporation by subsection (a) of this section, the certificate of
incorporation may also contain any or all of the following matters:
(7) A provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (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 this Title, or (iv) for any
transaction from which the director derived an improper personal benefit. No
such provision shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision becomes effective.
All references in this paragraph to a director shall also be deemed to refer (x)
to a member of the governing body of a corporation which is not authorized to
issue capital stock, and (y) to such other person or persons, if any, who
pursuant to a provision of the certificate of incorporation in accordance with
subsection (a) of Sec.141 of this title, exercise or perform any of the powers
or duties otherwise conferred or imposed upon the board of directors by this
title."
The Company maintains a director's and officer's liability insurance policy
which indemnifies directors and officers for certain losses arising from claims
by reason of a wrongful act, as defined therein, under certain circumstances.
In addition, the answer to this Item 14 incorporates by reference the
following: the information set forth under the caption "Management" contained in
the Prospectus; Article VII of the Second Amended and Restated Certificate of
Incorporation, as amended, of Aearo Corporation in substantially the form
included as Exhibit 3.1 to this Registration Statement; and Article V of the
Amended and Restated By-Laws of Aearo Corporation in substantially the form
included as Exhibit 3.2 to this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Aearo Corporation and the Subsidiary are Delaware corporations formed by
Vestar in July 1995 to effect the acquisition of substantially all of the assets
and certain liabilities of Old Cabot Safety Corporation and certain of its
affiliates. Old Cabot Safety Corporation was a wholly-owned subsidiary of Cabot
prior to the Formation Acquisition. Vestar invested $31.0 million and received
$22.5 million in Redeemable Preferred Stock and $8.5 million of Common Stock in
exchange for cash. A subsidiary of Cabot received $22.5 million of Redeemable
Preferred Stock and $8.5 million of Common Stock in exchange for assets
contributed to the Company. The Management Investors received $3.0 million in
Common Stock in exchange for cash and promissory notes. Vestar and Cabot each
own 50.0% of Redeemable Preferred Stock and 42.5% of Common Stock, and the
Management Investors own the remaining 15.0% of Common Stock. The Subordinated
Notes were sold to BT Securities Corporation and Chemical Securities, Inc. on
July 11,1995. See "Certain
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<PAGE> 130
Relationships and Related Transactions -- The Formation Acquisition" and
"-- Other Relationships."
Aearo Corporation and the Subsidiary relied on Section 4(2) of the
Securities Act in effecting the offer and sale of Common Stock and Redeemable
Preferred Stock to Vestar and to Cabot's subsidiary. Aearo Corporation and the
Subsidiary relied on Rule 701 under the Securities Act in effecting sales of
Common Stock to the Management Investors.
The Subsidiary issued $100 million principal amount of 12 1/2% Senior
Subordinated Notes due 2005 under an indenture dated as of July 11, 1995 by and
between the Subsidiary and Fleet National Bank of Connecticut, as Trustee
(formerly Shawmut Bank Connecticut, N.A.). The Subordinated Notes are unsecured
obligations of the Subsidiary, ranking subordinate in right of payment to all
senior indebtedness of the Subsidiary. The Subordinated Notes are
unconditionally guaranteed by the Company. The Subsidiary and Aearo Corporation
relied on Section 4(2) of the Securities Act and Rule 144A thereunder in
effecting the offer and sale of the Subordinated Notes. In addition, Aearo
Corporation issued 8,000 shares of Common Stock to each of John W. Priesing and
Samuel L. Hayes, III in connection with the commencement of their services as
director of Aearo Corporation in December 1995 for $20,000 and June 1996 for
$60,000, respectively. Aearo Corporation relied on Section 4(2) of the
Securities Act in effecting the offers and sales of such shares.
The Subsidiary and Aearo Corporation have reason to believe that all of the
foregoing investors were familiar with or had access to information concerning
the operations and financial condition of the Subsidiary and Aearo Corporation,
and all of those investors acquired the securities for investment and not with a
view to the distribution thereof. At the time of issuance, all of the
Subordinated Notes and shares of Common Stock and Redeemable Preferred Stock
were deemed to be restricted securities for purposes of the Securities Act and
the certificates representing such securities bore legends to that effect.
None of the transactions described above involved, or will involve, an
underwriter.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C> <C>
1.1** -- Form of Underwriting Agreement among the Underwriters named therein and the
Company.
2.1* -- Asset Transfer Agreement, dated as of June 13, 1995, among Aearo Company
(formerly, Cabot Safety Corporation), Cabot Canada Ltd., Cabot Safety Limited,
Cabot Corporation, Aearo Corporation (formerly, Cabot Safety Holdings Corpora-
tion), and Cabot Safety Acquisition Corporation. (Incorporated by reference to
Exhibit No. 2.1 to the Registration Statement on Form S-4, No. 33-96190, of
Aearo Company and Aearo Corporation.)
2.2* -- Trademark Coexistence Agreement, dated July 11, 1995, between Cabot Corporation
and Cabot Safety Intermediate Corporation. (Incorporated by reference to Exhibit
No. 2.2 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Company (formerly, Cabot Safety Corporation) and Aearo Corporation (formerly,
Cabot Safety Holdings Corporation).)
2.3* -- Subscription Agreement, dated July 11, 1995, between Aearo Corporation
(formerly, Cabot Safety Holdings Corporation) and Vestar Equity Partners, L.P.
(Incorporated by reference to Exhibit No. 2.3 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot Safety Corporation)
and Aearo Corporation.)
</TABLE>
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<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
2.4* -- Stockholders' Agreement, dated as of July 11, 1995, among Vestar Equity
Partners, L.P., Cabot CSC Corporation, Aearo Corporation (formerly, Cabot Safety
Holdings Corporation), Cabot Corporation, and the Management Investors.
(Incorporated by reference to Exhibit No. 2.4 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot Safety Corporation)
and Aearo Corporation.)
2.5* -- Form of Executive Security Purchase Agreement, dated as of July 11, 1995,
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation) and the
Management Investors (Senior Management). (Incorporated by reference to Exhibit
No. 2.5 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Company (formerly, Cabot Safety Corporation) and Aearo Corporation.)
2.6* -- Form of Executive Security Purchase Agreement, dated as of July 11, 1995,
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation) and the
Management Investors (Middle Management). (Incorporated by reference to Exhibit
No. 2.6 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Company (formerly, Cabot Safety Corporation) and Aearo Corporation.)
2.7* -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and between
Aearo Corporation (formerly, Cabot Safety Holdings Corporation), Cabot Safety
Acquisition Corporation and Cabot Safety Intermediate Corporation. (Incorporated
by reference to Exhibit No. 2.7 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Company (formerly, Cabot Safety Corporation) and Aearo
Corporation.)
2.8* -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and between
Aearo Corporation (formerly, Cabot Safety Holdings Corporation), Cabot Safety
Acquisition Corporation and Cabot Safety Acquisition Limited (UK). (Incorporated
by reference to Exhibit No. 2.8 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Company (formerly, Cabot Safety Corporation) and Aearo
Corporation.)
2.9* -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and between
Aearo Corporation (formerly, Cabot Safety Holdings Corporation), Cabot Safety
Acquisition Corporation and Cabot Safety Canada Acquisition Ltd. (Canada).
(Incorporated by reference to Exhibit No. 2.9 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot Safety Corporation)
and Aearo Corporation.)
2.10* -- Bill of Sale and Assignment, dated as of July 11, 1995, made by Aearo Company
(formerly, Cabot Safety Corporation), Cabot Canada Ltd., and Cabot Safety
Limited in favor of Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), Cabot Safety Acquisition Corporation, Cabot Safety Intermediate
Corporation, Cabot Safety Acquisition Limited and Cabot Safety Canada
Acquisition Ltd. (Incorporated by reference to Exhibit No. 2.10 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Company and Aearo
Corporation.)
2.11* -- Assumption Agreement, dated as of July 11, 1995, by Aearo Corporation (formerly,
Cabot Safety Holdings Corporation), Cabot Safety Acquisition Corporation, Cabot
Safety Intermediate Corporation, Cabot Safety Acquisition Limited and Cabot
Safety Canada Acquisition Ltd. in favor of Cabot Corporation, Aearo Company
(formerly, Cabot Safety Corporation), Cabot Canada Ltd. and Cabot Safety
Limited. (Incorporated by reference to Exhibit No. 2.11 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company and Aearo Corporation.)
2.12* -- Worldwide Trademark Assignment, dated July 11, 1995, by Aearo Company (formerly,
Cabot Safety Corporation) to Cabot Safety Intermediate Corporation.
(Incorporated by reference to Exhibit No. 2.12 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Company and Aearo Corporation (formerly, Cabot
Safety Holdings Corporation).)
</TABLE>
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<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------
<S> <C>
2.13* -- Worldwide Copyright Assignment, dated July 11, 1995, by Aearo Company (formerly,
Cabot Safety Corporation) to Cabot Safety Intermediate Corporation.
(Incorporated by reference to Exhibit No. 2.13 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Company and Aearo Corporation (formerly, Cabot
Safety Holdings Corporation).)
2.14* -- Worldwide Patent Assignment, dated July 11, 1995, by Aearo Company (formerly,
Cabot Safety Corporation) to Cabot Safety Intermediate Corporation.
(Incorporated by reference to Exhibit No. 2.14 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Company and Aearo Corporation (formerly, Cabot
Safety Holdings Corporation).)
2.15* -- Management Advisory Agreement made as of July 11, 1995, among Aearo Company
(formerly, Cabot Safety Corporation), Aearo Corporation (formerly, Cabot Safety
Holdings Corporation), Certain Subsidiaries of Aearo Corporation, Vestar Capital
Partners and Cabot Corporation. (Incorporated by reference to Exhibit No. 2.15
to the Registration Statement on Form S-4, No. 33-96190, of Aearo Company and
Aearo Corporation.)
2.16* -- Aearo Corporation (formerly, Cabot Safety Holdings Corporation) 1995 Employee
Stock Purchase Plan. (Incorporated by reference to Exhibit No. 2.16 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Company (formerly,
Cabot Safety Corporation) and Aearo Corporation.)
2.17* -- Assignment and Assumption Agreement dated July 11, 1995, by and between Aearo
Company (formerly, Cabot Safety Corporation) and Cabot Safety Acquisition
Corporation with Respect to the Installment Sale Agreement dated September 1,
1978 by and between the Department of Community Affairs and Economic Development
of the State of Delaware and Specialty Composites Corporation (Predecessor to
Cabot Safety Corporation) Pertaining to Real Property Located in New Castle
County, Delaware, Tax Parcel Number 11-010.00-003 (Delaware IRB). (Incorporated
by reference to Exhibit No. 2.17 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Company and Aearo Corporation (formerly, Cabot Safety
Holdings Corporation).)
2.18* -- Assignment and Assumption Agreement dated July 11, 1995, by and between Cabot
Corporation and Cabot Safety Acquisition Corporation with Respect to that
Certain Loan Agreement dated as of June 1, 1982 by and between the City of
Indianapolis, Indiana and Cabot Corporation (Indianapolis IRB). (Incorporated by
reference to Exhibit No. 2.18 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Company (formerly, Cabot Safety Corporation) and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).)
2.19 -- Stock Purchase Agreement by and among Aearo Company (formerly, Cabot Safety
Corporation), Peltor Holding AB, Leif Palmaer Invest AB, Leif Anderzon Invest AB
and Active i Malmo AB, dated April 25, 1996. (Incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K of Aearo Corporation dated May 30,
1996.)
2.20 -- Stock Purchase Agreement by and among Aearo Company (formerly, Cabot Safety
Corporation), Eastern Safety Equipment Co., Inc., Alfred H. Jacobson and William
Klein and Jack P. Hecht as Trustees of a certain Trust, dated September 19,
1995.
2.21 -- Amendment to Stockholders' Agreement dated as of July 3, 1996, by and among
Vestar Equity Partners, L.P., Cabot CSC Corporation, Aearo Corporation
(formerly, Cabot Safety Holdings Corporation), Cabot Corporation, and certain
other stockholders of Aearo Corporation.
2.22 -- Amendment to Stock Purchase Agreement by and among Aearo Company (formerly,
Cabot Safety Corporation), Peltor Holding AB, Leif Palmaer Invest AB, Leif
Anderzon Invest AB and Active i Malmo AB, dated May 15, 1996.
3.1 -- Form of Second Amended and Restated Certificate of Incorporation of Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).
</TABLE>
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<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------
<S> <C>
3.2 -- Form of Amended and Restated By-Laws of Aearo Corporation (formerly, Cabot
Safety Holdings Corporation).
4.1* -- Indenture dated as of July 11, 1995 between Aearo Company (formerly, Cabot
Safety Corporation), Aearo Corporation (formerly, Cabot Safety Holdings Corpora-
tion), and Fleet National Bank of Connecticut (formerly, Shawmut Bank
Connecticut, National Association), as Trustee. (Incorporated by reference to
Exhibit No. 4.1 to the Registration Statement on Form S-4, No. 33-96190, of
Aearo Company and Aearo Corporation.)
4.2* -- Form of Note. (Incorporated by reference to Exhibit No. 4.2 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot Safety
Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings Corpora-
tion).)
4.3* -- Form of Exchange Note. (Incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Company (formerly,
Cabot Safety Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)
4.4* -- Registration Rights Agreement, dated as of July 11, 1995, among Cabot Safety
Acquisition Corporation, Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), BT Securities Corporation and Chemical Securities Inc.
(Incorporated by reference to Exhibit No. 4.4 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot Safety Corporation)
and Aearo Corporation.)
4.5* -- First Supplemental Indenture, dated December 6, 1995. (Incorporated by reference
to Exhibit No. 4.5 to the Annual Report on Form 10-K of Aearo Corporation
(formerly, Cabot Safety Holdings Corporation) for the fiscal year ended Septem-
ber 30, 1995.)
5.1** -- Legality opinion of Goodwin, Procter & Hoar LLP.
10.1 -- Credit Agreement, dated as of July 11, 1995, and amended and restated as of May
30, 1996, among Aearo Corporation (formerly, Cabot Safety Holdings Corpora-
tion), Aearo Company (formerly, Cabot Safety Corporation), Certain of its
Subsidiaries, Various Banks, and Bankers Trust Company as Co-Arranger and
Administrative Agent.
10.2 -- Amended and Restated US Pledge Agreement dated as of July 11, 1995, as amended
and restated as of May 30, 1996, made by Cabot Safety Acquisition Corporation,
Aearo Corporation (formerly, Cabot Safety Holdings Corporation), Cabot Safety
Intermediate Corporation and CSC FSC, Inc., in favor of Bankers Trust Company as
Collateral Agent for the Benefit of the Secured Creditors.
10.3 -- Amended and Restated Foreign Pledge Agreement dated as of July 11, 1995, as
amended and restated as of May 30, 1996, made by Cabot Safety Canada Acquisition
Limited and Cabot Safety Acquisition Limited in favor of Bankers Trust Company
as Collateral Agent for the Benefit of the Secured Creditors.
10.4* -- Charge Over United Kingdom Patents and Trademarks made the 11th Day of July,
1995, by Cabot Safety Intermediate Corporation and the Bankers Trust Company as
Collateral Agent for Itself and for the Secured Creditors. (Incorporated by
reference to Exhibit No. 10.4 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Company (formerly, Cabot Safety Corporation) and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).)
</TABLE>
II-7
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------
<S> <C>
10.5 -- Amended and Restated US Security Agreement dated as of July 11, 1995, as amended
and restated as of May 30, 1996, among Aearo Corporation (formerly, Cabot Safety
Holdings Corporation), Cabot Safety Acquisition Corporation, Cabot Safety
Intermediate Corporation, CSC FSC, Inc., and Bankers Trust Company as Collateral
Agent for the Benefit of the Secured Creditors.
10.6 -- Amended and Restated Security Agreement dated as of July 11, 1995, as amended
and restated as of May 30, 1996, granted by Cabot Safety Canada Acquisition
Limited in favor of Bankers Trust Company as Collateral Agent for the Benefit of
the Secured Creditors.
10.7* -- English Security Agreement (The Debenture) made on the 11th Day of July, 1995
between the Cabot Safety Acquisition Limited and Bankers Trust Company as
Collateral Agent for Itself and for the Secured Creditors. (Incorporated by
reference to Exhibit No. 10.7 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Company (formerly, Cabot Safety Corporation) and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).)
10.8* -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent, as
Mortgagee (recorded in Marion County, Indiana) pertaining to Real Property
located at 7911 Zionsville Road, Indianapolis, Indiana. (Incorporated by
reference to Exhibit No. 10.8 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Company (formerly, Cabot Safety Corporation) and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).)
10.9* -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent, as
Mortgagee (recorded in New Castle County, Delaware) pertaining to 10 Acre Site
of Unimproved Land adjacent to 5457 West 79th Street, Indianapolis, Indiana.
(Incorporated by reference to Exhibit No. 10.9 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot Safety Corporation)
and Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)
10.10* -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent, as
Mortgagee (recorded in New Castle County, Delaware) pertaining to Real Property
located at 650 Dawson Drive, Newark, Delaware. (Incorporated by reference to
Exhibit No. 10.10 to the Registration Statement on Form S-4, No. 33-96190, of
Aearo Company (formerly, Cabot Safety Corporation) and Aearo Corporation
(formerly, Cabot Safety Holdings Corporation).)
10.11* -- Aearo Company (formerly, Cabot Safety Corporation) Employees' Retirement Account
Plan, dated as of May 1, 1990, as amended. (Incorporated by reference to Exhibit
No. 10.11 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Company and Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)
10.12* -- Fidelity Corporate (401(k)) Plan for Retirement, dated August 1, 1993, as
amended. (Incorporated by reference to Exhibit No. 10.12 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot Safety
Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)
</TABLE>
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<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------
<S> <C>
10.13* -- Aearo Company (formerly, Cabot Safety Corporation) Supplemental Executive
Retirement Plan, dated May 1, 1993. (Incorporated by reference to Exhibit No.
10.13 to the Registration Statement on Form S-4, No. 33-96190, of Aearo Company
and Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)
10.14* -- Sublease, dated June 4, 1994, between C.W. Kay-Bee Inc. and Aearo Company
(formerly, Cabot Safety Corporation), pertaining to 8001-8003 Woodland Drive,
Indianapolis, Indiana, as amended. (Incorporated by reference to Exhibit No.
10.14 to the Registration Statement on Form S-4, No. 33-96190, of Aearo Company
and Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)
10.15* -- Sublease, dated April 16, 1990, between American Optical Corporation and Aearo
Company (formerly, Cabot Safety Corporation), pertaining to Southbridge, Massa-
chusetts manufacturing facility. (Incorporated by reference to Exhibit No. 10.15
to the Registration Statement on Form S-4, No. 33-96190, of Aearo Company and
Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)
10.16 -- Aearo Corporation (formerly, Cabot Safety Holdings Corporation) Amended and
Restated 1995 Employee and Non-Employee Director Stock Purchase Plan.
10.17 -- Form of Executive Security Purchase Agreement.
10.18 -- Aearo Corporation (formerly, Cabot Safety Holdings Corporation) Executive Stock
Option Plan.
10.19 -- Form of Non-Qualified Option to Purchase Shares of Common Stock under the Aearo
Corporation (formerly, Cabot Safety Holdings Corporation) Executive Stock Option
Plan.
10.20 -- Aearo Corporation (formerly, Cabot Safety Holdings Corporation) 1996 Stock
Option Plan.
10.21 -- Form of Incentive Stock Option Agreement under the Aearo Corporation (formerly,
Cabot Safety Holdings Corporation) 1996 Stock Option Plan.
10.22 -- Form of Non-Qualified Stock Option Agreement for Company Employees under the
Aearo Corporation (formerly, Cabot Safety Holdings Corporation) 1996 Stock
Option Plan.
10.23 -- Employment Agreement between Peltor AB and Leif Palmaer, dated January 1, 1996.
10.24 -- Employment Agreement between Peltor AB and Leif Anderzon, dated January 1, 1996.
10.25 -- Amended and Restated US Subsidiary Guaranty dated July 11, 1995, as amended and
restated as of May 30, 1996, delivered by Cabot Safety Intermediate Corporation,
CSC FSC, Inc. and Eastern Safety Equipment Co., Inc. in favor of Bankers Trust
Company.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Deloitte & Touche AB
- ---------------
<FN>
(*) Previously filed
(**) To be filed by amendment
</TABLE>
II-9
<PAGE> 136
(b) Financial Statement Schedules
(1) The following Financial Statement Schedules of Cabot Safety are
filed herewith at the pages indicated below:
Report of Independent Certified Public Accountants
(2) The following Financial Statement Schedules of Holdings are filed
herewith at the pages indicated below:
Consent of Independent Auditors
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to Item 20 of this Registration Statement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof."
II-10
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, Commonwealth of Massachusetts, on the day of July , 1996.
AEARO CORPORATION
By: /s/ JOHN D. CURTIN, JR.
--------------------------------------
John D. Curtin, Jr.
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities of Aearo Corporation on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/S/ JOHN D. CURTIN, JR. Chairman and Chief July , 1996
- ----------------------------------- Executive Officer
John D. Curtin, Jr. (Principal Executive Officer)
/S/ ALBERT F. YOUNG, JR.* Director, President and July , 1996
- ----------------------------------- Chief Operating Officer
Albert F. Young, Jr.
/S/ BRYAN J. CAREY* Treasurer and Vice President, July , 1996
- ----------------------------------- Chief Financial Officer,
Bryan J. Carey Assistant Secretary (Principal
Accounting Officer)
/S/ NORMAN W. ALPERT* Director July , 1996
- -----------------------------------
Norman W. Alpert
/S/ DANIEL S. O'CONNELL* Director July , 1996
- -----------------------------------
Daniel S. O'Connell
/S/ ARTHUR J. NAGLE* Director July , 1996
- -----------------------------------
Arthur J. Nagle
/S/ KENYON C. GILSON* Director July , 1996
- -----------------------------------
Kenyon C. Gilson
/S/ MARGARET J. HANRATTY* Director July , 1996
- -----------------------------------
Margaret J. Hanratty
</TABLE>
II-11
<PAGE> 138
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/S/ JOHN W. PRIESING* Director July , 1996
- -----------------------------------
John W. Priesing
/S/ SAMUEL L. HAYES, III* Director July , 1996
- -----------------------------------
Samuel L. Hayes, III
<FN>
*By: /s/ JOHN D. CURTIN, JR.
- ------------------------------------
John D. Curtin, Jr.
Attorney-in-Fact
</TABLE>
II-12
<PAGE> 139
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C> <C>
1.1** -- Form of Underwriting Agreement among the Underwriters named therein and
the Company.
2.1* -- Asset Transfer Agreement, dated as of June 13, 1995, among Aearo Company
(formerly, Cabot Safety Corporation), Cabot Canada Ltd., Cabot Safety
Limited, Cabot Corporation, Aearo Corporation (formerly, Cabot Safety
Holdings Corporation), and Cabot Safety Acquisition Corporation. (Incorpo-
rated by reference to Exhibit No. 2.1 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Company and Aearo Corporation.)
2.2* -- Trademark Coexistence Agreement, dated July 11, 1995, between Cabot
Corporation and Cabot Safety Intermediate Corporation. (Incorporated by
reference to Exhibit No. 2.2 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Company (formerly, Cabot Safety Corporation) and
Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)
2.3* -- Subscription Agreement, dated July 11, 1995, between Aearo Corporation
(formerly, Cabot Safety Holdings Corporation) and Vestar Equity Partners,
L.P. (Incorporated by reference to Exhibit No. 2.3 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot
Safety Corporation) and Aearo Corporation.)
2.4* -- Stockholders' Agreement, dated as of July 11, 1995, among Vestar Equity
Partners, L.P., Cabot CSC Corporation, Aearo Corporation (formerly, Cabot
Safety Holdings Corporation), Cabot Corporation, and the Management
Investors. (Incorporated by reference to Exhibit No. 2.4 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Company
(formerly, Cabot Safety Corporation) and Aearo Corporation.)
2.5* -- Form of Executive Security Purchase Agreement, dated as of July 11, 1995,
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation)
and the Management Investors (Senior Management). (Incorporated by
reference to Exhibit No. 2.5 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Company (formerly, Cabot Safety Corporation) and
Aearo Corporation.)
2.6* -- Form of Executive Security Purchase Agreement, dated as of July 11, 1995,
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation)
and the Management Investors (Middle Management). (Incorporated by
reference to Exhibit No. 2.6 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Company (formerly, Cabot Safety Corporation) and
Aearo Corporation.)
2.7* -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation),
Cabot Safety Acquisition Corporation and Cabot Safety Intermediate
Corporation. (Incorporated by reference to Exhibit No. 2.7 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Company
(formerly, Cabot Safety Corporation) and Aearo Corporation.)
</TABLE>
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C> <C>
2.8* -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation),
Cabot Safety Acquisition Corporation and Cabot Safety Acquisition Limited
(UK). (Incorporated by reference to Exhibit No. 2.8 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot
Safety Corporation) and Aearo Corporation.)
2.9* -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation),
Cabot Safety Acquisition Corporation and Cabot Safety Canada Acquisition
Ltd. (Canada). (Incorporated by reference to Exhibit No. 2.9 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Company
(formerly, Cabot Safety Corporation) and Aearo Corporation.)
2.10* -- Bill of Sale and Assignment, dated as of July 11, 1995, made by Aearo
Company (formerly, Cabot Safety Corporation), Cabot Canada Ltd., and Cabot
Safety Limited in favor of Aearo Corporation (formerly, Cabot Safety
Holdings Corporation), Cabot Safety Acquisition Corporation, Cabot Safety
Intermediate Corporation, Cabot Safety Acquisition Limited and Cabot
Safety Canada Acquisition Ltd. (Incorporated by reference to Exhibit No.
2.10 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Company and Aearo Corporation.)
2.11* -- Assumption Agreement, dated as of July 11, 1995, by Aearo Corporation
(formerly, Cabot Safety Holdings Corporation), Cabot Safety Acquisition
Corporation, Cabot Safety Intermediate Corporation, Cabot Safety
Acquisition Limited and Cabot Safety Canada Acquisition Ltd. in favor of
Cabot Corporation, Aearo Company (formerly, Cabot Safety Corporation),
Cabot Canada Ltd. and Cabot Safety Limited. (Incorporated by reference to
Exhibit No. 2.11 to the Registration Statement on Form S-4, No. 33-96190,
of Aearo Company and Aearo Corporation.)
2.12* -- Worldwide Trademark Assignment, dated July 11, 1995, by Aearo Company
(formerly, Cabot Safety Corporation) to Cabot Safety Intermediate Corpora-
tion. (Incorporated by reference to Exhibit No. 2.12 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).)
2.13* -- Worldwide Copyright Assignment, dated July 11, 1995, by Aearo Company
(formerly, Cabot Safety Corporation) to Cabot Safety Intermediate Corpora-
tion. (Incorporated by reference to Exhibit No. 2.13 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).)
2.14* -- Worldwide Patent Assignment, dated July 11, 1995, by Aearo Company
(formerly, Cabot Safety Corporation) to Cabot Safety Intermediate Corpora-
tion. (Incorporated by reference to Exhibit No. 2.14 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).)
2.15* -- Management Advisory Agreement made as of July 11, 1995, among Aearo
Company (formerly, Cabot Safety Corporation), Aearo Corporation (formerly,
Cabot Safety Holdings Corporation), Certain Subsidiaries of Aearo Corpora-
tion, Vestar Capital Partners and Cabot Corporation. (Incorporated by
reference to Exhibit No. 2.15 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Company and Aearo Corporation.)
</TABLE>
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C> <C>
2.16* -- Aearo Corporation (formerly, Cabot Safety Holdings Corporation) 1995
Employee Stock Purchase Plan. (Incorporated by reference to Exhibit No.
2.16 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Company (formerly, Cabot Safety Corporation) and Aearo Corporation.)
2.17* -- Assignment and Assumption Agreement dated July 11, 1995, by and between
Aearo Company (formerly, Cabot Safety Corporation) and Cabot Safety
Acquisition Corporation with Respect to the Installment Sale Agreement
dated September 1, 1978 by and between the Department of Community Affairs
and Economic Development of the State of Delaware and Specialty Composites
Corporation (Predecessor to Cabot Safety Corporation) Pertaining to Real
Property Located in New Castle County, Delaware, Tax Parcel Number
11-010.00-003 (Delaware IRB). (Incorporated by reference to Exhibit No.
2.17 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Company and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)
2.18* -- Assignment and Assumption Agreement dated July 11, 1995, by and between
Cabot Corporation and Cabot Safety Acquisition Corporation with Respect to
that Certain Loan Agreement dated as of June 1, 1982 by and between the
City of Indianapolis, Indiana and Cabot Corporation (Indianapolis IRB).
(Incorporated by reference to Exhibit No. 2.18 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot
Safety Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)
2.19 -- Stock Purchase Agreement by and among Aearo Company (formerly, Cabot
Safety Corporation), Peltor Holding AB, Leif Palmaer Invest AB, Leif
Anderzon Invest AB and Active i Malmo AB, dated April 25, 1996.
(Incorporated by reference to Exhibit 2.1 to the Current Report on Form
8-K of Aearo Corporation dated May 30, 1996.)
2.20 -- Stock Purchase Agreement by and among Aearo Company (formerly, Cabot
Safety Corporation), Eastern Safety Equipment Co., Inc., Alfred H.
Jacobson and William Klein and Jack P. Hecht as Trustees of a certain
Trust, dated September 19, 1995.
2.21 -- Amendment to Stockholder's Agreement dated as of July 3, 1996, by and
among Vestar Equity Partners, L.P., Cabot CSC Corporation, Aearo Corpora-
tion (formerly, Cabot Safety Holdings Corporation) Cabot Corporation, and
certain other stockholders of Aearo Corporation.
2.22 -- Amendment to Stock Purchase Agreement by and among Aearo Company
(formerly, Cabot Safety Corporation), Peltor Holding AB, Leif Palmaer
Invest AB, Leif Anderzon Invest AB and Active i Malmo AB, dated May 15,
1996.
3.1 -- Form of Second Amended and Restated Certificate of Incorporation of Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).
3.2 -- Form of Amended and Restated By-Laws of Aearo Corporation (formerly, Cabot
Safety Holdings Corporation).
4.1* -- Indenture dated as of July 11, 1995 between Aearo Company (formerly, Cabot
Safety Corporation), Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), and Fleet National Bank of Connecticut (formerly, Shawmut
Bank Connecticut, National Association), as Trustee. (Incorporated by
reference to Exhibit No. 4.1 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Company and Aearo Corporation.)
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C> <C>
4.2* -- Form of Note. (Incorporated by reference to Exhibit No. 4.2 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Company
(formerly, Cabot Safety Corporation) and Aearo Corporation (formerly,
Cabot Safety Holdings Corporation).)
4.3* -- Form of Exchange Note. (Incorporated by reference to Exhibit No. 4.3 to
the Registration Statement on Form S-4, No. 33-96190, of Aearo Company
(formerly, Cabot Safety Corporation) and Aearo Corporation (formerly,
Cabot Safety Holdings Corporation).)
4.4* -- Registration Rights Agreement, dated as of July 11, 1995, among Cabot
Safety Acquisition Corporation, Aearo Corporation (formerly, Cabot Safety
Holdings Corporation), BT Securities Corporation and Chemical Securities
Inc. (Incorporated by reference to Exhibit No. 4.4 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot
Safety Corporation) and Aearo Corporation.)
4.5* -- First Supplemental Indenture, dated December 6, 1995. (Incorporated by
reference to Exhibit No. 4.5 to the Annual Report on Form 10-K of Aearo
Corporation (formerly, Cabot Safety Holdings Corporation) for the fiscal
year ended September 30, 1995.)
5.1** -- Legality opinion of Goodwin, Procter & Hoar LLP.
10.1 -- Credit Agreement, dated as of July 11, 1995, and amended and restated as
of May 30, 1996, among Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), Aearo Company (formerly, Cabot Safety Corporation), Certain
of its Subsidiaries, Various Banks, and Bankers Trust Company as Co-
Arranger and Administrative Agent.
10.2 -- Amended and Restated US Pledge Agreement dated as of July 11, 1995, as
made by Cabot Safety Acquisition Corporation, Aearo Corporation (formerly,
Cabot Safety Holdings Corporation), Cabot Safety Intermediate Corporation
and CSC FSC, Inc., in favor of Bankers Trust Company as Collateral Agent
for the Benefit of the Secured Creditors.
10.3 -- Amended and Restated Foreign Pledge Agreement as of July 11, 1995, amended
and restated as of May 30, 1996, made by Cabot Safety Canada Acquisition
Limited and Cabot Safety Acquisition Limited in favor of Bankers Trust
Company as Collateral Agent for the Benefit of the Secured Creditors.
10.4* -- Charge Over United Kingdom Patents and Trademarks made the 11th Day of
July, 1995, by Cabot Safety Intermediate Corporation and the Bankers Trust
Company as Collateral Agent for Itself and for the Secured Creditors.
(Incorporated by reference to Exhibit No. 10.4 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot
Safety Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)
10.5 -- Amended and Restated US Security Agreement dated as of July 11, 1995, as
amended and restated as of May 30, 1996, among Aearo Corporation
(formerly, Cabot Safety Holdings Corporation), Cabot Safety Acquisition
Corporation, Cabot Safety Intermediate Corporation, CSC FSC, Inc., and
Bankers Trust Company as Collateral Agent for the Benefit of the Secured
Creditors.
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C> <C>
10.6 -- Amended and Restated Canadian Security Agreement dated as of July 11,
1995, as amended and restated as of May 30, 1996, granted by Cabot Safety
Canada Acquisition Limited in favor of Bankers Trust Company as Collateral
Agent for the Benefit of the Secured Creditors.
10.7* -- English Security Agreement (The Debenture) made on the 11th Day of July,
1995 between the Cabot Safety Acquisition Limited and Bankers Trust
Company as Collateral Agent for Itself and for the Secured Creditors.
(Incorporated by reference to Exhibit No. 10.7 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot
Safety Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)
10.8* -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent,
as Mortgagee (recorded in Marion County, Indiana) pertaining to Real
Property located at 7911 Zionsville Road, Indianapolis, Indiana.
(Incorporated by reference to Exhibit No. 10.8 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Company (formerly, Cabot
Safety Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)
10.9* -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent,
as Mortgagee (recorded in New Castle County, Delaware) pertaining to 10
Acre Site of Unimproved Land adjacent to 5457 West 79th Street,
Indianapolis, Indiana. (Incorporated by reference to Exhibit No. 10.9 to
the Registration Statement on Form S-4, No. 33-96190, of Aearo Company
(formerly, Cabot Safety Corporation) and Aearo Corporation (formerly,
Cabot Safety Holdings Corporation).)
10.10* -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent,
as Mortgagee (recorded in New Castle County, Delaware) pertaining to Real
Property located at 650 Dawson Drive, Newark, Delaware. (Incorporated by
reference to Exhibit No. 10.10 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Company (formerly, Cabot Safety Corporation) and
Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)
10.11* -- Aearo Company (formerly, Cabot Safety Corporation) Employees' Retirement
Account Plan, dated as of May 1, 1990, as amended. (Incorporated by
reference to Exhibit No. 10.11 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Company and Aearo Corporation (formerly, Cabot
Safety Holdings Corporation).)
10.12* -- Fidelity Corporate (401(k)) Plan for Retirement, dated August 1, 1993, as
amended. (Incorporated by reference to Exhibit No. 10.12 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Company
(formerly, Cabot Safety Corporation) and Aearo Corporation (formerly,
Cabot Safety Holdings Corporation).)
</TABLE>
<PAGE> 144
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- -------- -------------------------------------------------------------------------- -----
<S> <C>
10.13* -- Aearo Company (formerly, Cabot Safety Corporation) Supplemental Executive
Retirement Plan, dated May 1, 1993. (Incorporated by reference to Exhibit
No. 10.13 to the Registration Statement on Form S-4, No. 33-96190, of
Aearo Company and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)
10.14* -- Sublease, dated June 4, 1994, between C.W. Kay-Bee Inc. and Aearo Company
(formerly, Cabot Safety Corporation), pertaining to 8001-8003 Woodland
Drive, Indianapolis, Indiana, as amended. (Incorporated by reference to
Exhibit No. 10.14 to the Registration Statement on Form S-4, No. 33-96190,
of Aearo Company and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)
10.15* -- Sublease, dated April 16, 1990, between American Optical Corporation and
Aearo Company (formerly, Cabot Safety Corporation), pertaining to South-
bridge, Massachusetts manufacturing facility. (Incorporated by reference
to Exhibit No. 10.15 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Company and Aearo Corporation (formerly, Cabot Safety
Holdings Corporation).)
10.16 -- Aearo Corporation (formerly, Cabot Safety Holdings Corporation) Amended
and Restated 1995 Employee and Non-Employee Director Stock Purchase Plan.
10.17 -- Form of Executive Security Purchase Agreement.
10.18 -- Aearo Corporation (formerly, Cabot Safety Holdings Corporation) Executive
Stock Option Plan.
10.19 -- Amended and Restated US Subsidiary Guaranty dated July 11, 1995 delivered
by Cabot Safety Intermediate Corporation, CSC FSC, Inc. and Eastern Safety
Equipment Co., Inc. in favor of Bankers Trust Company.
10.20 -- Aearo Corporation (formerly, Cabot Safety Holdings Corporation) 1996 Stock
Option Plan.
10.21 -- Form of Incentive Stock Option Agreement under the Aearo Corporation
(formerly, Cabot Safety Holdings Corporation) 1996 Stock Option Plan.
10.22 -- Form of Non-Qualified Stock Option Agreement for Company Employees under
the Aearo Corporation (formerly, Cabot Safety Holdings Corporation) 1996
Stock Option Plan.
10.23 -- Employment Agreement between Peltor AB and Leif Palmaer, dated January 1,
1996.
10.24 -- Employment Agreement between Peltor AB and Leif Anderzon, dated January 1,
1996.
10.25 -- Amended and Restated US Subsidiary Guaranty dated July 11, 1995 as amended
and restated as of May 30, 1996, delivered by Cabot Safety Intermediate
Corporation, CSC FSC, Inc. and Eastern Safety Equipment Co., Inc. in favor
of Bankers Trust Company.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Deloitte & Touche AB
- ---------------
<FN>
(*) Previously filed
(**) To be filed by amendment
</TABLE>
<PAGE> 1
EXHIBIT 2.19
STOCK PURCHASE AGREEMENT
by and among
CABOT SAFETY CORPORATION
("Buyer"),
PELTOR HOLDING AB
(the "Company"),
LEIF PALMAER INVEST AB
("LPAB"),
LEIF ANDERSSON INVEST AB
("LAAB")
and
ACTIVE I MALMO AB (publ.)
(the "Stockholder")
April 25, 1996
as amended May 15, 1996
STOCK PURCHASE AGREEMENT
<PAGE> 2
<TABLE>
<CAPTION>
INDEX Page
<S> <C> <C>
SECTION 1. SALE OF SHARES AND PURCHASE PRICE................................................ 1
- ---------- ---------------------------------
1.1 Transfer of Company Shares, LPAB Shares and LAAB
------------------------------------------------
Shares........................................................................... 1
------
1.2 Purchase Price................................................................... 2
--------------
1.3 Closing Statements; Purchase Price Adjustments................................... 2
----------------------------------------------
1.4 Closing.......................................................................... 4
-------
1.5 Further Assurances............................................................... 5
------------------
1.6 Non-Competition Agreement........................................................ 5
-------------------------
1.7 Non-Competition Payment.......................................................... 6
-----------------------
1.8 Transfer Taxes................................................................... 6
--------------
1.9 Escrow Arrangements.............................................................. 6
-------------------
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE
- ---------- -------------------------------------
COMPANIES AND THE STOCKHOLDER.................................................... 6
-----------------------------
2.1 Making of Representations and Warranties......................................... 6
----------------------------------------
2.2 Organization and Qualifications of the Company................................... 6
----------------------------------------------
2.3 Subsidiaries..................................................................... 7
------------
2.4 Capital Stock of the Companies................................................... 7
------------------------------
2.5 Authority of the Company and the Stockholder..................................... 8
--------------------------------------------
2.6 Real and Personal Property....................................................... 9
--------------------------
2.7 Financial Statements; Undisclosed Liabilities.................................... 10
---------------------------------------------
2.8 Taxes............................................................................ 11
-----
2.9 Absence of Certain Changes....................................................... 12
--------------------------
2.10 Banking Relations................................................................ 14
-----------------
2.11 Patents, Trade Names, Trademarks, Copyrights and
------------------------------------------------
Proprietary Rights............................................................... 14
------------------
2.12 Trade Secrets and Customer Lists................................................. 15
--------------------------------
2.13 Contracts........................................................................ 15
---------
2.14 Litigation....................................................................... 16
----------
2.15 Compliance with Laws............................................................. 17
--------------------
2.16 Insurance........................................................................ 17
---------
2.17 Warranty and Related Matters..................................................... 17
----------------------------
2.18 Investment Banking; Brokerage.................................................... 18
-----------------------------
2.19 Permits; Burdensome Agreements................................................... 18
------------------------------
2.20 Transactions with Interested Persons............................................. 18
------------------------------------
2.21 Employee Benefit Programs........................................................ 19
-------------------------
2.22 Environmental Matters............................................................ 20
---------------------
2.23 Employees; Labour Matters........................................................ 22
-------------------------
2.24 Customers and Distributors....................................................... 23
--------------------------
2.25 Disclosure....................................................................... 23
----------
2.26 Effect of Purchase of LPAB Shares or LAAB Shares................................. 24
------------------------------------------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 3. COVENANTS OF THE COMPANY, LAAB, LPAB
- ---------- ------------------------------------
AND THE STOCKHOLDER.............................................................. 24
-------------------
3.1 Making of Covenants and Agreements............................................... 24
----------------------------------
3.2 Conduct of Business.............................................................. 24
-------------------
3.3 Consents and Approvals........................................................... 26
----------------------
3.4 Breach of Representations and Warranties......................................... 27
----------------------------------------
3.5 Acquisition Proposals............................................................ 27
---------------------
3.6 No Sales of Capital Stock........................................................ 28
-------------------------
3.7 Pre-Closing Cooperation on Transition Planning................................... 28
----------------------------------------------
3.8 Confidentiality.................................................................. 28
---------------
3.9 General Release.................................................................. 29
---------------
SECTION 4. REPRESENTATIONS AND WARRANTIES OF
- ---------- ---------------------------------
BUYER............................................................................ 29
-----
4.1 Making of Representations and Warranties......................................... 29
----------------------------------------
4.2 Organization of Buyer............................................................ 29
---------------------
4.3 Authority........................................................................ 30
---------
4.4 Litigation....................................................................... 30
----------
4.5 Investment Banking; Brokerage.................................................... 30
-----------------------------
SECTION 5. COVENANTS OF BUYER............................................................... 31
- ---------- ------------------
5.1 Making of Covenants and Agreements............................................... 31
----------------------------------
5.2 Consents and Approvals........................................................... 31
----------------------
5.3 Confidentiality.................................................................. 31
---------------
SECTION 6. CONDITIONS....................................................................... 32
- ---------- ----------
6.1 Conditions to the Obligations of Buyer........................................... 32
--------------------------------------
6.2 Conditions to the Obligations of the Company and the
----------------------------------------------------
Stockholder...................................................................... 35
-----------
SECTION 7. TERMINATION OF AGREEMENT......................................................... 36
- ---------- ------------------------
7.1 Termination...................................................................... 36
-----------
7.2 Effect of Termination............................................................ 37
---------------------
7.3 Right to Proceed................................................................. 37
----------------
SECTION 8. SURVIVAL OF WARRANTIES; FEES AND
- ---------- --------------------------------
EXPENSES......................................................................... 38
--------
8.1 Survival of Warranties........................................................... 38
----------------------
8.2 Fees and Expenses................................................................ 38
-----------------
SECTION 9. INDEMNIFICATION.................................................................. 38
- ---------- ---------------
9.1 Claims by Buyer.................................................................. 38
---------------
9.2 Notification by Buyer............................................................ 38
---------------------
9.3 Time Limit for claims by Buyer................................................... 39
------------------------------
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
9.4 Settlement of Claims by the Stockholder.......................................... 39
---------------------------------------
9.5 Claims by the Stockholder........................................................ 39
--------------------------
9.6 Notification by the Stockholder.................................................. 40
-------------------------------
9.7 Time Limit for claims by the Stockholder......................................... 40
----------------------------------------
9.8 Settlement of Claims by Buyer.................................................... 40
-----------------------------
9.9 Exclusive Remedy................................................................. 40
----------------
9.10 Dollar for Dollar Claims......................................................... 41
------------------------
SECTION 10. MISCELLANEOUS.................................................................... 41
- ----------- -------------
10.1 Law Governing.................................................................... 41
-------------
10.2 Notices.......................................................................... 41
-------
10.3 Entire Agreement................................................................. 42
----------------
10.4 Assignability.................................................................... 42
-------------
10.5 Publicity and Disclosures........................................................ 42
-------------------------
10.6 Captions and Gender.............................................................. 42
-------------------
10.7 Certain Definitions.............................................................. 42
-------------------
10.8 Execution in Counterparts........................................................ 43
-------------------------
10.9 Amendments; Waivers.............................................................. 43
-------------------
10.10 Dispute Resolution............................................................... 43
------------------
10.11 Certain Remedies; Severability................................................... 44
------------------------------
</TABLE>
EXHIBIT A Form of Appointment Letter
EXHIBIT B Form of Non-Competition Agreement
EXHIBIT C Form of Escrow Agreement
EXHIBIT D Form of General Release
EXHIBIT E Form of Confidentiality Agreement
EXHIBIT F Form of Company Counsel Opinion
EXHIBIT G Form of Buyer Counsel Opinion
EXHIBIT H Form of General Release
EXHIBIT I Forms of Press Releases
<PAGE> 5
STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT entered into as of April 25, 1996 by and among Cabot Safety
Corporation, a Delaware corporation ("Buyer"), Peltor Holding AB, a Swedish
corporation (the "Company"), AB Leif Palmaer Invest AB, a Swedish corporation
("LPAB"), Leif Andersson Invest AB, a Swedish corporation ("LAAB"), (the
Company, LPAB and LAAB collectively referred to as the "Companies"), and Active
i Malmo (publ.) a Swedish corporation (the "Stockholder").
W I T N E S S E T H
WHEREAS, the Stockholder owns of record and beneficially 278.050 shares of
the outstanding and issued capital stock of the Company (the "Company Shares"),
LPAB owns of record and beneficially 300,000 shares of the outstanding and
issued capital stock of the Company and LAAB owns of record and beneficially
300,000 shares of the outstanding and issued capital stock of the Company, such
878,050 shares all having a par value of SEK 5 and constituting the entire
issued capital stock of the Company (said shares being referred to herein as the
"Common Stock"); and
WHEREAS, the Stockholder owns of record and beneficially all of the issued
and outstanding capital stock of (x) LPAB, consisting of 500 shares with a par
value per share of SEK100 (the "LPAB Shares") and (y) LAAB consisting of 500
shares with a par value per share of SEK100 (the "LAAB Shares"); and
WHEREAS, the Stockholder desires to sell all of the Company Shares, LPAB
Shares and LAAB Shares to Buyer, and Buyer desires to acquire all of the Company
Shares, LPAB Shares and LAAB Shares.
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. SALE OF SHARES AND PURCHASE PRICE.
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1.1 TRANSFER OF COMPANY SHARES, LPAB SHARES AND LAAB SHARES. At the
Closing, the Stockholder shall deliver or cause to be delivered to Buyer
certificates representing all of the Company Shares, LPAB Shares and LAAB
Shares. Such stock certificates shall be duly endorsed in blank for transfer or
shall be presented with stock powers duly executed in blank, with such signature
guarantees and such other documents as may be reasonably required by Buyer to
effect a valid transfer of such Company Shares, LPAB Shares and LAAB Shares by
the Stockholder, free and clear of any and all liens, encumbrances, charges or
claims of any nature whatsoever.
1.2 PURCHASE PRICE.
(a) In consideration of the sale by the Stockholder to Buyer of the Company
Shares, LPAB Shares and LAAB Shares and in reliance upon the representations and
warranties of the Company, LAAB, LPAB and the Stockholder herein contained and
made at the Closing and subject to the satisfaction of all of the conditions
contained herein, Buyer agrees to pay to the Stockholder a total aggregate
consideration (the "Purchase Price") equal to:
(i) Sixty Five Million Five Hundred Thousand Dollars ($65,500,000); less
any dividends, distributions, and redemptions declared by the Company LPAB or
LAAB after December 31, 1995, including without limitation the proposed dividend
of SEK 30,0 million described in the Company's annual report for the year ended
December 31, 1995 and disclosed in Schedule 3.2;
(ii) minus the Adjustment Amount (if any), to be determined in accordance
with Section 1.3.
(b) The Purchase Price shall be payable as follows:
(i) At the Closing, Buyer shall deliver to the Escrow Agent (as defined in
Section 1.9) Ten Million Dollars ($10,000,000) to be held as escrow funds (the
"Escrow Funds") as provided in the Escrow Agreement (as defined in Section 1.9);
(ii) At the Closing, Buyer shall pay to the Stockholder by wire transfer of
immediately available funds to an account of the Stockholder, written notice of
which account has been provided to Buyer not less than three (3) business days
prior to the Closing the difference between the amount set forth in clause
(a)(i) above and Ten Million Dollars ($10,000,000) delivered to the Escrow Agent
pursuant to clause (b)(i) above; and
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(iii) The amount set forth in clause (a)(ii) above shall be determined and
paid in accordance with Section 1.3.
1.3 CLOSING STATEMENTS; PURCHASE PRICE ADJUSTMENTS.
(a) As soon as practicable following the Closing, but in no event later
than 60 days following the Closing Date, the Company shall prepare in accordance
with generally accepted accounting principles in Sweden consistently applied by
the Company as if the Company were during all relevant periods an independent
entity ("Swedish GAAP"), to have reviewed by Arthur Andersen & Co., LLP ("AA")
and to have delivered to the Stockholder (i) a consolidated balance sheet as of
the Closing Date (the "Closing Balance Sheet") of the Company and its
subsidiaries, (ii) a calculation of working capital (determined in accordance
with Swedish GAAP) as of the Closing Date for the Company and its subsidiaries
on a consolidated basis (the "Closing Working Capital"), (iii) a calculation of
net worth (determined in accordance with Swedish GAAP) as of the Closing Date
for the Company and its subsidiaries on a consolidated basis (the "Closing Net
Worth") and (iv) a consolidated statement of operations and statement of cash
flows of the Company and its subsidiaries for the period from January 1, 1996
through the Closing Date (the "Closing Income Statement") (the Closing Balance
Sheet, calculation of Closing Working Capital, calculation of Closing Net Worth
and Closing Income Statement shall be referred to herein collectively as the
"Closing Statements"). On the basis of the Closing Statements, the Stockholder
shall pay to Buyer the Adjustment Amount, as defined below, if the Adjustment
Amount is a negative number; subject, however, to the rights of the Stockholder
as provided in Section 1.3(b). A negative "Adjustment Amount" shall be payable
by the Stockholder if and to the extent that either (i) the Closing Net Worth is
less than SEK 96,0 million or (ii) the Closing Working Capital is less than SEK
38,8 million. Such Adjustment should be made on a dollar for dollar basis
calculated as by the exchange rate US$ for SEK on the Closing Date.
(b) Within 30 days after Buyer's delivery of the Closing Statements, the
Stockholder may deliver written notice (the "Protest Notice") to Buyer of any
objections, and the basis therefor, which the Stockholder may have to the
Closing Statements. However, if the claimed Adjustment Amount exceeds US$
10,000,000 Stockholder shall, instead of delivering a Protest Notice, be
entitled to terminate this Agreement by delivering a Termination Letter within
the period of time stated above. If the Stockholder chooses to terminate this
Agreement it shall refund to Buyer such amount as stated in Section 7.1(f). The
failure of the Stockholder to deliver such Protest Notice within the prescribed
time period will constitute the Stockholder's acceptance of the Closing
Statements as delivered by Buyer. During the 10 business days following Buyer's
receipt of the Protest Notice, Buyer
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and the Stockholder shall attempt to resolve any disagreement with respect to
the Closing Statements and the appropriateness thereof. If at the end of the
period specified in the immediately preceding sentence, Buyer and the
Stockholder shall have failed to resolve the disagreement specified in the
Protest Notice, either party may for the purpose of resolving the dispute sign
and send an Appointment Letter in the form set out in EXHIBIT A (the
"Appointment Letter") to Ernst & Young in Malmo (the "Dispute Accountants") for
final determination within 45 days, which determination shall be limited to (i)
a review of the Closing Statements and the Protest Notice (together with
supplements or amendments thereto) for the purpose of determining whether the
Closing Statements were prepared in accordance with Swedish GAAP and (ii)
calculation of any adjustments required to be made to the Closing Statements to
make them conform to Swedish GAAP. This provision for arbitration shall be
specifically enforceable by the parties, and the determination of the Dispute
Accountants in accordance with the provisions hereof shall be final and binding
upon Buyer and the Stockholder with no right of appeal therefrom. Except as
otherwise provided in this Section 1.3, the arbitration shall be conducted in
accordance with the procedures set forth in Section 10.10. The fees and expenses
of the Dispute Accountants shall be paid by the party (i.e., Buyer, on the one
hand, or the Stockholder, on the other hand) whose last proposed offer for the
settlement of the items in dispute, taken as a whole, was farther away from the
final determination of the Dispute Accountants; PROVIDED HOWEVER, that if the
allocation of the Dispute Accountants' fees and expenses pursuant to this
paragraph is not feasible, the Dispute Accountants shall determine such
allocation among Buyer and the Stockholder in their discretion. If the
Adjustment Amount (exclusive of the Dispute Accountants' fees and expenses)
exceeds $50,000, interest shall accrue thereon and be payable therewith from the
date of the Closing to the day preceding the date of payment at the annual rate
of 8%.
(c) The Stockholder and Buyer agree that within 5 days after the final
determination of the Closing Statements and the Adjustment Amount, if any:
(i) If a negative Adjustment Amount is payable by the Stockholder, then the
Stockholder and Buyer shall execute an Escrow Release Letter (as defined in the
Escrow Agreement) instructing the Escrow Agent to immediately distribute the
Escrow Funds as follows: (x) to Buyer an amount equal to such Adjustment Amount,
including interest pursuant to Section 1.3(b), if any; (y) to the Dispute
Accountants such portion of their fees and expenses as is allocated to the
Stockholder; and (z) to the Stockholder the balance of the Escrow Funds, if any;
provided, however, that if the Adjustment Amount exceeds the available Escrow
Funds, the Stockholder shall immediately pay to Buyer the difference.
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(ii) If no Adjustment Amount is payable by the Stockholder, then the
Stockholder and Buyer shall execute an Escrow Release Letter instructing the
Escrow Agent to immediately distribute the Escrow Funds to the Stockholder.
1.4 CLOSING. The transactions contemplated by this Agreement shall be
consummated at the closing (the "Closing") which will take place at the offices
of Mannheimer Swartling, counsel for Buyer, in Malmo, Sweden, on the later of
May 15, 1996 or the date three (3) business days following the satisfaction or
waiver of the conditions set forth in Section 6.1. Notwithstanding the
foregoing, the Closing may take place at such other place, time or date as may
be mutually agreed upon in writing by the Stockholder and Buyer. The date of the
Closing is referred to herein as the "Closing Date". Notwithstanding anything in
Section 1.7 to the contrary, in the event all conditions to Closing (other than
conditions to be fulfilled at the Closing) have been satisfied or waived on or
prior to the Outside Closing Date (as defined in Section 7.1(b)), then no party
shall be entitled to exercise its right of termination as contemplated therein
by reason of the fact that this Section 1.4 contemplates Closing following
satisfaction of waiver of conditions, such provision being included for the
convenience of the parties and their counsel in connection with the Closing.
1.5 FURTHER ASSURANCES. The Stockholder from time to time after the Closing
at the request of Buyer and without further consideration shall execute and
deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to more effectively transfer and assign
to, and vest in, Buyer the Company Shares, LPAB Shares and LAAB Shares free and
clear of any and all liens, encumbrances, charges or claims and all rights
thereto, and to fully implement the provisions of this Agreement.
1.6 NON-COMPETITION AGREEMENT. As a material inducement to and a condition
precedent of Buyer's purchase of the Company Shares, LPAB Shares and LAAB
Shares, and associated goodwill, technology and know-how the Stockholder agrees
to execute and deliver at the Closing a Non-Competition Agreement in the form of
Exhibit B attached hereto (the "Non-Competition Agreement") whereby the
Stockholder agrees that during the period commencing on the date of the Closing
and ending on the date which is five (5) years after the date of the Closing,
the Stockholder will not, without the express written consent of the Company,
directly or indirectly, in the existing markets, engage in any activity which
is, or participate or invest in or assist (whether as owner, part-owner,
shareholder, partner, or in any other capacity) any business organization whose
activities, products or services include the manufacture, distribution or sale
anywhere in the existing markets of products of the kind currently manufactured
by the Company. Without implied
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limitation, the foregoing covenant shall include (i) hiring or attempting to
hire for or on behalf of any such competitor any officer, employee or consultant
named on Schedule 2.23(a), (ii) soliciting or encouraging any officer or
employee of the Company, Buyer or any of their respective affiliates to
terminate his or her relationship or employment with the Company, Buyer or any
of their respective affiliates, soliciting for or on behalf of any such
competitor any client of the Company, Buyer or any of their respective
affiliates, and diverting to any Person (as hereinafter defined) any client or
business opportunity of the Company, Buyer or any of their respective
affiliates. For purposes of this Agreement, the term "Person" shall mean an
individual, a corporation, an association, a partnership, an estate, a trust,
and any other entity or organization. For purposes of this Section 1.6, the term
"affiliate" shall mean, as to any Person, (i) each direct or indirect Subsidiary
(as defined in Section 2.3 below) of such Person, (ii) each other Person of
which such Person is a direct or indirect Subsidiary, and (iii) each other
direct or indirect Subsidiary of such other Person. The Stockholder also agrees
to use its best efforts to cause Mr. Leif Palmaer and Mr. Leif Andersson to
execute and deliver at the Closing a non-competition agreement substantially
equivalent to the Non-Competition Agreement, with such changes as may be
required to comply with Swedish law.
1.7 NON-COMPETITION PAYMENT. Subject in all events to the consummation of
the Closing (and provided that this Section 1.7 shall be of no effect in the
event the Closing does not occur for any reason), in consideration of the
execution and delivery by the Stockholder of the Non-Competition Agreement, at
the Closing Buyer shall make a cash payment to the Stockholder in the amount of
Twenty Million Dollars ($20,000,000).
1.8 TRANSFER TAXES. All transfer taxes, fees and duties under Swedish law
incurred in connection with the sale and transfer of the Company Shares, LPAB
Shares and LAAB Shares under this Agreement will be borne and paid by the
Stockholder, and all transfer taxes, fees and duties under the laws of the
United States incurred in connection with the sale and transfer of the Company
Shares, LPAB Shares and LAAB Shares under this Agreement will be borne and paid
by the Buyer.
1.9 ESCROW ARRANGEMENTS. The amount specified in Section 1.2(b)(ii) shall
be delivered to SE Banken, Malmo as escrow agent (the "Escrow Agent") under the
terms of an escrow agreement substantially in the form of EXHIBIT C hereto (the
"Escrow Agreement"). The Escrow Funds shall be held by the Escrow Agent in
accordance with and subject to the limitations set forth in the Escrow Agreement
to secure the payment of any Adjustment Amount by the Stockholder.
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SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE
- ----------------------------------------------------
COMPANIES AND THE STOCKHOLDER.
-----------------------------
2.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to
Buyer to enter into this Agreement and consummate the transactions contemplated
hereby the Company, LPAB, LAAB and the Stockholder hereby make to Buyer and its
affiliates the representations and warranties contained in this Section 2.
Whenever in this Section 2 the "Company" is mentioned it shall also, unless
otherwise specifically stated, if applicable include LPAB and/or LAAB so that
all representations and warranties etc. in all subsections shall be applied to
LPAB and LAAB to the same extent as to the Company.
2.2 ORGANIZATION AND QUALIFICATIONS OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Sweden with full power and authority to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased and where such business is currently conducted or proposed to be
conducted, except where the failure to do so would not have a Material Adverse
Effect (as defined below). For purposes of this Agreement, (a) a "Material
Adverse Effect" means a material adverse effect on the properties, assets,
business, condition (financial or otherwise) and prospects of the Company; (b)
an adverse effect shall be deemed "material" if and only if it results in an
increase or prospective increase in liabilities or a decrease or prospective
decrease in assets of SEK 6,700,000 or more or in a decrease or prospective
decrease in earnings of SEK 670,000 or more; and (c) current circumstances or
presently known data or existing developments that a reasonable person similarly
situated would anticipate would have a materially unfavourable impact upon the
future properties, assets, business, condition (financial or otherwise) or
prospects of the Company shall be deemed to be within the scope of matters
encompassed by the term "Material Adverse Effect" regardless of the fact that
such circumstances, data or developments have not yet had a material adverse
effect on the properties, assets, business, condition (financial or otherwise)
or prospects of the Company. Material Adverse Effect should be referred to an
individual effect rather than aggregated unless specifically stated otherwise.
2.3 SUBSIDIARIES. The Company has no subsidiaries or investments in any
other corporation or business organization except as listed in SCHEDULE 2.3
(collectively, the "Subsidiaries" or individually, a "Subsidiary"). Each
Subsidiary of the Company is a duly organized, validly existing corporation in
good standing under the laws of the jurisdiction of its incorporation with full
power and authority to own or lease its properties and to conduct its business
in the manner and in the places where such properties are owned or leased or
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such business is currently conducted or proposed to be conducted, except where
the failure to do so would not have a Material Adverse Effect. Except as
disclosed in SCHEDULE 2.3, all of the outstanding shares of capital stock of
each Subsidiary are owned beneficially and of record by the Company free of any
lien, restriction or encumbrance and said shares have been duly and validly
issued and are outstanding, fully paid and non-assessable. Except as disclosed
in SCHEDULE 2.3, there are no outstanding warrants, options or other rights to
purchase or acquire any of the shares of capital stock of any Subsidiary, or any
outstanding securities convertible into such shares or outstanding warrants,
options or other rights to acquire any such convertible securities.
2.4 Capital Stock Of the Companies.
------------------------------
(a) The total issued capital stock of the Company consists of 878,050
shares, with a par value of SEK 5 per share, which constitute the entire issued
capital stock (the "Common Stock"). As of the date hereof, Stockholder, LPAB and
LAAB lawfully owns their respective parts of the Common Stock, as set forth in
the preamble of this Agreement, free and clear of all pledges, liens,
encumbrances, charges, restrictions, voting agreements or trusts, rights,
claims, options or any other restrictions or commitments of any nature
("Claims"). There are no outstanding subscriptions, options, warrants, rights,
preemptive rights, agreements, arrangements or commitments of any kind for or
relating to the issuance, sale, registration or voting of, or outstanding
securities convertible into or exchangeable for, any shares of capital stock of
any class or other equity interests of the Company. Stockholder, LPAB and LAAB
have good and transferable title to their respective part of the Common Stock
and has the absolute right, power and capacity to sell, assign and deliver the
Common Stock to Buyer in accordance with the terms of this Agreement free and
clear of all Claims. Upon delivery to Buyer at the Closing of the certificates
representing the Common Stock, these certificates shall be duly endorsed in
favour of Buyer, free and clear of any Claims.
(b) The total issued capital stock of LPAB consists of 500 shares, with a
par value of SEK 100 per share, which constitute the entire issued capital stock
(the "LPAB Shares"). As of the date hereof, Stockholder lawfully owns the LPAB
Shares free and clear of all Claims. There are no outstanding subscriptions,
options, warrants, rights, preemptive rights, agreements, arrangements or
commitments of any kind for or relating to the issuance, sale, registration or
voting of, or outstanding securities convertible into or exchangeable for, any
shares of capital stock of any class or other equity interests of LPAB.
Stockholder has good and transferable title to the LPAB Shares and has the
absolute right, power and capacity to sell, assign and deliver the LPAB Shares
to Buyer in accordance with the terms of this Agreement free and clear of all
Claims. Upon delivery to Buyer at the
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Closing of the certificates representing the LPAB Shares, these certificates
shall be duly endorsed in favour of Buyer, free and clear of any Claims.
(c) The total issued capital stock of the LAAB consists of 500 shares, with
a par value of SEK 100 per share, which constitute the entire issued capital
stock (the "LAAB Shares"). As of the date hereof, Stockholder lawfully owns the
LAAB Shares free and clear of all Claims. There are no outstanding
subscriptions, options, warrants, rights, preemptive rights, agreements,
arrangements or commitments of any kind for or relating to the issuance, sale,
registration or voting of, or outstanding securities convertible into or
exchangeable for, any shares of capital stock of any class or other equity
interests of LAAB. Stockholder has good and transferable title to the LAAB
Shares and has the absolute right, power and capacity to sell, assign and
deliver the LAAB Shares to Buyer in accordance with the terms of this Agreement
free and clear of all Claims. Upon delivery to Buyer at the Closing of the
certificates representing the LAAB Shares, these certificates shall be duly
endorsed in favour of Buyer, free and clear of any Claims.
2.5 Authority of the Company and the Stockholder.
--------------------------------------------
(a) The Stockholder and the Company have full right, power and authority to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by them pursuant to or as contemplated by this Agreement
and to carry out the transactions contemplated hereby and thereby. Except as set
forth on SCHEDULE 2.5(a), the execution, delivery and performance by the
Stockholder and the Company of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action of the
Company and the Stockholder and no other action on the part of the Company or
the Stockholder is required in connection therewith.
(b) This Agreement and each agreement, document and instrument to be
executed and delivered by the Stockholder or the Company pursuant to or as
contemplated by this Agreement constitute, or will when executed and delivered
constitute, valid and binding obligations of the Stockholder or the Company, as
the case may be, enforceable in accordance with their respective terms. Except
as set forth on SCHEDULE 2.5(b) the execution, delivery and performance by the
Stockholder and the Company of this Agreement and each such other agreement,
document and instrument do not and will not violate any provision of their
charter documents or any applicable laws or result in a breach of, constitute a
default under, cause a termination under, or give rise to a right of termination
of any indenture or loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien,
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lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award, whether written or oral, or otherwise have a
Material Adverse Effect.
2.6 Real and Personal Property.
--------------------------
(a) REAL PROPERTY. All of the real property owned or leased by the Company
or any of its Subsidiaries is identified on SCHEDULE 2.6(a) (herein referred to
as the "Owned Real Property" or the "Leased Real Property", as the case may be,
or collectively as the "Real Property"). The Company or its Subsidiaries have
good, clear, record and marketable title to all Owned Real Property and
enforceable leasehold interests in all Leased Real Property, in each case free
and clear of all easements, covenants, restrictions, leases, mortgages, liens,
assessments, claims, rights, judgments, encroachments or other matters affecting
title other than as set forth on the Base Balance Sheet (as hereafter defined).
All of the leases of any of the Leased Real Property (collectively, the
"Leases") are currently in full force and effect. Each party to the Leases has
performed all of its obligations under each of such Leases in all material
respects and is not in default thereunder. Except as disclosed on SCHEDULE
2.6(a), the consummation of the transactions contemplated by this Agreement will
not result in any modification, termination, breach or default of any Lease or
require any consent from the other parties to any Lease, from the holder of any
encumbrance on any Owned Real Property, or from any governmental authority.
There are no material defects in the physical condition of any land, buildings
or improvements constituting part of the Real Property, and all such buildings
and improvements are in good operating condition and repair and have been well
maintained. All water, sewer, gas, electric, telephone, drainage and other
utilities required by law or necessary for the current or planned operation of
the Real Property have been connected under valid permits and pursuant to valid
easements where required, and are sufficient to service the Real Property and in
good operating condition. There are no pending or threatened requests,
applications or proceedings to alter or restrict the zoning or other use
restrictions applicable to the Real Property. The improvements and the present
uses of the Real Property are permitted, conforming structures and uses under
applicable zoning and building codes and ordinances and are in substantial
accordance with applicable Lease requirements.
(b) PERSONAL PROPERTY. A list (prepared from the Company's accounting
records with respect to fixed assets) and the location of the machinery,
equipment and other fixed assets ("Equipment") used in the operation of the
business of the Company or any of its Subsidiaries are set forth on SCHEDULE
2.6(b) hereto. Except as specifically disclosed in SCHEDULE 2.6(b) or in the
Base Balance Sheet (as hereinafter defined), the Company or one of its
Subsidiaries, as the case may be, has good and marketable title to all of the
Equipment and other personal property owned by it free of any mortgage, pledge,
lien, conditional sale
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agreement, security title, encumbrance or other charge. The Equipment is in
generally good repair, normal wear and tear excepted, has been well maintained,
and conforms in all material respects with all applicable ordinances,
regulations and other laws.
2.7 Financial Statements; Undisclosed Liabilities.
---------------------------------------------
(a) The Company has delivered to Buyer the following financial statements,
copies of which are attached hereto as SCHEDULE 2.7:
(i) Consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of December 31, 1993, 1994 and 1995 and statements of income,
retained earnings and cash flows for the fiscal years then ended, of which the
consolidated statements are certified by Deloitte & Touche LLP, independent
public accountants (the "Audited Financial Statements"); and
(ii) Consolidated and consolidating unaudited balance sheet of the Company
as of March 31, 1996 and statements of income, retained earnings and cash flows
for the three month period then ended, certified by the chief financial officer
of the Company and reviewed by Deloitte & Touche LLP, independent public
accountants (the "Unaudited Financial Statements").
The balance sheet as of December 31, 1995 included in the Audited Financial
Statements is referred to herein as the "Base Balance Sheet". All financial
statements set forth above have been prepared in accordance with Swedish GAAP
applied consistently during the periods covered thereby (except that the
Unaudited Financial Statements are not accompanied by footnotes and are subject
only to normal year-end audit adjustments), are complete and correct in all
material respects and present fairly in all material respects the financial
condition of the Company and its Subsidiaries at the dates of said statements
and the results of their operations for the periods covered thereby.
(b) As of the date of the Base Balance Sheet except as stated in SCHEDULE
2.7(b), neither the Company nor any of its Subsidiaries had any liabilities of
any nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted, known or unknown (including without limitation liabilities as
guarantor or otherwise with respect to obligations of others, or liabilities for
taxes due or then accrued or to become due or contingent or potential
liabilities relating to activities of the Company or any of its Subsidiaries or
the conduct of their respective businesses prior to the date of the Base Balance
Sheet regardless of whether claims in respect thereof had been asserted as of
such
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date), except liabilities stated or adequately reserved against on the Base
Balance Sheet or reflected in Schedules furnished to Buyer hereunder as of the
date hereof.
(c) As of the date hereof, neither the Company nor any of its Subsidiaries
has, and as of the Closing neither the Company nor any of its Subsidiaries will
have, any liabilities of any nature, whether accrued, absolute, contingent or
otherwise, asserted or unasserted, known or unknown (including without
limitation liabilities as guarantor or otherwise with respect to obligations or
others, or liabilities for taxes due or then accrued or to become due or
contingent or potential liabilities relating to activities of the Company and
its Subsidiaries or the conduct of their respective business prior to the date
hereof or the Closing, as the case may be, regardless of whether claims in
respect thereof had been asserted as of such date), except liabilities (i)
stated or adequately reserved against on the Base Balance Sheet or the notes
thereto, (ii) reflected in Schedules furnished to Buyer hereunder on the date
hereof, or (iii) incurred after the date of the Base Balance Sheet in the
ordinary course of business of the Company and its Subsidiaries consistent with
the terms of this Agreement.
(d) All of the accounts receivable of the Company or any of its
Subsidiaries shown or reflected on the Base Balance Sheet or existing at the
date hereof or on the Closing Date (less the reserve for bad debts set forth on
the Base Balance Sheet) are or will then be valid and enforceable claims, fully
collectible and subject to no setoff or counterclaim. All inventory items shown
on the Base Balance Sheet or existing at the date hereof or on the Closing Date
are or will then be of a quality and quantity saleable in the ordinary course of
business of the Company and its Subsidiaries at profit margins consistent with
their experience in prior years (less the inventory reserve set forth on the
Base Balance Sheet) and reflect the normal inventory valuation policies of the
Company consistent with past practices. Purchase commitments for raw materials
and parts are not in excess of normal requirements and none is at a price
materially in excess of current market prices. All outstanding sales commitments
for the products of the Company and its Subsidiaries are at prices not less than
inventory values plus selling expenses and said profit margins.
2.8 TAXES. The Company and each of its Subsidiaries has paid or caused to
be paid all national, state, local, municipal, foreign and other taxes,
including without limitation income taxes, estimated taxes, alternative minimum
taxes, excise taxes, sales taxes, use taxes, value-added taxes, gross receipts
taxes, franchise taxes, capital stock taxes, employment and payroll-related
taxes, withholding taxes, stamp taxes, transfer taxes and property taxes,
whether or not measured in whole or in part by net income, and all deficiencies,
or other additions to tax, interest, fines and penalties owed by it
(collectively, "Taxes"), required to be paid by it through the date hereof,
whether disputed or not. A list
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of all national, state, local and foreign income tax returns filed with respect
to the Company and its Subsidiaries after 1990 is set forth in SCHEDULE 2.8.
SCHEDULE 2.8 sets forth all tax elections under any taxing regimen that are in
effect with respect to the Company or any of its Subsidiaries or for which an
application by the Company or any of its Subsidiaries is pending to the best of
Stockholder's and the Company's knowledge. No governmental authority is now
asserting or threatening to assert against the Company or any of its
Subsidiaries any deficiency or claim for additional Taxes. No claim has ever
been made by an authority in a jurisdiction where the Company or any of its
Subsidiaries does not file reports and returns that the Company or such
Subsidiary is or may be subject to taxation by that jurisdiction. Except as set
forth on SCHEDULE 2.8, there has not been any audit of any tax return filed by
the Company or any of its Subsidiaries, no such audit is in progress, and
neither the Company nor any of its Subsidiaries has been notified by any tax
authority that any such audit is contemplated or pending. Except as set forth in
SCHEDULE 2.8, no extension of time with respect to any date on which a tax
return was or is to be filed by the Company or any of its Subsidiaries is in
force.
2.9 ABSENCE OF CERTAIN CHANGES. Since December 31, 1995 up to Closing Date,
the Company and its Subsidiaries have conducted and will conduct their business
only in the ordinary course and consistently with past practices, and except as
disclosed in SCHEDULE 2.9 attached hereto and except as expressly permitted by
this Agreement there has not been:
(i) Any change in the properties, assets, liabilities, business,
operations, condition (financial or otherwise) or prospects of the Company or
any of its Subsidiaries which change, by itself or in conjunction with all other
such changes, whether or not arising in the ordinary course of business, has had
a Material Adverse Effect;
(ii) Any mortgage, encumbrance or lien placed on any of the properties of
the Company or any of its Subsidiaries which remains in existence on the date
hereof or will remain on the Closing Date;
(iii) Any contingent liability incurred by the Company or any of its
Subsidiaries as guarantor or otherwise with respect to the obligations of others
or any cancellation of any material debt or claim owing to, or waiver of any
material right of, the Company or any of its Subsidiaries;
(iv) Any obligation or liability of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, known or unknown (including
without limitation liabilities for Taxes due or to become due or contingent or
potential liabilities
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relating to products or services provided by the Company or any of its
Subsidiaries or the conduct of the business of the Company or any of its
Subsidiaries since the date of the Base Balance Sheet regardless of whether
claims in respect thereof have been asserted), incurred by the Company or any of
its Subsidiaries other than obligations and liabilities incurred in the ordinary
course of business consistent with the terms of this Agreement (it being
understood that product or service liability claims shall not be deemed to be
incurred in the ordinary course of business);
(v) Any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any of the
properties or assets of the Company or any of its Subsidiaries other than in the
ordinary course of business;
(vi) Any damage, destruction or loss, whether or not covered by insurance,
that would materially and adversely deteriorate the properties, assets or
business of the Company or any of its Subsidiaries;
(vii) Any declaration, setting aside or payment of any dividend or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any shares of any capital stock of any class of the Company or
any of its Subsidiaries or any options, warrants or other rights to acquire, or
securities convertible into or exchangeable for, any such capital stock, except
as set forth on SCHEDULE 2.9 and except that the Purchase Price shall be reduced
by the amount of such dividend, distribution or redemption;
(viii) Any material loss, destruction or damage to any property of the
Company or any of its Subsidiaries, whether or not insured, which would have a
material and adverse deteriorating effect;
(ix) Any labour disputes, troubles or work stoppages or claim of unfair
labour practices involving the Company or any of its Subsidiaries which has had
Material Adverse Effect; or any increase, direct or indirect, in the
compensation paid or payable to any officer, director, employee, agent or
stockholder other than normal merit increases in the ordinary course of business
consistent with past practice; or any bonus payment or arrangement made to or
with any of such officers, employees, agents or independent contractors;
(x) Any change with respect to the officers or management of the Company or
any of its Subsidiaries except as set forth on SCHEDULE 2.9;
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(xi) Any payment or discharge of a material lien or liability of the
Company or any of its Subsidiaries which was not shown on the Base Balance Sheet
or incurred in the ordinary course of business thereafter;
(xii) Any obligation or liability incurred by the Company to any of its
officers, directors, stockholders or employees, or any loans or advances made by
the Company to its officers, directors, stockholders or employees, except normal
compensation and expense allowances payable to officers or employees;
(xiii) Any change in accounting methods or practices, credit practices or
collection policies used by the Company or any of its Subsidiaries;
(xiv) Any agreement or understanding whether in writing or otherwise, for
the Company or any of its Subsidiaries to take any of the actions specified in
paragraphs (i) through (xiii) above.
2.10 BANKING RELATIONS. All of the arrangements which the Company or any of
its Subsidiaries has with any banking institution are described in SCHEDULE 2.10
attached hereto, indicating with respect to each of such arrangements the type
of arrangement maintained (such as checking account, borrowing arrangements,
safe deposit box, etc.) and the person or persons authorized in respect thereof.
2.11 PATENTS, TRADE NAMES, TRADEMARKS, COPYRIGHTS AND PROPRIETARY RIGHTS.
All patents, patent applications, trade names, trademarks, trademark
registration applications, copyrights, copyright registration applications and
other proprietary rights owned by the Company or any of its Subsidiaries or used
or to be used by the Company or any of its Subsidiaries in their respective
business as presently conducted or contemplated (the "Intellectual Property")
are listed in SCHEDULE 2.11. The Company and its Subsidiaries have taken all
steps required in accordance with applicable law and sound business practice to
establish and preserve their ownership of all Intellectual Property with respect
to their products, services and technology. Except as set forth in SCHEDULE
2.11, (a) the Company or its Subsidiaries have exclusive ownership or exclusive
license to use all Intellectual Property used or to be used by them in their
business as presently conducted free and clear of any attachments, liens,
encumbrances or adverse claims and (b) to the best of Stockholder's or the
Company's knowledge the present activities or products of the Company or any of
its Subsidiaries do not infringe any Intellectual Property of others, (c) no
other person has an interest in or right or license to use, or the right to
license others to use, any of said Intellectual Property, (d) there are no
claims or demands of any other person pertaining thereto and no proceedings have
been instituted, or are pending or
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threatened, which challenge the rights of the Company or any of its Subsidiaries
in respect thereof, and there is no basis for any such claims or demands, (e)
none of said Intellectual Property is subject to any outstanding order, decree,
judgment or stipulation, or to the best of the Stockholder's or the Company's
knowledge, is being infringed by others, (f) no proceeding charging the Company
or any of its Subsidiaries with infringement of any adversely held patent, trade
name, trademark or copyright has been filed or is threatened to be filed, and
(g) there exist no unexpired patent or patent application which includes claims
that would materially adversely affect the products or business of the Company
and its Subsidiaries. All licenses or other agreements under which (i) the
Company or any of its Subsidiaries is granted rights in Intellectual Property
owned by others or (ii) the Company or any of its Subsidiaries has granted
rights to others in Intellectual Property owned or licensed by the Company or
such Subsidiary are listed in SCHEDULE 2.11. All said licenses or other
agreements are in full force and effect and there is no default by any party
thereto.
2.12 TRADE SECRETS AND CUSTOMER LISTS. The Company and its Subsidiaries
have the right to use, free and clear of any claims or rights of others, all
trade secrets, inventions, customer lists and manufacturing and secret processes
required for or incident to the manufacture or marketing of all products
formerly or presently sold, manufactured, licensed, under development or
produced by them, including products licensed from others. Any payments required
to be made by the Company or any of its Subsidiaries for the use of such trade
secrets, inventions, customer lists and manufacturing and secret processes are
described in SCHEDULE 2.12. The Company is not using or in any way making use of
any confidential information or trade secrets of any third party, including
without limitation, a former employer of any present or past employee of the
Company or of any of the predecessors of the Company.
2.13 CONTRACTS. Except for contracts, commitments, plans, agreements and
licenses described in SCHEDULE 2.13 (complete and correct copies of which have
been delivered to Buyer), neither the Company nor any of its Subsidiaries is a
party to or subject to:
(a) any plan or contract providing for bonuses, pensions, options, stock
purchases, deferred compensation, retirement payments, profit sharing,
collective bargaining or the like, or any contract or agreement with any labour
union;
(b) any employment contract or contract for services which requires the
payment of SEK 350,000 or more annually or which is not terminable within 30
days by the Company or any of its Subsidiaries without liability for any penalty
or severance payment;
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(c) any contract or agreement for the purchase of any commodity or raw
material except purchase orders in the ordinary course of business for less than
SEK 350.000 or for the purchase of equipment for more than SEK 175,000;
(d) any other contracts or agreements creating any obligation of the
Company or any of its Subsidiaries of SEK 175,000 or more with respect to any
such contract or which by its terms is not terminable without penalty by the
Company within six months after the date hereof;
(e) any contract or agreement providing for the purchase of all or
substantially all of its requirements of a particular product from a supplier;
(f) any contract or agreement for the sale or lease of its products not
made in the ordinary course of business;
(g) any contract with any sales agent or distributor;
(h) any contract containing covenants limiting the freedom of the Company
or any of its Subsidiaries to compete in any line of business or with any person
or entity;
(i) any license agreement (as licensor or licensee);
(j) any indenture, mortgage, promissory note, loan agreement, guaranty or
other agreement or commitment for the borrowing of money and any related
security agreement; or
(k) any contract or agreement with any officer, employee, director or
stockholder of the Company or with any of their affiliates.
A written description of all oral contracts, agreements, arrangements or
understandings of the Company or any of its Subsidiaries is set forth on
SCHEDULE 2.13.
All contracts, agreements, and instruments to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
is obligated are valid and are in full force and effect and constitute legal,
valid and binding obligations of the Company or such Subsidiary, as the case may
be, and the other parties thereto, enforceable in accordance with their
respective terms. Neither the Company nor any of its Subsidiaries nor any other
party to any such contract, agreement or instrument is in default
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in complying with any provisions thereof, and no condition or event or facts
exists which, with notice, lapse of time or both would constitute a default
thereof on the part of the Company or any of its Subsidiaries or on the part of
any other party thereto in any such case that could have a Material Adverse
Effect. There is no basis for the termination, expiration or modification of any
such agreements within one year from the date hereof (other than in accordance
with their respective terms), which termination, expiration or modification may
have a Material Adverse Effect.
2.14 LITIGATION. Except for matters described in SCHEDULE 2.14, there is no
litigation or governmental or administrative proceeding or investigation pending
or threatened against the Company or any of its Subsidiaries or any of their
respective officers, directors, stockholders, key employees or other affiliates
which may have a Material Adverse Effect or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement, nor has there
to the best of Stockholder's or the Company's knowledge occurred any event or
does there exist any condition on the basis of which any such claim may be
asserted. With respect to each matter set forth therein, Schedule 2.14 sets
forth a description of the forums for the matter, the parties thereto and the
type and amount of relief sought.
2.15 COMPLIANCE WITH LAWS. Except as set forth in SCHEDULE 2.15, the
Company and each of its Subsidiaries is currently in compliance and has
heretofore complied in all material respects with all applicable statutes,
ordinances, orders, rules and regulations promulgated by any governmental
authority of any applicable jurisdiction, and neither the Company nor any of its
Subsidiaries has received notice of a violation or alleged violation of any such
statute, ordinance, order, rule or regulation.
2.16 INSURANCE. The physical properties, assets, business, operations,
employees, officers and directors of the Company and its Subsidiaries are
insured to the extent disclosed in SCHEDULE 2.16 and all insurance policies and
arrangements of the Company or any of its Subsidiaries are disclosed in said
Schedule. Said insurance policies and arrangements are in full force and effect,
all premiums with respect thereto are currently paid, and the Company and each
of its Subsidiaries are in compliance in all material respects with the terms of
their respective policies. There is no claim by the Company or any of its
Subsidiaries pending under any such policies as to which coverage has been
questioned, denied or disputed by the insurer. Each such insurance policy shall
continue to be in full force and effect at and after the Closing. Such policies
of insurance are of the type and in amounts customarily carried by persons
conducting business similar to that of the Company and its Subsidiaries.
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2.17 WARRANTY AND RELATED MATTERS. There are no existing or threatened
product liability, warranty, failure to adequately warn or any other similar
claims against the Company or any of its Subsidiaries for products or services
provided by the Company or any of its Subsidiaries, except as disclosed in
SCHEDULE 2.17. The reserve for warranty and similar claims as set forth in the
Base Balance Sheet and in the latest balance sheet included in the Unaudited
Financial Statements is adequate to satisfy any and all such claims arising from
product sales prior to Closing. There are no statements, citations,
correspondence or decisions by any government or political subdivision thereof,
whether national, state, local or foreign, or any agency or instrumentality of
any such government or political subdivision, or any court or arbitrator
(collectively, "Governmental Bodies") stating that any product manufactured,
marketed or distributed at any time by the Company or any of its Subsidiaries
(the "Company Products") is defective or unsafe or fails to meet any product
warranty or any standards promulgated by any such Governmental Body. There have
been no recalls ordered by any such Governmental Body with respect to any
Company Product. Neither the Company nor the Stockholder knows or has any reason
to know of (a) any fact relating to any Company Product that may impose upon the
Company a duty to recall any Company Product or a duty to warn customers of a
defect in any Company Product, (b) any latent or overt design, manufacturing or
other defect in any Company Product, or (c) any material liability for warranty
or other claims or returns with respect to any the Company Product except in the
ordinary course of business consistent with the past experience of the Company
for such kind of claims and liabilities. No claim has been asserted against the
Company or any of its Subsidiaries for renegotiation or price redetermination of
any business transaction, and, there are no facts upon which any such claim
could be based.
2.18 INVESTMENT BANKING; BROKERAGE. Except as set forth in SCHEDULE 2.18,
there are no claims for investment banking fees, brokerage commissions, finder's
fees or similar compensation (exclusive of professional fees of lawyers and
accountants) in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company or any
of its Subsidiaries or the Stockholder.
2.19 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 2.19 lists all permits,
authorizations, qualifications, registrations, licenses, franchises,
certifications and other approvals (collectively, the "Approvals") required from
any competent governmental authorities in order for the Company or any of its
Subsidiaries to conduct their businesses. The Company and each of its
Subsidiaries has obtained all the Approvals, which are valid and in full force
and effect, and is operating in compliance therewith, except for such
noncompliance which would not have a Material Adverse Effect. The Approvals
include, but are not limited to, those required under applicable statutes,
ordinances, orders,
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requirements, rules, regulations, or laws pertaining to environmental
protection, public health and safety, worker health and safety, buildings,
highways or zoning. None of the Approvals is subject to termination by their
express terms as a result of the execution of this Agreement or the consummation
of the transactions contemplated hereby, and no further Approvals will be
required in order to continue to conduct the business currently conducted by the
Company or any of its Subsidiaries subsequent to the Closing. Except as
disclosed in SCHEDULE 2.19 or in any other Schedule hereto, neither the Company
nor any of its Subsidiaries is subject to or bound by any agreement, judgment,
decree or order which may materially and adversely affect its properties,
assets, business, condition (financial or other) or prospects.
2.20 TRANSACTIONS WITH INTERESTED PERSONS. Except as set forth in SCHEDULE
2.20, none of the Company, or any of its Subsidiaries, the Stockholder, or any
of their respective officers, supervisory employees or directors owns directly
or indirectly on an individual or joint basis any material interest in, or
serves as an officer or director or in another similar capacity of, any
competitor or supplier of the Company or any of its Subsidiaries, or any
organization (other than the Stockholder) which has a material contract or
arrangement with the Company or any of its Subsidiaries.
2.21 Employee Benefit Programs.
-------------------------
(a) SCHEDULE 2.21(a) sets forth all collective bargaining agreements,
profit sharing, stock option and material benefit plans or other similar
agreements or arrangements by which any of the Company or its Subsidiaries are
bound. All of these contracts and arrangements are in full force and effect, and
neither the Company, its Subsidiaries, nor any other party is in default under
them. Except as set forth in SCHEDULE 2.21(a), there are no claims of defaults
and there are no facts or conditions that with notice or the passage of time
would result in a default under these contracts or arrangements. The Company and
each of its Subsidiaries complies in all material respects with, and has no
future or contingent liability in respect of any past non-compliance with, all
applicable laws in connection with their respective employee benefit plans.
Except as set forth in SCHEDULE 2.21(a), neither the Company nor any of its
Subsidiaries has entered into any change of control, severance other than
ordinary course termination notice or indemnity rights or similar arrangements
in respect of any present or former employee that will result in any obligation,
absolute or contingent, of the Company, or any of the Subsidiaries, to make any
payment which individually or in the aggregate would result in a Material
Adverse Effect to any present or former employee following the Closing, except
as reserved in the Base Balance Sheet. All liabilities to all employees and
former employees for all periods prior to the Closing (except for accrued and
not yet due current remunerations), whether by virtue of
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laws, rules, regulations, contract or otherwise, have been fully satisfied and
discharged, including without limitation severance or other termination type
payments due to any former employees of any of the Company and/or the
Subsidiaries, and are adequately reserved for in the Base Balance Sheet.
(b) SCHEDULE 2.21(b) sets forth a list of every U.S. Employee Program (as
defined below) that has been maintained (as such term is further defined below)
by the Company at any time during the three-year period ending on the date
hereof. There has not been any failure of any party to comply with any laws
applicable with respect to the U.S. Employee Programs that have been maintained
by the Company. Neither the Company nor any Affiliate (as defined below) has
incurred any liability under Title IV of ERISA which will not be paid in full
prior to the Closing. There has been no event that may cause the Company or any
Affiliate to incur liability or have a lien imposed on its assets under Title IV
of ERISA. Neither the Company nor any Affiliate has ever maintained a
Multiemployer Plan (as defined below). None of the U.S. Employee Programs ever
maintained by the Company or any Affiliate has ever provided health care or any
other non-pension benefits to any employees after their employment was
terminated (other than as required by part 6 of subtitle B of title I of ERISA)
or has ever promised to provide such post-termination benefits. For purposes of
this Section 21:
(i) "U.S. Employee Program" means (x) all employee benefit plans within the
meaning of ERISA Section 3(3), including, but not limited to, multiple employer
welfare arrangements (within the meaning of ERISA Section 3(40)), plans to which
more than one unaffiliated employer contributes and employee benefit plans (such
as foreign or excess benefit plans) which are not subject to ERISA; and (y) all
stock option plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income arrangements,
vacation plans, and all other employee benefit plans, agreements, and
arrangements not described in (x) above for the benefit of any employees of the
Company or any Affiliate in the United States. In the case of a U.S. Employee
Program funded through an organization described in Code Section 501(c)(9), each
reference to such U.S. Employee Program shall include a reference to such
organization;
(ii) An entity "maintains" a U.S. Employee Program if such entity sponsors,
contributes to, or provides (or has promised to provide) benefits under such
U.S. Employee Program, or has any obligation (by agreement or under applicable
law) to contribute to or provide benefits under such U.S. Employee Program, or
if such U.S. Employee Program provides benefits to or otherwise covers employees
of such entity in the United States (or their spouses, dependents, or
beneficiaries);
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(iii) An entity is an "Affiliate" of the Company for purposes of this
Section 21 if it would have ever been considered a single employer with the
Company under ERISA Section 4001(b) or part of the same "controlled group" as
the Company for purposes of ERISA Section 302(d)(8)(C); and
(iv) "Multiemployer Plan" means a (pension or non-pension) employee benefit
plan to which more than one employer contributes and which is maintained
pursuant to one or more collective bargaining agreements.
(c) Neither the Company nor any of the Subsidiaries has any current, future
or contingent liability in respect of current or past employees in respect of
pension or related retirement benefits including but not limited to any employee
benefit plans that are not either fully insured by a third party, fully funded
or fully provisioned in the Base Balance Sheet.
2.22 Environmental Matters.
---------------------
(a) Except as set forth in SCHEDULE 2.22, (i) neither the Company nor any
of its Subsidiaries has ever generated, transported, used, stored, treated,
disposed of, or managed any Hazardous Waste (as defined below); (ii) no
Hazardous Material (as defined below) has ever been or is threatened to be
spilled, released, or disposed of at any site presently or formerly owned,
operated, leased, or used by the Company or any of its Subsidiaries, or has ever
come to be located in the soil or groundwater at any such site; (iii) no
Hazardous Material has ever been transported from any site presently or formerly
owned, operated, leased, or used by the Company or any of its Subsidiaries for
treatment, storage, or disposal at any other place; (iv) neither the Company nor
any of its Subsidiaries presently owns, operates, leases, or uses, or previously
owned, operated, leased, or used any site on which underground storage tanks are
or were located; and (v) no lien has ever been imposed by any governmental
agency on any property, facility, machinery, or equipment owned, operated,
leased, or used by the Company or any of its Subsidiaries in connection with the
presence of any Hazardous Material.
(b) Except as set forth in SCHEDULE 2.22, (i) neither the Company nor any
of its Subsidiaries has any liability under, nor has the Company or any of its
Subsidiaries ever violated in any respect, any Environmental Law (as defined
below); (ii) the Company and each of its Subsidiaries, any property owned,
operated, leased, or used by any of them, and any facilities and operations
thereon are presently in compliance in all respects with all applicable
Environmental Laws; (iii) neither the Company nor any of its Subsidiaries has
ever entered into or been subject to any judgment, consent decree, compliance
order, or
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administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) neither the Company nor any Stockholder has any
reason to believe that any of the items enumerated in clause (iii) of this
paragraph will be forthcoming.
(c) Except as set forth in SCHEDULE 2.22, no site owned, operated, leased,
or used by the Company or any of its Subsidiaries contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls (PCBs) or equipment
containing PCBs, or any urea formaldehyde foam insulation.
(d) The Company has provided to Buyer copies of all documents, records, and
information available to the Company concerning any environmental or health and
safety matter relevant to the Company, whether generated by the Company or any
of its Subsidiaries, or others, including, without limitation, environmental
audits, environmental risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials, spill control plans, and
reports, correspondence, permits, licenses, approvals, consents, and other
authorizations related to environmental or health and safety matters issued by
any governmental agency.
(e) For purposes of this Section 2.22, (i) "Hazardous Material" shall mean
and include any hazardous waste, hazardous material, hazardous substance,
petroleum product, oil, toxic substance, pollutant, or contaminant, as defined
or regulated under any Environmental Law, or any other substance which may pose
a threat to the environment or to human health or safety; (ii) "Hazardous Waste"
shall mean and include any hazardous waste as defined or regulated under any
Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance, or by-law at the
foreign, national, state, or local level, whether existing as of the date
hereof, previously enforced, or subsequently enacted; and (iv) "the Company"
shall mean and include the Company and its Subsidiaries, its predecessors and
all other entities for whose conduct the Company is or may be held responsible
under any Environmental Law.
2.23 Employees; Labour Matters.
-------------------------
(a) SCHEDULE 2.23(a) contains a list of all current directors and officers
of the Company and its Subsidiaries and a list of all managers, employees and
consultants of the Company or any of its Subsidiaries who, individually, have
received or are scheduled to receive compensation from the Company and its
Subsidiaries for the twelve months ended
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December 31, 1995 in excess of SEK 500,000. In each case SCHEDULE 2.23(a)
includes the current job title and aggregate annual compensation of each such
individual, date of hire of each such individual and the date and amount of the
last compensation increase or decrease of such individual. Schedule 2.23(a)
further specifies the number of full time and part time employees in and outside
the United States. As of the date hereof the Company and its Subsidiaries
generally enjoy a good employer-employee relationship.
(b) Except as set forth in SCHEDULE 2.23(b) or either follows from the
collective bargaining agreements specified in Schedule 2.21(a) or under Swedish
Law, neither the Company nor any of its Subsidiaries (i) is obligated to provide
to any employee compensating time off or wages in lieu thereof, (ii) will upon
termination of the employment of any of employees, by reason of the consummation
of the transactions contemplated by this Agreement or due to anything done prior
to the Closing be liable to any of said employees for so-called "severance pay"
or any other payments or (iii) has, or within the last three years had, any
policy, practice, plan or program of paying severance pay or any form of
severance compensation in connection with the termination of employment of
employees.
(c) Neither the Company nor any of its Subsidiaries is delinquent in
payments to any of its employees for any wages, salaries, commissions, bonuses
or other direct compensation for any services performed to the date hereof or
amounts required to be reimbursed to such employees. The Company and its
Subsidiaries are in compliance in all material respects with all applicable laws
and regulations respecting labour, employment, fair employment practices, terms
and conditions of employment, and wages and hours. Except as set forth on
SCHEDULE 2.23(c), there are no (i) complaints, grievances, charges of employment
discrimination, wrongful termination, sexual harassment, breaches of express or
implied employment arrangements, or unfair labour practices, (ii) strikes,
slowdowns, stoppages of work, or other concerted interference with normal
operations existing, threatened against or involving the Company or any of its
Subsidiaries, (iii) collective bargaining agreements in effect or currently
being or about to be negotiated by the Company or any of its Subsidiaries and
(iv) changes pending or threatened with respect to (including, without
limitation, resignation of) the senior management or key supervisory personnel
of the Company and its Subsidiaries.
2.24 CUSTOMERS AND DISTRIBUTORS. Stockholder will in accordance Section
3.10 furnish Buyer with a list for (a) any customer (which in the case of chains
of affiliated retail outlets shall mean all such outlets considered as a whole,
though the list shall list separately each individual store or customer location
to which the Company and its Subsidiaries have shipped any products during the
past twelve calendar months),
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representative or distributor (whether pursuant to a commission, royalty or
other arrangement) who accounted for more than one percent (1%) of the
consolidated sales of the Company and its Subsidiaries for the twelve months
ended December 31, 1995 or, whichever gives the lower number, the 30 largest
customers of the Company and its Subsidiaries, showing for each such account for
such period the amount of net sales (defined as gross sales net of all
discounts, returns and allowances and all charges, such as cooperative
advertising or similar items) (collectively, the "Customers and Distributors")
and (b) any supplier to whom during the twelve months ended December 31, 1995
the Company and its Subsidiaries made payments aggregating SEK 1.500.000 or more
or who is the sole supplier to the Company or any of its Subsidiaries of a
particular raw material or other input or, whichever gives the lower number, the
30 largest suppliers of the Company and its Subsidiaries, showing for each such
supplier for such period the monetary volume involved (collectively, the "Key
Suppliers"). The relationships of the Company and its Subsidiaries with the
Customers and Distributors and Key Suppliers are good commercial working
relationships. No Customer or Distributor or Key Supplier has cancelled or
otherwise terminated its relationship with the Company or any of its
Subsidiaries, or has during the last twelve months decreased materially its
services or supply to the Company or any of its Subsidiaries or its usage,
purchase or distribution of the services or products of the Company or any of
its Subsidiaries. No Customer or Distributor or Key Supplier has to the best
knowledge of the Stockholder or the Company any plan or intention to terminate,
to cancel or otherwise materially and adversely modify its relationship with the
Company or any of its Subsidiaries or to decrease materially or limit its
services or supply to the Company or any of its Subsidiaries or its usage,
purchase or distribution of the services or products of the Company or any of
its Subsidiaries. The list lists for each Key Supplier all tools, molds, dies
and other equipment held by such Key Supplier and owned by the Company or any of
its Subsidiaries (the "Tooling"). The Company and its Subsidiaries own the
Tooling free of any rights or claims of the Key Suppliers (other than statutory
mechanics or materialman's liens) and have the right to demand that the Key
Suppliers return the Tooling to them without delay or penalty.
2.25 DISCLOSURE. The representations, warranties and statements contained
in this Agreement and in the certificates, exhibits and schedules delivered by
the Company to Buyer pursuant to this Agreement do not contain any untrue
statement of a material fact with respect to the business conducted by the
Company and its Subsidiaries, and do not omit to state a material fact with
respect to the business heretofore conducted by the Company and its Subsidiaries
required to be stated therein or necessary in order to make such
representations, warranties or statements not misleading in light of the
circumstances under which they were made. There are no facts which presently or
may in the future have a Material Adverse Effect which has not been specifically
disclosed herein or in a Schedule
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furnished herewith, other than economic conditions affecting the industry of the
Company generally.
2.26 EFFECT OF PURCHASE OF LPAB SHARES OR LAAB SHARES. The purchase by
Buyer pursuant to this Agreement of the LPAB Shares or the LAAB Shares
(resulting in Buyer owning indirectly all of LPAB's and LAAP's shares of Common
Stock of the Company), as compared to a direct purchase by Buyer from LAAB and
LPAB of their respective shares of Common Stock of the Company, does not and
will not (a) have any material adverse effect on the properties, assets,
business, condition (financial or otherwise) and prospects of Buyer or (b) cause
Buyer to become obligated to pay any additional Taxes or discharge any
additional liabilities in connection with the ownership or transfer by Buyer of
the LAAB Shares, the LPAB Shares or the Common Stock of the Company.
SECTION 3. COVENANTS OF THE COMPANY, LAAB, LPAB AND THE
- -----------------------------------------------------------
STOCKHOLDER.
-----------
3.1 MAKING OF COVENANTS AND AGREEMENTS. The Company, LPAB, LAAB and the
Stockholder hereby jointly and severally covenant and agree as set forth in this
Section 3. The Stockholder shall not have any right of indemnity or contribution
from the Company, LAAB or LPAB with respect to the breach of any covenant or
agreement hereunder. Wherever in this Section 3 the "Company" is mentioned it
shall, unless otherwise specifically stated, if applicable include LPAB and LAAB
so that all covenants etc in all subsections shall be applied to LPAB and LAAB
to the same extent as to the Company.
3.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing, the Stockholder will cause the Company to do and the Company will do
and will cause each of its Subsidiaries to do the following, unless Buyer shall
otherwise consent in writing:
(a) conduct their businesses only in the ordinary course consistent with
past practices, refrain from changing or introducing any method of management or
operations and maintain levels of working capital consistent with past
practices;
(b) refrain from making any change in its incorporation documents, by-laws
or authorized or issued capital stock or from acquiring any securities issued by
any other business organization other than short-term investments in the
ordinary course of business;
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(c) refrain from declaring, setting aside or paying any dividend except as
set forth on Schedule 3.2 and except that he Purchase Price shall be reduced by
the amount of such dividend, making any other distribution in respect of its
capital stock, making any direct or indirect redemption, purchase or other
acquisition of its capital stock or options, warrants, or other rights with
respect thereto, issuing, granting, awarding, selling, pledging, disposing of or
encumbering or authorizing the issuance, grant, award, sale, pledge, disposition
or encumbrance of any shares of, or securities convertible or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or any of its Subsidiaries
or entering into any agreement or commitment with respect to any of the
foregoing;
(d) refrain from prepaying any loans, including without limitation loans
from the Stockholder or other intercompany balances involving the Company or any
of its Subsidiaries and the Stockholder or any of its affiliates, making any
change in its borrowing arrangements or modifying, amending or terminating any
of its contracts except in the ordinary course of business, or waiving,
releasing or assigning any material rights or claims;
(e) use its best efforts to prevent any change with respect to its
management and supervisory personnel or banking arrangements;
(f) use its best efforts to keep intact its business organization and to
preserve the goodwill of and business relationships with all suppliers,
customers, distributors and others having business relations with it;
(g) pay all accounts payable in the ordinary course of business in a manner
consistent with past practice and in any event within sixty (60) days unless
they are being disputed in good faith, and otherwise refrain from paying,
discharging or satisfying any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business and in a manner
consistent with past practices of liabilities reflected or reserved against in
the Base Balance Sheet or incurred since the date of the Base Balance Sheet in
the ordinary course of business and in a manner consistent with past practices
(provided that the Company shall in no event prepay any long-term indebtedness);
(h) use its best efforts to have in effect and maintain at all times all
insurance of the kind, in the amount and with the insurers set forth in SCHEDULE
2.16 or equivalent insurance with any substitute insurers approved by Buyer;
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(i) refrain from changing accounting policies or procedures (including,
without limitation, procedures with respect to the payment of accounts payable
and collection of accounts receivable) or from making any tax election or
settling or compromising any national, state, local or foreign income tax
liability;
(j) refrain from entering into any executory agreement, commitment or
undertaking to do any of the activities prohibited by the foregoing provisions;
(k) not unreasonably deny Buyer and its authorized representatives
(including without limitation attorneys, accountants, investment bankers and
pension and environmental consultants) to upon request to the Stockholder have
access to all of the properties, assets, books, records, business files,
executive personnel, tax returns, contracts and documents of the Company and its
Subsidiaries and furnish to Buyer and its authorized representatives such
financial and other information with respect to its business or properties as
Buyer may from time to time reasonably request from the Stockholder;
(l) on a monthly basis provide to Buyer whatever internal reports are
produced and previously have been produced within the Company and its
Subsidiaries.
(m) in connection with any filings to be made by Buyer under the Securities
Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), (i) provide for inclusion therein or
filing therewith the financial and other information and documents required by
applicable laws and regulations, (ii) consider promptly Buyer's reasonable
requests for any additional information or documents and use commercially
reasonable efforts to make such available, (iii) use its best efforts to cause
its independent public accountants to deliver such consents, reports and comfort
letters in connection therewith as Buyer may reasonably request, provided that
all such consents, reports and comfort letters shall be at the expense of Buyer,
and (iv) generally cooperate with Buyer and its representatives and agents in
connection therewith, provided that all expenses relating thereto shall be paid
directly and promptly by Buyer.
3.3 CONSENTS AND APPROVALS. The Company and the Stockholder will use their
best efforts to cause all conditions to the obligations of the parties hereunder
to be satisfied and to obtain or cause to be obtained prior to the Closing Date
all necessary consents and approvals to the performance of the obligations of
the Stockholder under this Agreement, including, without limitation, the
consents and approvals described in Schedule 3.3. The Company and the
Stockholder will cooperate in all respects with Buyer with a view toward
obtaining timely satisfaction of the conditions to the Closing set forth herein.
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The Stockholder shall cause the Company and each of its Subsidiaries to make all
filings, document submissions, applications, statements and reports to all
applicable government agencies or entities which are required to be made by them
prior to the Closing Date pursuant to any applicable statute, rule or regulation
in connection with this Agreement and the transactions contemplated hereby, it
being understood that the required filing fees in connection therewith shall be
paid in accordance with Section 1.8 hereof. The Company and the Stockholder
shall (i) furnish to Buyer copies of all filings and such necessary information
and assistance as may be requested by Buyer in connection with its preparation
of required filings or submissions to any governmental agency and (ii) keep
Buyer informed of the status of any inquiries made of any of them by any
applicable governmental agency or authority with respect to this Agreement or
the transactions contemplated hereby. Not later than 10 business days after the
execution of this Agreement, the Stockholder shall, if required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and shall cause the Company to, and the Company will file complete and
accurate notification and report forms with respect to the transactions
contemplated hereby, pursuant to the HSR Act and the rules and regulations
promulgated thereunder, and will file on a timely basis such additional
information and documentary materials as may be requested pursuant to the HSR
Act. The Company shall promptly inform Buyer of any inquiries or communications
from or to such governmental agencies and provide copies of any written
communications relating thereto.
3.4 BREACH OF REPRESENTATIONS AND WARRANTIES. Promptly upon the occurrence
of, or promptly upon the Company or the Stockholder becoming aware of the
impending or threatened occurrence of any event which would cause or constitute
a breach, or would have caused or constituted a breach had such event occurred
or been known prior to the date hereof, of any of the representations and
warranties of the Company or the Stockholder contained in or referred to in this
Agreement or in any Schedule hereto, the Company and the Stockholder shall give
detailed written notice thereof to Buyer, and the Company and the Stockholder
shall use their best efforts to prevent or promptly remedy the same.
3.5 ACQUISITION PROPOSALS. Unless and until this Agreement shall have been
terminated pursuant to Section 7, neither the Company nor the Stockholder shall,
nor will they permit any of their directors, officers, employees or agents to,
directly or indirectly, (i) take any action to solicit, initiate submission of
or encourage, proposals or offers from any person relating to any acquisition or
purchase of all or (other than in the ordinary course of business) a portion of
the assets of, or any equity interest in, the Company or any of its
Subsidiaries, any merger or business combination with the Company or any of its
Subsidiaries or any public or private offering of shares of the capital stock or
29
<PAGE> 34
financing or joint venture involving the Company or any of its Subsidiaries (an
"Acquisition Proposal"), (ii) participate in any discussions or negotiations
regarding an Acquisition Proposal with any person or entity other than Buyer and
its representatives, (iii) furnish any information or afford access to the
properties, books or records of the Company or any of its Subsidiaries to any
person or entity that may consider making or has made an offer with respect to
an Acquisition Proposal other than Buyer and its representatives, or (iv)
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do any of the foregoing.
The Company and the Stockholder will promptly notify Buyer upon receipt of any
offer or indication that any person is considering making an offer with respect
to an Acquisition Proposal or any request for information relative to the
Company or any of its Subsidiaries or for access to the properties, books and
records of the Company, and will keep Buyer fully informed of the status and
details of any such offer, indication or request.
3.6 NO SALES OF CAPITAL STOCK. Between the date of this Agreement and the
Closing, the Stockholder shall not sell, exchange, deliver, assign, pledge,
encumber or otherwise transfer or dispose of any shares of capital stock of the
Company, nor grant any right of any kind to acquire, dispose of, vote or
otherwise control in any manner such shares of capital stock of the Company.
3.7 PRE-CLOSING COOPERATION ON TRANSITION PLANNING. Between the date of
this Agreement and the Closing, the Stockholder shall cooperate with Buyer in
the implementation of steps designed to facilitate the transition of the
Company's operations after the Closing in accordance with Buyer's business plan.
3.8 Confidentiality.
---------------
(a) The Company and the Stockholder agree that, unless and until the
Closing has been consummated, each of the Company, its Subsidiaries, the
Stockholder and their officers, directors, agents and representatives will hold
in strict confidence, and will not use, any confidential or proprietary data or
information obtained from Buyer with respect to its business or financial
condition except for the purpose of evaluating, negotiating and completing the
transaction contemplated hereby. Information generally known in Buyer's industry
or which has been disclosed to the Company, any Subsidiary or the Stockholder by
third parties which have a right to do so shall not be deemed confidential or
proprietary information for purposes of this agreement. If the transaction
contemplated by this Agreement is not consummated, the Company, its Subsidiaries
and the Stockholder will return to Buyer (or certify that they have destroyed)
all copies of such data and information, including but not limited to financial
information, customer lists, business and
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corporate records, worksheets, test reports, tax returns, lists, memoranda, and
other documents prepared by or made available to the Company, its Subsidiaries
or the Stockholder in connection with the transaction.
(b) The Stockholder has had, and may from time to time have, access to
confidential records, data, customers lists, trade secrets and similar
confidential information owned or used by the Company and its Subsidiaries in
the course of their respective businesses (the "Confidential Information").
Accordingly, subject in all events to the consummation of the Closing (and
provided that this Section 3.8(b) shall be of no effect if this Agreement is
terminated in accordance with its terms for any reason and the Closing does not
occur), each Stockholder agrees (a) to hold the Confidential Information in
strict confidence, (b) not to disclose Confidential Information to any Person,
and (c) not to use, directly or indirectly, any of the Confidential Information
for any competitive or commercial purpose; PROVIDED, HOWEVER, that the
limitations set forth above shall not apply to any Confidential Information
which (i) is then generally known to the public other than by reason of a breach
of this Section 3.8(b); or (ii) is disclosed in accordance with an order of a
court or competent jurisdiction or applicable law. Upon request by Buyer, all
data, memoranda, customer lists, notes, programs and other papers and items, and
reproductions thereof relating to the foregoing matters in the Stockholder's
possession or control shall be returned to the Company.
3.9 GENERAL RELEASE. The Stockholder agrees to deliver at the Closing a
general release in the form of Exhibit D attached hereto releasing all claims
which the Stockholder has or may have through the Closing Date other than such
claims and rights referred to in such general release which shall survive the
Closing and remain in effect (including rights arising under this Agreement).
3.10 DELIVERY OF SCHEDULES. Stockholder and the Company shall use its best
efforts to deliver all Schedules as soon as possible and not later than ten
calendar days after the date hereof, the Company and the Stockholder shall
deliver to Buyer all Schedules referred to in Section 2 hereof, which schedules
when so delivered shall become part of this Agreement and be deemed to have been
delivered upon the signing hereof for all purposes. If no such Schedules are
delivered by the Company or the Stockholder on or before such time, the Company
and the Stockholder shall be deemed to have delivered Schedules disclosing no
exceptions whatsoever to the representations and warranties set forth in Section
2 hereof. Until May 10, 1996 the Stockholder and the Company may amend the
Schedules delivered pursuant to this Section 3.10.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
- ------------------------------------------------------
4.1 MAKING OF REPRESENTATIONS AND WARRANTIES. Buyer hereby represents and
warrants to the Stockholder and the Company as follows:
4.2 ORGANIZATION OF BUYER. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is conducted.
4.3 AUTHORITY. Except as set forth on SCHEDULE 4.3, all necessary corporate
action has been taken by Buyer to authorize the execution, delivery and
performance of this Agreement and each agreement, document and instrument to be
executed and delivered by Buyer pursuant to this Agreement. This Agreement and
each agreement, document and instrument to be executed and delivered by Buyer
pursuant to this Agreement (to the extent it contains obligations to be
performed by Buyer) constitutes, or when executed and delivered by Buyer will
constitute, valid and binding obligations of Buyer enforceable in accordance
with their respective terms. The execution, delivery and performance by Buyer of
this Agreement and each such agreement, document and instrument:
(a) do not and will not violate any provisions of the Certificate of
Incorporation or By-Laws of Buyer;
(b) do not and will not violate any United States laws or laws of the
jurisdiction of incorporation of Buyer or of any other jurisdiction, or require
Buyer to obtain any approval, consent or waiver of, or to make any filing with,
any person or entity that has not been obtained or made; and
(c) except as set forth on SCHEDULE 4.3, do not and will not result in a
breach of, constitute a default under, accelerate any obligation under, require
a consent under, cause a termination under or give rise to a right of
termination of any indenture or loan or credit agreement or any other agreement,
contract, instrument, mortgage, lien, order, writ, judgment, injunction, decree,
determination or arbitration award to which Buyer is a party or by which the
property of Buyer is bound or affected, or result in the creation or imposition
of any mortgage, pledge, lien, security interest or other charge or encumbrance
on any property or asset owned by Buyer. All consents or approvals listed in
Schedule 4.3 not completed as of this day shall be completed prior to or on May
15, 1996.
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4.4 LITIGATION. There is no litigation pending or threatened against Buyer
which would prevent or hinder the consummation of the transactions contemplated
by this Agreement.
4.5 INVESTMENT BANKING; BROKERAGE. There are no claims for investment
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees of lawyers and accountants) in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of Buyer or its affiliates.
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SECTION 5. COVENANTS OF BUYER.
- ---------------------------------
5.1 MAKING OF COVENANTS AND AGREEMENTS. Buyer makes the covenants and
agreements set forth in this Section 5.
5.2 CONSENTS AND APPROVALS. Buyer will use its best efforts to obtain all
necessary consents and approvals to the performance of its obligations under
this Agreement and the transactions contemplated hereby (including approval
under the HSR Act) and will cooperate in all respects with the Company and the
Stockholder with a view toward obtaining timely satisfaction of conditions to
the Closing set forth herein. Buyer shall promptly inform the Company of any
inquiries or communications from any such governmental agencies and provide
copies of any written communication relating thereto.
5.3 CONFIDENTIALITY. From the date of this Agreement until the Closing, or
for a period of five years from the date of this Agreement if the Closing does
not take place for any reason, all confidential business and related information
furnished to Buyer and its affiliates and representatives by the Company, LPAB,
LAAB or the Stockholder shall be kept confidential by Buyer and its affiliates
and representatives; PROVIDED, HOWEVER, that the foregoing shall be inapplicable
(a) with respect to information which (i) is or becomes available to the public
without breach of this confidentiality obligation, or (ii) is or becomes
available to Buyer from a third party, PROVIDED that the third party did not
receive the same, directly or indirectly, from the Company, LPAB, LAAB or the
Stockholder and was not under an obligation of confidentiality to the source of
such information at the time it was disclosed to Buyer, (b) to the extent
disclosure is required in filings contemplated by this Agreement and (c) to the
extent disclosure is required by any applicable law or regulation, by any
authorized administrative or governmental agency or, in the opinion of counsel
to Buyer, in connection with applicable requirements of the securities laws or
any stock exchange or self-regulatory organization. In addition to the
foregoing, prior to the Closing (and if the Closing does not occur, forever),
except as contemplated by this Section 5.3, Buyer shall not, and shall
communicate to its employees, agents, representatives and advisors that they are
not authorized to and must not use any confidential or related business
information of the Company, LPAB or LAAB for any purpose other than the
consummation of the transactions contemplated hereby, and if this Agreement is
terminated for any reason Buyer shall return or certify the destruction of all
documents and materials obtained from (or reflecting information obtained from)
the Company, LPAB, LAAB or the Stockholder under this Agreement. Notwithstanding
the above, the existing Confidentiality Agreement in form of EXHIBIT E (the
"Confidentiality Agreement") will continue in effect.
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5.4 Buyer hereby covenants and agrees as set forth in Section 3.1 - 3.6
mutatis mutandis for the period from Closing to thirty (30) days after Company's
delivery of Closing Statements or Release of Escrow Funds, whichever occurs
first.
SECTION 6. CONDITIONS.
- -------------------------
6.1 CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligation of Buyer to
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfilment, prior to or at the Closing, of the following conditions (any
one or more of which may be waived in whole or in part by Buyer): provided,
however, that if Buyer does not notify the Stockholder on or before May 15, 1996
that Buyer elects to terminate this Agreement pursuant to Section 7.1(e), then
the conditions set forth in Section 6.1(e) and (f) shall be deemed to have been
waived by Buyer.
(a) REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations and
warranties of the Company, LPAB, LAAB and the Stockholder contained in Section 2
hereof shall be true and correct in all material respects (except with respect
to the representations and warranties contained in Sections 2.4 and 2.5, which
shall be true and correct in each and every respect) on and as of the Closing
Date, with the same effect as though made on and as of the Closing Date (it
being understood that representations and warranties made "as of the date
hereof" shall be deemed to have been made as of the Closing Date); the Company,
LPAB, LAAB and the Stockholder shall, on or before the Closing Date, have
performed and satisfied all agreements and conditions hereunder which by the
terms hereof are to be performed and satisfied by the Company, LPAB, LAAB or the
Stockholder on or before the Closing Date; the Company, LPAB, LAAB and the
Stockholder shall have delivered to Buyer a certificate dated the Closing Date
signed on its behalf by its President and by its chief financial officer to the
foregoing effect; PROVIDED HOWEVER, that Buyer shall not have the right to claim
this condition has not been satisfied if (i) all such breaches of
representations, warranties and covenants in the aggregate can not reasonably be
expected, if the Closing occurs, to give rise to claims for Losses pursuant to
Section 9.1 in excess of SEK 13,400,000 or (ii) such breaches of
representations, warranties and covenants are based on facts or circumstances
which occurred or were in existence before May 15, 1996 and he Stockholder can
prove that Buyer had actual conscious knowledge of such events or circumstances
before May 15, 1996.
(b) OPINIONS OF COUNSEL. On the Closing Date, Buyer shall have received an
opinion of Vinge KB Advokat Firman, counsel for the Company and the
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Stockholder, dated as of the Closing Date and addressed to Buyer, substantially
in the form of EXHIBIT F hereto.
(c) Approvals and Consents.
----------------------
(i) All required filings under the HSR Act shall have been completed and
all applicable time limitations under the HSR Act shall have expired or have
been earlier terminated without a request for further information by the
relevant U.S. federal authorities under the HSR Act, or in the event of such a
request for further information, the expiration of all applicable time
limitations under the HSR Act without the objection of such U.S. federal
authorities and no action or proceeding by the U.S. Justice Department or
Federal Trade Commission to prevent consummation of the transactions
contemplated hereby shall be pending or threatened.
(ii) Buyer shall have made all filings with and notifications of
governmental authorities, regulatory agencies and other entities required to be
made by it in connection with the execution and delivery of this Agreement and
the performance by it of the transactions contemplated hereby and Buyer shall
have received all required authorizations, waivers, consents and permits to
permit the consummation of the transactions contemplated by this Agreement, in
form and substance reasonably satisfactory to Buyer, from all third parties
provided that no consent or approval as required under Section 4.3 will be a
condition after May 15, 1996.
(iii) The Company and its Subsidiaries, LPAB, LAAB and the Stockholder
shall have made all filings with and notifications of governmental authorities,
regulatory agencies and other entities required to be made by them in connection
with the execution and delivery of this Agreement, the performance of the
transactions contemplated hereby and the continued operation of the business of
the Company and such Subsidiaries subsequent to the Closing Date, and the
Company and its Subsidiaries, LPAB, LAAB and the Stockholder shall have received
all required authorizations, waivers, consents and permits to permit the
consummation of the transactions contemplated by this Agreement, in form and
substance reasonably satisfactory to Buyer, with any conditions or limitations
contained therein or imposed thereby to be approved by Buyer, from all third
parties, including, without limitation, applicable governmental authorities,
regulatory agencies, lessors, lenders and contract parties, required in
connection with transactions contemplated by this Agreement or by the Company or
any of its Subsidiaries', LPAB's or LAAB's permits, leases, licenses and
franchises, to avoid a breach, default, termination, acceleration or
modification of any agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award
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as a result of the execution or performance of this Agreement, or otherwise in
connection with the execution and performance of this Agreement.
(d) NO ACTIONS OR PROCEEDINGS. No action or proceeding by or before any
court, administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or might result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of Buyer make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
(e) PROCEEDINGS SATISFACTORY TO BUYER. All actions, proceedings,
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Goodwin, Procter & Hoar as counsel
for Buyer, and such counsel shall have received on behalf of Buyer such other
certificates, opinions, and documents in form satisfactory to such counsel, as
Buyer may reasonably require from the Company, LPAB, LAAB and the Stockholder.
(f) DUE DILIGENCE REVIEW. Buyer and its representatives, as well as, to the
extent they may reasonably request, Buyer's bankers, shall have had the
opportunity to conduct a Due Diligence review and examination of the Company and
its Subsidiaries, LPAB and LAAB. The Due Diligence shall be conducted off site
except as otherwise requested by Buyer and reasonably permitted by Stockholder
and for one or more visits to the Company's manufacturing plant in Sweden on a
time and manner mutually convenient to Buyer and Stockholder in order to satisfy
Buyer's demands of conducting a satisfactory Due Diligence review. Stockholder
shall not unreasonably withhold access to financial and other records, books,
operations or personnel of the Company or its Subsidiaries, LPAB or LAAB upon
request by Buyer. The results of such Due Diligence Review shall be satisfactory
to Buyer in its sole and absolute discretion. However, if Buyer has not at the
latest on May 15, 1996, given the Seller notice that the Due Diligence Review
has been unsatisfactory, such Due Diligence Review shall be deemed to be
satisfactory to Buyer.
(g) NO MATERIAL ADVERSE CHANGE. There shall not have been any change or
series of changes, whether or not in the ordinary course of business, since
December 31, 1995 that, individually or in the aggregate, in the reasonable
business judgment of Buyer acting in good faith, have a Material Adverse Effect;
provided, however, that events or
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circumstances which occurred or were in existence before May 15, 1996 will not
be deemed to constitute "changes" if the Stockholder can prove that Buyer had
actual conscious knowledge of such events or circumstances before May 15, 1996.
(h) GENERAL RELEASE. The Stockholder shall have executed and delivered to
Buyer a General Release in substantially the form of Exhibit D hereto.
(i) RESIGNATIONS. The Company, LPAB and LAAB shall have delivered to Buyer
the resignations of all of the Directors of the Company, LPAB and LAAB and of
such officers of the Company, LPAB and LAAB as may be requested by Buyer at
least five days prior to the Closing, such resignations to be effective at the
Closing.
6.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDER. The
obligations of the Company, LPAB and LAAB and the Stockholder to consummate this
Agreement and the transactions contemplated hereby are subject to the
fulfilment, prior to or at the Closing Date, of the following conditions (any
one or more of which may be waived in whole or in part by the Stockholder):
(a) REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations and
warranties of Buyer contained in Section 4 shall be true and correct in all
material respects on and as of the Closing Date, with the same effect as though
made on and as of the Closing Date (it being understood that representations and
warranties made "as of the date hereof" shall be deemed to have been made as of
the Closing Date); Buyer shall, on or before the Closing Date, have performed
and satisfied all agreements and conditions hereunder which by the terms hereof
are to be performed and satisfied by Buyer on or before the Closing Date; and
Buyer shall have delivered to the Company a certificate signed on its behalf by
its President and Chief Financial Officer and dated as of the Closing Date
certifying to the foregoing effect.
(b) OPINION OF COUNSEL. At the Closing Date, the Stockholder shall have
received an opinion of Goodwin, Procter & Hoar counsel for Buyer, dated as of
the Closing Date and addressed to the Stockholder substantially in the form of
Exhibit G hereto.
(c) NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or might result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Stockholder make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and
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<PAGE> 43
no court order shall have been entered in any action or proceeding instituted by
any party which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
(d) PROCEEDINGS SATISFACTORY TO THE STOCKHOLDER. All proceedings to be
taken by Buyer in connection with the consummation of the Closing on the Closing
Date and the other transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transaction
contemplated hereby reasonably requested by the Stockholder will be reasonably
satisfactory in form and substance to the Stockholder.
(e) GENERAL RELEASE Buyer shall have executed and delivered to the
directors of the Company a General Release in substantially the form of EXHIBIT
H hereto.
SECTION 7. TERMINATION OF AGREEMENT.
- ---------------------------------------
7.1 TERMINATION. This Agreement may be terminated any time prior to the
Closing Date as follows:
(a) With the mutual consent of Buyer and the Stockholder on behalf of the
parties to this Agreement.
(b) By either Buyer or the Stockholder, if the Closing has not occurred on
or before June 30, 1996, provided, however, that notwithstanding anything to the
contrary in this Agreement, if the only reason that the Closing has not occurred
by such date, is that the conditions to Closing set forth in Section 6.1(c) with
respect to approvals or related matters have not been satisfied, then the
foregoing termination date shall be automatically extended to June 30, 1996
(such date, as so extended if applicable, the "Outside Closing Date").
(c) By Buyer, if there has been a material misrepresentation or breach of
warranty on the part of the Company, LPAB, LAAB or the Stockholder in the
representations and warranties contained herein or a material breach of
covenants on the part of the Company, LPAB, LAAB or the Stockholder, which
misrepresentation or breach of warranty or covenant would give Buyer the right
to claim that the condition to Closing set forth in Section 6.1(a) has not been
satisfied, and the same has not been cured within 30 days after notice thereof.
In the event of any termination pursuant to this Section 7.1(c), written notice
setting forth the reasons therefor shall forthwith be given by Buyer to the
Company and the Stockholder.
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<PAGE> 44
(d) By the Stockholder, if there has been a material misrepresentation or
breach of warranty on the part of Buyer in the representations and warranties
contained herein or a material breach of covenants on the part of Buyer and the
same has not been cured within 30 days after notice thereof. In the event of any
termination pursuant to this Section 7.1(d), written notice setting forth the
reasons therefor shall forthwith be given by the Stockholder to Buyer.
(e) By Buyer not later than May 15, 1996 based on the results of Buyer's
due diligence review in accordance with Section 6.1(f) or Buyer's review of the
Schedules produced by the Company and the Stockholder pursuant to Section 3.10
in Buyer's sole and absolute discretion.
(f) This Agreement may be terminated by Stockholder if the Closing
Statements produced by Buyer under Section 1.3(a) results in a reduction of the
Purchase Price exceeding US$ 10,000,000 and Stockholder delivers a Termination
Letter to Buyer within thirty (30) days from receiving the Closing Statements.
In the event that Stockholder terminates this Agreement pursuant to this Section
7.1(f), Stockholder shall refund to Buyer US$ 90,000,000 less any dividends,
distributions and redemptions declared by the Company, LPAB or LAAB after
December 31, 1995, and in addition, pay to Buyer SEK 6,700,000 in liquidated
damages to cover Buyer's costs and expenses.
Notwithstanding anything herein to the contrary, the right to terminate
this Agreement under this Section 7.1 shall not be available to any party to the
extent such party's breach of its obligations under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before such
date (as a result, for example, of an action or failure to act causing a failure
of a condition precedent).
7.2 EFFECT OF TERMINATION. All obligations of the parties hereunder shall
cease upon any termination pursuant to Section 7.1, provided, however, that (i)
the provisions of Section 5.3, this Section 7, Section 8.2 and Section 10.5
hereof shall survive any termination of this Agreement in any event; (ii)
nothing herein shall relieve any party from any liability for a material error
or omission in any of its representations or warranties contained herein or a
material failure to comply with any of its covenants, conditions or agreements
contained herein and (iii) any party may proceed as further set forth in Section
7.3 below.
7.3 RIGHT TO PROCEED. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Section 6.1 hereof have
not been
40
<PAGE> 45
satisfied, Buyer shall have the right to proceed with the transactions
contemplated hereby without waiving any of their respective rights hereunder,
and if any of the conditions specified in Section 6.2 hereof have not been
satisfied, the Company, LPAB, LAAB and the Stockholder shall have the right to
proceed with the transactions contemplated hereby without waiving any of its or
their rights hereunder. Anything in this Agreement to the contrary
notwithstanding, if the Stockholder at least two business days prior to the
Closing gives written notice to Buyer setting forth with reasonable specificity
facts or other matters which would give Buyer the right to terminate this
Agreement pursuant to Section 7.1(c) above and Buyer does not exercise such
right to terminate, then no indemnification shall be payable by the Stockholder
pursuant to Section 9 of this Agreement to Buyer Indemnified Parties with
respect to claims relating to such facts or matters unless they constituted a
deliberate or wilful error, omission or breach on the part of the Stockholder,
LPAB, LAAB or the Company, in which event Buyer shall have the right to proceed
with this Agreement and the transactions contemplated hereby without waiving any
of its rights hereunder.
SECTION 8. SURVIVAL OF WARRANTIES; FEES AND EXPENSES.
- --------------------------------------------------------
8.1 SURVIVAL OF WARRANTIES. All representations, warranties, agreements,
covenants and obligations herein or in any Schedule or certificate delivered by
any party incident to the transactions contemplated hereby are material and may
be relied upon by the party receiving the same and shall survive the Closing
regardless of any investigation by or knowledge of such party and shall not
merge into the performance of any obligation by any party hereto, subject to the
provisions of Section 9 hereof.
8.2 FEES AND EXPENSES. Each of the parties will bear its own expenses in
connection with the negotiation and the consummation of the transactions
contemplated by this Agreement, and no expenses of the Company, LPAB, LAAB or
the Stockholder relating in any way to the purchase and sale of the Company
Shares, LPAB Shares and LAAB Shares hereunder and the transactions contemplated
hereby, including without limitation legal, accounting or other professional
expenses of the Company, LPAB, LAAB or the Stockholder, shall be charged to or
accrued or paid by the Company, LPAB, LAAB or Buyer.
SECTION 9. INDEMNIFICATION.
- ------------------------------
9.1 CLAIMS BY BUYER. In the event of a breach of any representation or
warranty or covenant made by the Company or Stockholder in Section 2 or 3, of
this
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<PAGE> 46
Agreement, the provisions of this Section 9 shall apply. Buyer shall be entitled
to make claims against the Stockholder for losses, harm or damage (including
liabilities, penalties, costs and expenses, and whether or not arising out of
third party claims) based upon or suffered as a result of the inaccuracy of such
representations or warranties or the failure to comply with such covenants
("Losses"), except that the Stockholder shall not be liable for a particular
Loss if the Stockholder can prove that (a) such Loss is based on facts and
circumstances accurately disclosed in this Agreement or the schedules hereto or
specifically advised by the Stockholder to Buyer in writing at least two
business days prior to the Closing or which would give Buyer the right to
terminate this Agreement pursuant to Section 7,1(c) or claim that the condition
to Closing set forth in Section 6.1(a) has not been satisfied (b) Buyer has
already been compensated for such Loss through payment of the Adjustment Amount.
9.2 NOTIFICATION BY BUYER. If an event has occurred within the period set
forth in Section 9.3 (the "Claim Period") which could constitute an inaccuracy
of representations or warranties or a failure to comply with covenants as
provided in Section 9.1, Buyer shall notify the Stockholder thereof in writing
without delay and in such case the parties shall promptly consult with respect
to such misrepresentation or breach and related Losses, it being understood that
if prior to the end of the Claim Period Buyer notifies the Stockholder of
specific facts which may reasonably be expected to give rise to a claim pursuant
to Section 9.1, then Buyer's rights under this Section 9 shall remain in effect
until such matter shall have been finally determined and disposed of, even if no
actual Loss had been suffered at the time of the initial notification by Buyer.
Buyer shall afford the Stockholder an opportunity to assume full liability for
Losses or otherwise hold Buyer harmless against such Losses at the Stockholder's
own cost, subject to Buyer being reasonably assured of Stockholder's ability
(financial and otherwise) to do so, provided that the Stockholder shall not,
without the consent of Buyer (which consent shall not be unreasonably withheld)
settle claims by third parties involving Buyer or the Company.
9.3 TIME LIMIT FOR CLAIMS BY BUYER. Claims for Losses pursuant to Section
9.1 shall be made by Buyer not later than December 31, 1997 (subject to the last
sentence of Section 9.2), except that claims with respect to misrepresentations
or breaches concerning (a) Taxes can be made until six months after the
termination of the applicable statute of limitation, (b) environmental matters
and product liability matters can be made until the fifth anniversary of the
Closing Date.
9.4 SETTLEMENT OF CLAIMS BY THE STOCKHOLDER. The Stockholder shall satisfy
its liability for Losses in cash. If the Losses are allowable as tax deductions
by Buyer or otherwise decrease Buyer's taxable income, the Stockholder shall
have satisfied its
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<PAGE> 47
obligations under this Section 9 it if pays cash in the amount of 72% of such
Losses, provided that the Stockholder shall be obligated to pay 100% of such
Losses to the extent that Buyer is not entitled to claim or otherwise loses the
benefit of such tax deduction or decrease in taxable income. In all other cases,
the cash payment shall be equal to 100% of the Losses. However, subject to the
exceptions set forth in Section 9.10, the Stockholder shall not be liable for
Losses (a) until the cumulative amount of all Losses exceeds SEK 1,675,000,
whereupon the full amount of Losses shall be recoverable by Buyer in accordance
with this Section 9, or (b) after the cumulative amount paid by the Stockholder
pursuant to this Section 9 exceeds $90,000,000, decreased by any negative
Adjustment Amount paid by the Stockholder.
9.5 CLAIMS BY THE STOCKHOLDER. In the event of a breach of any
representation or warranty or covenant made by Buyer in Section 4 or 5 of this
Agreement, the provisions of this Section 9 shall apply. The Stockholder shall
be entitled to make claims against the Buyer for losses, harm or damage
(including liabilities, penalties, costs and expenses, and whether or not
arising out of third party claims) based upon or suffered as a result of the
inaccuracy of such representations or warranties or the failure to comply with
such covenants ("Losses"), except that Buyer shall not be liable for a
particular Loss if Buyer can prove that such Loss is based on facts and
circumstances accurately disclosed in this Agreement or the schedules hereto or
specifically advised by the Buyer to Stockholder in writing at least two
business days prior to the Closing.
9.6 NOTIFICATION BY THE STOCKHOLDER. If an event has occurred within the
period set forth in Section 9.7 (the "Claim Period") which could constitute an
inaccuracy of representations or warranties or a failure to comply with
covenants as provided in Section 9.5, the Stockholder shall notify Buyer thereof
in writing without delay and in such case the parties shall promptly consult
with respect to such misrepresentation or breach and related Losses, it being
understood that if prior to the end of the Claim Period the Stockholder notifies
Buyer of specific facts which may reasonably be expected to give rise to a claim
pursuant to Section 9.5, then the Stockholder's rights under this Section 9
shall remain in effect until such matter shall have been finally determined and
disposed of, even if no actual Loss had been suffered at the time of the initial
notification by the Stockholder. The Stockholder shall afford Buyer an
opportunity to assume full liability for Losses or otherwise hold the
Stockholder harmless against such Losses at Buyer's own cost, subject to the
Stockholder being reasonably assured of Buyer's ability (financial and
otherwise) to do so, provided that Buyer shall not, without the consent of the
Stockholder (which consent shall not be unreasonably withheld) settle claims by
third parties involving the Stockholder.
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<PAGE> 48
9.7 TIME LIMIT FOR CLAIMS BY THE STOCKHOLDER. Claims for Losses pursuant to
Section 9.5 shall be made by the Stockholder not later than December 31, 1997
(subject to the last sentence of Section 9.6), except that claims with respect
to misrepresentations or breaches concerning a. Taxes can be made until six
months after the termination of the applicable statute of limitation, b.
environmental matters and product liability matters can be made until the fifth
anniversary of the Closing Date.
9.8 SETTLEMENT OF CLAIMS BY BUYER. Buyer shall satisfy its liability for
Losses in cash. If the Losses are allowable as tax deductions by the Stockholder
or otherwise decrease the Stockholder's taxable income, Buyer shall have
satisfied its obligations under this Section 9 it if pays cash in the amount of
72% of such Losses, provided that Buyer shall be obligated to pay 100% of such
Losses to the extent that the Stockholder is not entitled to claim or otherwise
loses the benefit of such tax deduction or decrease in taxable income. In all
other cases, the cash payment shall be equal to 100% of the Losses. However,
subject to the exceptions set forth in Section 9.10, Buyer shall not be liable
for Losses c. until the cumulative amount of all Losses exceeds SEK 1,675,000,
whereupon the full amount of Losses shall be recoverable by the Stockholder in
accordance with this Section 9, or d. after the cumulative amount paid by Buyer
pursuant to this Section 9 exceeds $90,000,000.
9.9 EXCLUSIVE REMEDY. Payments for settlement of claims as stipulated in
this Section 9 shall be the exclusive remedy for any misrepresentation or breach
of any of the representations, warranties or covenants given by Stockholder or
the Company in Sections 2 and 3 or by Buyer in Sections 4 or 5.
9.10 DOLLAR FOR DOLLAR CLAIMS. Notwithstanding anything herein to the
contrary, neither Buyer nor the Stockholder shall be subject to any limitation
whether pursuant to this Section 9 or otherwise and shall be entitled to
dollar-for-dollar recovery in seeking indemnification from the Stockholder or
Buyer as applicable with respect to Losses arising from fraud or an intentional
misrepresentation or breach of covenant on the part of the Stockholder or the
Company or on the part of the Buyer as applicable.
SECTION 10 MISCELLANEOUS.
- ----------------------------
10.1 LAW GOVERNING. This Agreement and all Exhibits hereto shall be
construed under and governed by the internal laws of Sweden without regard to
its conflict of laws provisions.
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10.2 NOTICES. Any notice, request, demand other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if delivered or sent by facsimile transmission, upon receipt, or (ii) if
sent by registered or certified mail upon the sooner of receipt or the
expiration of three days after deposit in United States post office facilities
properly addressed with postage prepaid. All notices will be sent to the
addresses set forth below or to such other address as such party may designate
by notice to each other party hereunder:
TO BUYER:
- --------
with a copy to:
Cabot Safety Corporation Goodwin, Procter & Hoar
One Washington Mall, 8th Floor Exchange Place
Boston, MA 02108-2610 Boston, MA 02109-2881
Attn: Mark V.B. Tremallo Attn: Richard E. Floor, P.C.
Facsimile: (617) 371 42 43 Facsimile: (617) 523-1231
TO THE COMPANY, LPAB, LAAB
- --------------------------
OR THE STOCKHOLDER:
- ------------------
with a copy to:
ACTIVE i Malmo AB Advokatfirman Vinge KB
Stora Nygatan 61 Box 4255
211 37 MALMO 203 13 MALMO
Attn: Bo Hakansson Attn: advokat Jan Ortenholm
Facsimile: +40 97 43 58 Facsimile: +40 97 27 72
Any notice given hereunder may be given on behalf of any party by its
counsel or other authorized representative.
10.3 ENTIRE AGREEMENT. This Agreement, including the Schedules and Exhibits
referred to herein and the other writings specifically identified herein or
contemplated hereby or delivered in connection with the transactions
contemplated hereby, is complete, reflects the entire agreement of the parties
with respect to its subject matter, and supersedes all previous written or oral
negotiations, commitments and writings other than the Confidentiality Agreement.
10.4 ASSIGNABILITY. This Agreement shall be assignable by Buyer to a
corporation or partnership controlling, controlled by or under common control
with Buyer
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although no such assignment shall relieve Buyer of any liabilities or
obligations under this Agreement, but this Agreement may not be assigned or
delegated by the Stockholder, the Company, LPAB or LAAB without the prior
written consent of Buyer. This Agreement and the obligations of the parties
hereunder (including specifically but without limitation the Indemnification
obligations of the Stockholder set forth in Section 9) shall be binding upon and
enforceable by, and shall inure to the benefit of, the parties hereto and their
respective successors, executors, administrators, estates, heirs and permitted
assigns, and no others.
10.5 PUBLICITY AND DISCLOSURES. Until the Closing, so long as this
Agreement is in effect, neither the Stockholder, the Company, LPAB, LAAB or
Buyer nor any of their respective subsidiaries or affiliates shall issue or
cause the publication of any press release or other announcement or disclosure
(including, without limitation, any such announcement or disclosure to employees
or customers of the Company) with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of Buyer, in the case of a
desired press release or announcement by the Stockholder, or the Stockholder, in
the case of a desired press release or announcement by Buyer, in any such case
which consent shall not be unreasonably withheld, except to the extent
disclosure by Buyer is required by any applicable law or regulation, by any
authorized administrative or governmental agency or, in the opinion of counsel
to Buyer, by virtue of Buyer's status as a publicly reporting company pursuant
to applicable requirements of the securities laws or any stock exchange or
self-regulatory organization. Notwithstanding what is stated above both the
parties shall on the execution of this Agreement make Press Releases in the form
of EXHIBIT I (the "Press Releases" to the public.
10.6 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
10.7 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "affiliate" of a person shall mean a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
policies of a
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person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise;
(c) "Dollars" or "$" means U.S. dollars;
(d) "person" means an individual, corporation, partnership, association,
trust or any unincorporated organization; and
(e) "SEK" means Swedish krona.
10.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same document.
10.9 AMENDMENTS; WAIVERS. This Agreement may not be amended or modified,
nor may compliance with any condition or covenant set forth herein be waived,
except by a writing duly and validly executed by Buyer, the Company and the
Stockholder, or, in the case of a waiver, the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any such right, power or privilege, or any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege.
10.10 Dispute Resolution.
------------------
(a) Buyer and the Stockholder mutually encourage the prompt, efficient and
equitable settlement of disputes and disagreements arising out of or relating to
this Agreement, any Exhibits hereto or any of the transactions contemplated
hereby. Any such dispute or disagreement between or among any of the parties to
this Agreement shall be determined as set forth in this Section 10.10, except as
otherwise specifically provided in Section 1.3 with respect to the determination
of the Adjustment Amount, unless the manner of resolution of the matter is
otherwise specifically provided for in this Agreement or otherwise agreed by all
parties to the dispute.
(b) Any dispute, controversy or claim arising out of or in connection with
this Agreement or any Exhibits hereto, or the breach, termination or invalidity
thereof, shall be finally settled by arbitration in accordance with the Rules of
the Arbitration Institute of the Stockholm Chamber of Commerce. The arbitral
tribunal shall be
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composed of three arbitrators. The place of arbitration shall be Stockholm. The
language to be used in the arbitral proceedings shall be English.
10.11 CERTAIN REMEDIES; SEVERABILITY. In case any of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, any such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had been limited or modified (consistent with its general intent) to
the extent necessary to make it valid, legal and enforceable, or if it shall not
be possible to so limit or modify such invalid, illegal or unenforceable
provision or part of a provision, this Agreement shall be construed as if such
invalid, illegal or unenforceable provision or part of a provision had never
been contained in this Agreement.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date set forth above by their duly authorized representative.
BUYER
-----
CABOT SAFETY CORPORATION
ATTEST:
By:
- ---------------------------------- ---------------------------
[ ], secretary PELTOR HOLDING AB
ATTEST:
By:
- ---------------------------------- ---------------------------
[ ], secretary ACTIVE I MALMO AB (publ.)
ATTEST:
By:
- ---------------------------------- ---------------------------
[ ], secretary LEIF PALMAER INVEST AB
ATTEST:
By:
- ---------------------------------- ---------------------------
[ ], secretary LEIF ANDERSSON INVEST AB
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<PAGE> 54
ATTEST:
By:
- ---------------------------------- --------------------------
[ ], secretary
EXHIBIT A
---------
FORM OF APPOINTMENT LETTER
Ernst & Young is hereby requested to solve the dispute described in EXHIBIT
hereto between the parties to the Stock Purchase Agreement dated April 25, 1996,
all in accordance with SECTION 1.3(b) of the Stock Purchase Agreement. A copy of
the Stock Purchase Agreement is enclosed hereto. For this purpose Ernst & Young
shall have full access to all working papers, records and books relating to the
audit and drawing up of the Closing Statements (as defined in the Stock Purchase
Agreement).
Place:
Date:
- ------------------------------ ---------------------------------
CABOT SAFETY CORPORATION PELTOR HOLDING AB
- ------------------------------ ---------------------------------
ACTIVE I MALMO AB (publ.) LEIF PALMAER INVEST AB
- ------------------------------
LEIF ANDERSSON INVEST AB
1
<PAGE> 55
EXHIBIT B
---------
FORM OF NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT dated this 25 day of April, 1996 by and among
Cabot Safety Corporation, a Delaware corporation ("Buyer"), Peltor Holding AB, a
Swedish corporation (the "Company"), Leif Palmaer Invest AB, a Swedish
corporation ("LPAB"), Leif Andersson Invest AB, a Swedish corporation ("LAAB"),
(the Company, LPAB and LAAB collectively referred to as the "Companies"), and
Active i Malmo AB, a Swedish corporation (the "Stockholder") executed and
delivered pursuant to a certain Stock Purchase Agreement dated as of April 25,
1996 pursuant to which Buyer is purchasing from the Stockholder shares of the
capital stock of the Company, all of the outstanding shares of the capital stock
of LPAB and all of the outstanding shares of the capital stock of LAAB (the
"Stock Purchase Agreement"). Capitalized terms used in this Agreement and not
defined herein shall have the respective meanings ascribed to them in the Stock
Purchase Agreement.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Stockholder owns of record and beneficially 278.050 shares of
the outstanding and issued capital stock of the Company (the "Company Shares"),
LPAB owns of record and beneficially 300.000 shares of the outstanding and
issued capital stock of the Company and LAAB owns of record and beneficially
300.000 shares of the outstanding and issued capital stock of the Company, such
878.050 shares all having a par value of SEK 5 and constituting the entire
issued capital stock of the Company (said shares being referred to herein as the
"Common Stock"); and
WHEREAS, the Stockholder owns of record and beneficially all of the issued
and outstanding capital stock of (x) LPAB, consisting of 500 shares with a par
value per share of SEK100 (said shares being referred to herein as the "LPAB
Shares") and (y) LAAB consisting of 500 shares with a par value per share of
SEK100 (said shares being referred to herein as the "LAAB Shares"); and
WHEREAS, the Stockholder desires to transfer to Buyer all of the Company
Shares, LPAB Shares and LAAB Shares and the execution and delivery by the
Stockholder of this Agreement is a condition precedent to the obligations of
Buyer under the Stock Purchase Agreement.
1
<PAGE> 56
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. NON-COMPETITION
- ------------------------------
(a) NON-COMPETITION AGREEMENT. The Stockholder hereby agrees that during
the period commencing on the date of the Closing and ending on the date which is
five (5) years after the date hereof, the Stockholder will not, without the
express written consent of Buyer, directly or indirectly, in the existing
markets, engage in any activity which is, or participate or invest in or assist
(whether as owner, part-owner, shareholder, partner, or in any other capacity)
any business organization whose activities, products or services include the
manufacture, distribution or sale in the existing markets of products of the
kind currently manufactured by the Company. Without implied limitation, the
foregoing covenant shall include (i) hiring or attempting to hire for or on
behalf of any such competitor any officer, employee or consultant named on
Schedule 2.23(a) in the Stock Purchase Agreement, (ii) soliciting or encouraging
any officer or employee of the Company, Buyer or their respective affiliates to
terminate his or her relationship or employment with the Company, Buyer or any
of their respective affiliates, soliciting for or on behalf of any such
competitor any client of the Company, Buyer or any of their respective
affiliates, and diverting to any Person (as hereinafter defined) any client or
business opportunity of the Company, Buyer or any of their respective
affiliates. For purposes of this Agreement, (x) the term "Person" shall mean an
individual, a corporation, an association, a partnership, an estate, a trust,
and any other entity or organization and (y) the term "affiliate" shall mean, as
to any Person, (i) each direct or indirect Subsidiary (as defined in Section 2.3
below) of such Person, (ii) each other Person of which such Person is a direct
or indirect Subsidiary, and (iii) each other direct or indirect Subsidiary of
such other Person.
(b) GEOGRAPHIC AREA. The provisions of Section 1(a) of this Agreement shall
apply in the following geographic areas:
(i) All countries in which the Company is currently conducting any business
activities;
(ii) All countries in which the Company is currently contemplating the
commencement of business activities;
SECTION 2. SCOPE OF AGREEMENT
- ---------------------------------
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The parties acknowledge that the time, scope, geographic area and other
provisions of this Agreement have been specifically negotiated by sophisticated
commercial parties and agree that (a) all such provisions are reasonable under
the circumstances of the transactions contemplated by the Stock Purchase
Agreement, (b) are given as an integral and essential part of the transactions
contemplated by the Stock Purchase Agreement and (c) but for the covenants of
the Stockholder contained in this Agreement, the parties to the Stock Purchase
Agreement would not enter into the Stock Purchase Agreement or consummate the
transactions contemplated thereby. The Stockholder has independently consulted
with his counsel and has been advised in all respects concerning the
reasonableness and propriety of the covenants contained herein, with specific
regard to the business conducted by the Company.
SECTION 3. SPECIFIC PERFORMANCE; SEVERABILITY
- -------------------------------------------------
It is specifically understood and agreed that any breach of the provisions
of this Agreement by the Stockholder will result in irreparable injury to Buyer
and the Company, that the remedy at law alone will be an inadequate remedy for
such breach and that, in addition to any other remedy it may have, Buyer and the
Company shall be entitled to enforce the specific performance of this Agreement
by the Stockholder through both temporary and permanent injunctive relief
without the necessity of proving actual damages. In the event that any covenant
contained in this Agreement shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its extending for too great a
period of time or over too great a geographical area or by reason of its being
too extensive in any other respect, it shall be interpreted to extend only over
the maximum period of time for which it may be enforceable and/or over the
maximum geographical area as to which it may be enforceable and/or to the
maximum extent in all other respect as to which it may be enforceable, all as
determined by such court in such action. The existence of any claim or cause of
action which the Stockholder may have against Buyer or the Company shall not
constitute a defense or bar to the enforcement of any of the provisions of this
Agreement and shall be pursued through separate court action by the Stockholder.
SECTION 4. MISCELLANEOUS
- ----------------------------
(a) All notices, requests, demands and other communications hereunder shall
be given in accordance with Section 10.2 of the Stock Purchase Agreement.
(b) The failure of any of the parties to require the performance of a term
or obligation or to exercise any right under this Agreement or the waiver of any
breach hereunder shall not prevent subsequent enforcement of such term or
obligation or exercise of such right or the
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enforcement at any time of any other right hereunder or be deemed a waiver of
any subsequent breach of the provision so breached, or of any other breach
hereunder. This Agreement shall inure to the benefit of, and be binding upon,
successors of Buyer or the Company by way of merger, consolidation or transfer
of substantially all the assets of Buyer or the Company, and may not be assigned
by the Stockholder. This Agreement supersedes all prior understandings and
agreements between the parties relating to the subject matter hereof (without
limitation of the Stock Purchase Agreement).
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first set forth above.
ACTIVE I MALMO AB (publ.)
By:________________________________
CABOT SAFETY CORPORATION
By:________________________________
PELTOR HOLDING AB
By:________________________________
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EXHIBIT C
---------
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of April 25, 1996, by and among Cabot Safety
Corporation, ("Buyer"), and ACTIVE i Malmo AB (publ), ("Stockholder") and SE
Banken ("Escrow Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Stockholder and Buyer entered into that certain Stock Purchase
Agreement, dated as of April 25, 1996 (the "Stock Purchase Agreement");
WHEREAS, as contemplated by the Stock Purchase Agreement, upon the closing
of the transactions contemplated by the Stock Purchase Agreement, Buyer will
deposit the sum of U.S.$10.0 million in cash (the "Escrow Funds") in escrow for
the purpose of providing security for the payments of any Adjustment Amount in
accordance with Section 1.3 of the Stock Purchase Agreement;
WHEREAS, the parties hereto desire that Escrow Agent be appointed as escrow
agent to act in accordance with the terms and conditions hereof;
NOW, THEREFORE, Stockholder and Buyer agree with Escrow Agent as follows:
ARTICLE 1. APPOINTMENT
- --------------------------
1.1 Stockholder and Buyer hereby appoint Escrow Agent to act as escrow agent in
accordance with the terms thereof, and Escrow Agent hereby accepts such
appointment.
1.2 As contemplated by the Stock Purchase Agreement, upon the closing of the
transactions contemplated by the Stock Purchase Agreement, Buyer will deposit
the Escrow Funds in the name of Escrow Agent at a bank or similar financial
institution agreed on by Stockholder and Buyer (the "Bank"). Escrow Agent hereby
agrees to hold and dispose of the Escrow Funds in accordance with the provisions
of this Agreement.
1.3 Escrow Agent will hold the Escrow Funds, in the name of Escrow Agent, at the
Bank. Neither Buyer, Stockholder, nor Escrow Agent will be responsible for any
losses resulting from
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investments of the Escrow Funds or failure or insolvency of the Bank. Any
interest or other income earned on any investment of the Escrow Funds shall be
handled by Escrow Agent as provided for in Section 2.3.
ARTICLE 2. RELEASE AND INVESTMENT OF ESCROW FUNDS
- -----------------------------------------------------
2.1 The Provisions of this Section 2.1 shall apply from the date hereof with
respect to payments required to be made under Sections 1.3 of the Stock Purchase
Agreement. Escrow Agent will release the Escrow Funds from escrow and deliver
the Escrow Funds as provided in Section 2.1(a).
(a) Escrow Agent shall release the Escrow Funds or parts thereof to Buyer,
Stockholder and/or the Dispute Accountants in the amounts stated in the Escrow
Release Notice upon receipt of
(i) an Escrow Release Notice executed by authorized officers of both Buyer
and Stockholder in accordance with Section 1.3(c)(i) of the Stock Purchase
Agreement, or
(ii) an Escrow Release Notice executed by an authorized officer of Buyer
and including a final determination by the Dispute Accountants stating the
amount of the Adjustment Amount, or
(iii) an Escrow Release Notice executed by an authorized officer of the
Buyer and including a Termination Letter from Stockholder entitling Buyer to
liquidated damages of SEK 6,700,000.
2.2 The Escrow Agent agrees to invest and reinvest as directed from time-to-time
at the joint written direction of the Buyer and Stockholder. The parties shall
select investments that can be readily converted into US$10.0 million in cash.
The Escrow Agent may hold all investments in nominee name. The Escrow Agent
shall not be liable to Buyer, the Stockholder, or the Stockholder for any claim
related to the investment or management of the Escrow Funds, provided that the
Escrow Agent complies with the joint written directives of Buyer and
Stockholder.
2.3 All interest or other income earned with respect to the investment of the
Escrow Funds by the Escrow Agent during the period of this escrow arrangement
shall accrue and be held by the Escrow Agent for the benefit of the parties, in
the proportion as each party finally receives the Escrow Funds as if they were
Escrow Funds. All such interest or other income shall be disbursed pursuant to
this Section 2.3.
2.4 If Buyer and Stockholder cannot resolve any dispute relating to the release
from escrow of the Escrow Funds, then such dispute shall be solved in the manner
stated for dispute resolution in
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Section 10.10 of the Stock Purchase Agreement. Escrow Agent shall deliver the
Escrow Funds as may be determined in such arbitration.
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ARTICLE 3. CONCERNING THE AGENT
- -----------------------------------
3.1 Escrow Agent may confer with legal counsel in the event of any dispute or
question as to the construction of the provisions hereof, or its duties
hereunder, and it shall incur no liability and it shall be fully protected in
acting in accordance with the opinions of such counsel.
3.2 (a) Subject to the provisions of Section 3.2(b), in the event of any
conflicting or inconsistent claims or demands being made in connection with the
subject matter of this Agreement, or in the event that Escrow Agent is in doubt
as to what action it should take hereunder, Escrow Agent may, at its option,
refuse to comply with any claims or demands on it, or refuse to take any other
action hereunder so long as such disagreement continues or such doubt exists,
and in any such event, Escrow Agent shall be entitled to continue to refrain
from acting until (i) the rights of all parties have been fully and finally
adjudicated in accordance with Section 10.10 in the Stock Purchase Agreement, or
(ii) all differences shall have been settled and all doubt resolved by agreement
among all of the interested parties, and Escrow Agent shall have been notified
thereof in writing signed by all such parties.
(b) Escrow Agent, Buyer and Stockholder acknowledge and agree that Escrow
Agent is not entitled to exercise any rights under Section 3.2(a) in the event
that a proper Escrow Release Notice has been delivered to Escrow Agent pursuant
to Section 2.1(a).
3.3 Escrow Agent shall not be liable for anything which it may do or refrain
from doing in connection with this Agreement, except for its own negligence or
wilful misconduct. The Buyer and Stockholder jointly and severally agree to
indemnify Agent for, and to hold it harmless against, any loss, liability or
expense (including, without limitation, reasonable attorney's fees) incurred by
it without negligence or wilful misconduct on its part arising out of or in
connection with its entering into this Agreement and the carrying out of its
duties hereunder, including the costs and expenses of defending itself against
any claim of liability in the premises.
3.4 Escrow Agent may resign for any reason, upon thirty (30) days written notice
to the parties to the Agreement. Upon expiration of such thirty (30) day notice
period, Escrow Agent may deliver all cash and other property in its possession
under this Agreement to any successor escrow agent appointed by the Buyer and
Stockholder. Upon such delivery, Escrow Agent shall be released from any and all
liability under this Agreement. A termination under this Section shall in no way
discharge Sections 3.2, 3.3 and 3.5 of this Article 3 affecting reimbursement of
expenses, indemnity, and fees. Escrow Agent shall have the right to deduct from
the property to be transferred to any successor agent any unpaid fees.
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3.5 Buyer and Stockholder will each be jointly and severally liable to Escrow
Agent for the fees of the Escrow Agent and the expenses, if any, reasonably
incurred by Escrow Agent pursuant to this Agreement. Buyer and Stockholder
hereby agree, as between themselves, that each will pay a proportion of such
fees and expenses incurred by Escrow Agent pursuant to this Agreement as
corresponds to the proportion of the Escrow Funds that finally is paid to the
other party. Escrow Agent shall be entitled to retain from any disbursements
requested hereunder any outstanding fees and/or expenses due to it hereunder.
Escrow Agent is hereby granted a lien on the Escrow Funds for all indebtedness
that may become owing to Escrow Agent pursuant to this Agreement, which may be
enforced by Escrow Agent within thirty (30) days after Escrow Agent makes demand
therefore from the parties, Escrow Agent may charge such fee against the Escrow
Funds, either against the corpus of the Escrow Funds or interest earned thereon.
3.6 It is strictly understood that Escrow Agent has no duty to disburse any
funds to any person until such funds have been collected by Escrow Agent and
those funds are available.
ARTICLE 4. MISCELLANEOUS
- ----------------------------
4.1 Escrow Agent is authorized to accept this Agreement and to take any and all
actions hereunder as it shall, in its reasonable discretion, determine to be
appropriate to effectuate this Agreement.
4.2 Escrow Agent will be protected in acting upon any written notice, request,
waiver, consent, certificate, receipt, authorization, power or attorney, or
other paper or document that Escrow Agent in good faith reasonably believes to
be genuine and reasonably believes to be what it purports to be.
4.3 This Agreement will be binding upon the parties hereto and their respective
successors and assigns.
4.4 This Agreement, and the agreements referred to herein, constitute the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby.
4.5 This agreement will be governed by, and construed and enforced in accordance
with, the internal laws of Sweden.
4.6 This agreement may be amended only by a written agreement executed by all of
the parties hereto.
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4.7 As concerns notices etc to be given under this Agreement Section 10.2 of the
Stock Purchase Agreement shall apply. Such notice etc shall be sent to the
following address of the Escrow Agent:
4.8 Each party executing this Agreement warrants that it has authority to
execute this Agreement.
4.9 This Agreement may be executed in several counterparts, and it will not be
necessary for each party to execute each of such counterparts, but when all of
the parties have executed and delivered one or more of such counterparts, the
several parts, when taken together, will be deemed to constitute one and the
same instrument, enforceable against each party in accordance with its terms.
4.10 This Agreement may be terminated upon the written agreement of Stockholder
and Buyer at any time and shall terminate when there are no remaining Escrow
Funds. Upon termination of this Agreement, Escrow Agent shall be discharged of
all responsibility hereunder at such time as Escrow Agent shall have completed
its duties hereunder; PROVIDED HOWEVER, Escrow Agent's rights to indemnify and
to receive payment of its fees and expenses shall survive any termination of
this Agreement.
-----------------------
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<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
CABOT SAFETY CORPORATION
By:_______________________________
Its:______________________________
ACTIVE I MALMO AB (publ)
By:_______________________________
Its:______________________________
SKANDINAVISKA ENSKILDA BANKEN
By:_______________________________
Its:______________________________
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EXHIBIT D
---------
FORM OF GENERAL RELEASE
This General Release is delivered pursuant to that certain Stock Purchase
Agreement (the "Stock Purchase Agreement") dated as of April 25, 1996 by and
among Cabot Safety Corporation, a Delaware corporation ("Buyer"), Peltor Holding
AB, a Swedish corporation (the "Company"), Leif Palmaer Invest AB, a Swedish
corporation ("LPAB"), Leif Andersson Invest AB, a Swedish corporation ("LAAB"),
(the Company, LPAB and LAAB collectively referred to as the "Companies"), and
Active i Malmo AB, a Swedish corporation (the "Stockholder") pursuant to which
Buyer is purchasing from the Stockholder shares of the capital stock of the
Company, all of the outstanding shares of the capital stock of LPAB and all of
the outstanding shares of the capital stock of LAAB (the "Stock Purchase
Agreement"). Capitalized terms used in this Agreement and not defined herein
shall have the respective meanings ascribed to them in the Stock Purchase
Agreement.
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the undersigned, the undersigned (the "Stockholder")
hereby releases and discharges Buyer, the Company, LPAB, LAAB and their
respective subsidiaries, each of the present and former directors, officers,
employees and agents of Buyer, the Company, LPAB, LAAB or their respective
subsidiaries, affiliates of any of the foregoing and their respective successors
and assigns (each a "Released Party") of and from any and all commitments,
indebtedness, suits, demands, obligations and liabilities of every kind and
nature, including claims and causes of action both at law and in equity, which
the Stockholder and/or the Stockholder's subsidiaries, affiliates, successors or
assigns ever had, now has or, to the extent arising from or in connection with
any act, omission or state of facts taken or existing on or prior to the Closing
Date, may have after the date hereof, against any Released Party, whether
asserted, unasserted, absolute, contingent, known or unknown, or in any role or
capacity, other than claims or causes of action arising under or pursuant to the
Stock Purchase Agreement and each document executed in connection therewith.
The Stockholder hereby represents to the Released Parties that (i) it has
not assigned any claim or possible claim against any Released Party, (ii) it
fully intends to release all claims against the Released Parties including
without limitation unknown and contingent claims (other than those specifically
reserved above), and (iii) it has consulted with counsel with respect to the
execution and delivery of this general release and has been fully apprised of
the consequences hereof.
-----------------------------
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This Stockholder's Release shall be governed by and construed in accordance
with the internal laws of Sweden.
EXECUTED as of the ___ day of May, 1996.
ACTIVE I MALMO AB (publ.)
By:____________________________________
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EXHIBIT E
---------
CONFIDENTIALITY AGREEMENT
This Agreement is in reference to the proposed disclosure by ACTIVE I MALMO
AB ("ACTIVE") and PELTOR HOLDING AB (hereinafter collectively referred to as
"PELTOR") to and for evaluation by representatives of CABOT SAFETY CORPORATION
(hereinafter referred to as "CABOT SAFETY") of certain information (hereinafter
referred to as "INFORMATION") to be delivered in written form and in meetings
with representatives of ACTIVE and PELTOR and relating to CABOT SAFETY's
evaluation of a potential acquisition (the "Acquisition") of the stock of
PELTOR. This INFORMATION may include information regarding technology, new
products, modifications to existing products, development plans, financial data,
and the general business affairs of PELTOR. PELTOR considers such INFORMATION to
be proprietary and confidential and accordingly, requires that this INFORMATION
be received and handled by CABOT SAFETY on the following basis:
CABOT SAFETY shall retain in strict confidence for a period of five (5)
years from the date hereof all of the INFORMATION and shall not disclose any
portion of the information to any third party, except that CABOT SAFETY may
disclose the INFORMATION in strict confidence to those employees, officers,
directors, advisors, representatives and agents of CABOT SAFETY who require
access to the INFORMATION for the purpose of evaluating the Acquisition, and
then only to such individuals who have been advised of this Agreement and have
agreed to maintain the strict obligation of confidence thereunder.
CABOT SAFETY shall not use any of the INFORMATION for any purpose other
than to evaluate the same as hereinabove stated.
CABOT SAFETY shall not have any obligation of confidence to PELTOR in
respect of:
1. INFORMATION which was known to CABOT SAFETY prior to any disclosure
thereof to CABOT SAFETY by PELTOR which prior knowledge on the part of CABOT
SAFETY shall be called to the attention of PELTOR within thirty (30) days after
disclosure of the INFORMATION to CABOT SAFETY by PELTOR and the existence of
which prior knowledge shall be provable only by written documents or other
tangible evidence bearing dates earlier than the date of disclosure by PELTOR.
If prior knowledge by CABOT SAFETY is not brought to the
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attention of PELTOR as hereinabove provided, it shall be conclusively resumed
that CABOT SAFETY had no such prior knowledge.
2. INFORMATION which is now in the public domain, or which in the future
enters the public domain through no fault of CABOT SAFETY (in which event CABOT
SAFETY's obligation of strict confidence in respect thereto shall terminate on
the date of entry of the INFORMATION into the public domain). INFORMATION in a
form other than a printed publication or other tangible form will not be deemed
to be in the public domain. INFORMATION shall not be deemed to be in the public
domain merely because individual elements thereof are separately found in the
public domain. INFORMATION shall not be deemed to be in the public domain merely
because it is, or parts of it are, embraced by general disclosures in the public
domain.
3. INFORMATION which is disclosed to CABOT SAFETY at any time by a third
party having right to make such disclosure to CABOT SAFETY, and without any
obligation of confidence on the part of CABOT SAFETY to third party in respect
of said disclosure.
4. INFORMATION which is released from its confidential status by the prior
written consent of PELTOR.
5. This Agreement shall be governed by and construed in accordance with the
laws of Sweden.
6. Any dispute in connection with this Agreement shall be finally settled
by arbitration in accordance with the Rules of the Arbitration Institute of the
Stockholm Chamber of Commerce. The arbitral tribunal shall be composed of three
members. The arbitration proceedings shall be conducted in the English language.
7. It is specifically understood and agreed that any breach of the
provisions of this Agreement by CABOT SAFETY will result in irreparable injury
to PELTOR, that the remedy at law alone will be an inadequate remedy for such
breach and that, in addition to any other remedy it may have, PELTOR shall be
entitled to enforce the specific performance of this Agreement by CABOT SAFETY
through both temporary and permanent injunctive relief without the necessity of
proving actual damages. The existence of any claim or cause of action which
PELTOR may have against CABOT SAFETY shall not constitute a defense or bar to
the enforcement of any of the provisions of this Agreement and shall be pursued
through separate court action by PELTOR.
CABOT SAFETY shall, promptly after it has completed its evaluation of the
INFORMATION or promptly after request by PELTOR return all INFORMATION in its
possession and at its expense to PELTOR, and shall retain no copies thereof.
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Nothing herein shall be deemed a grant of license directly or indirectly to
CABOT SAFETY under any patent application or patent of PELTOR.
IN WITNESS WHEREOF the parties have set their hand as of this 12th day of
April, 1996.
ACTIVE I MALMO AB and
PELTOR HOLDING AB
By: _____________________________
Bo Hakansson
Duly Authorized
CABOT SAFETY CORPORATION
By: _____________________________
John D Curtin, Jr
Chairman
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EXHIBIT F
---------
FORM OF COMPANY COUNSEL OPINION
We have acted as counsel for Peltor Holding AB (the "Company"), Leif
Palmaer Invest AB ("LPAB"), Leif Andersson Invest AB ("LAAB") (the Company, LPAB
and LAAB collectively referred to as the "Companies") and ACTIVE i Malmo AB
(publ) ("Seller") in connection with the sale of the shares pursuant to the
Stock Purchase Agreement between Seller, each of the Companies and Cabot Safety
Corporation ("Buyer") dated as of April [ ], 1996, (the "Stock Purchase
Agreement"). This opinion is furnished pursuant to Section 6.2(b) of the
Agreement.
1. Each of the Companies and each of the Subsidiaries is a corporation duly
organized and validly existing and in good standing if applicable under relevant
law under the laws of the jurisdiction of its incorporation.
2. The Stockholder is a corporation duly organized and validly existing and in
good standing under the laws of Sweden.
3. Each of the Companies has full right, power and authority to execute, deliver
and perform the Stock Purchase Agreement and each agreement, document and
instrument to be executed and delivered by it, as the case may be, pursuant to
the Stock Purchase Agreement (the "Related Agreement") and to consummate the
transactions contemplated thereby. The execution, delivery and performance by
each of the Companies of the Stock Purchase Agreement and each Related Agreement
has been duly and validly authorized by all necessary corporate action of each
of the Companies and the Stockholder and no further corporate proceedings on the
part of each of the Companies or the Stockholder are required in connection
therewith.
4. The Stockholder has full right, power and authority to execute, deliver and
perform the Stock Purchase Agreement and Related Agreements and to consummate
the transactions contemplated thereby. The execution, delivery and performance
by the Stockholder of the Stock Purchase Agreement and each Related Agreement
has been duly and validly authorized by all necessary corporate action of the
Stockholder and no further corporate proceedings on the part of the Stockholder
or its shareholders are required in connection therewith.
5. The Stock Purchase Agreement and each Related Agreement has been duly
executed and delivered by the Stockholder and each of the Companies. The Stock
Purchase Agreement and each
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Related Agreement constitutes the legal, valid and binding obligation of the
Stockholder and each of the Companies enforceable against such party in
accordance with its terms, except to the extent that the enforcement of any such
agreement or any right or remedy thereunder is subject to bankruptcy,
insolvency, reorganization, fraudulent conveyance, preferential transfer,
moratorium or similar laws of general application affecting creditors' rights
and to equitable principles (regardless of whether enforceability is considered
in a proceeding at law or in equity) limiting the right to obtain specific
performance or other equitable relief provided.
6. The execution and delivery by the Stockholder and each of the Companies of
the Stock Purchase Agreement and each Related Agreement ant the consummation of
the transactions contemplated thereby: (i) do not violate any provision of the
charter of the Stockholder, each of the Companies or any of their respective
subsidiaries; (ii) do not violate any statute, rule or regulation applicable to
any of the Stockholder, each of the Companies or any of its Subsidiaries or
their respective properties or, require any of the Stockholder, each of the
Companies or any of their respective subsidiaries to obtain any approval,
consent or waiver of, or to make any filing with, any governmental or regulatory
agency or administrative body or any other person or entity, in each case that
has not been obtained or made; and (iii) does not result in a breach of,
constitute a default under, accelerate any obligation under or give rise to a
right of termination of any contract or agreement known to us or any order,
writ, judgment, injunction, decree, determination or arbitration award known to
us to which any of the Stockholder, each of the Companies or any of their
respective Subsidiaries is a party or by which the property of any of the
Stockholder, each of the Companies or any of their respective Subsidiaries (as
applicable) is bound or affected, or, to our knowledge, result in the creation
or imposition of any mortgage, pledge, lien security interest or other charge or
encumbrance on any of the Company Shares or any property or asset owned by the
Stockholder, each of the Companies or any of their respective Subsidiaries;
7. To our knowledge, after due inquiry, there are no actions, suits, claims or
proceedings pending or overtly threatened in writing against any of the
Stockholder, each of the Companies or any of their respective Subsidiaries,
whether by law or in equity, or before or by any federal, state, municipal or
other governmental body, which seek to enjoin, restrain or prohibit or might
result in damages in respect of, the Stock Purchase Agreement or the complete
consummation of the transactions contemplated by the Stock Purchase Agreement;
8. Delivery of certificates for the Company Shares in registered form, issued or
endorsed to Buyer and payment therefore by Buyer as provided in the Stock
Purchase Agreement will pass to Buyer all of the rights of the Stockholder in
the Company Shares, free and clear of any and all liens, encumbrances, charges
or claims;
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9. The total authorized capital stock of the Company consists of 878.050 shares
of Common Stock of which 878.050 shares are issued and outstanding. All of the
shares of the Company's Common Stock were duly authorized and validly issued.
There are no outstanding options, warrants, rights, commitments, agreements,
understandings or preemptive rights to which the Stockholder, the Company or any
of their respective Subsidiaries are a party or by which any of them are bound
relating to the issuance or sale by the Company or any of its Subsidiaries of,
or outstanding securities convertible into or exchangeable for, any shares of
capital stock of any class of the Company or any of its Subsidiaries. The
Stockholder owns of record and beneficially 278.050 shares of the outstanding
and issued capital stock of the Company (the "Company Shares"), LPAB owns of
record and beneficially 300.000 shares of the outstanding and issued capital
stock of the Company and LAAB owns of record and beneficially 300.000 shares of
the outstanding and issued capital stock of the Company.
10. The total authorized capital stock of LPAB consists of 500 shares of Common
Stock of which 500 shares are issued and outstanding. All of the shares of
LPAB's Common Stock were duly authorized and validly issued. There are no
outstanding options, warrants, rights, commitments, agreements, understandings
or preemptive rights to which the Stockholder, LPAB or any of their respective
Subsidiaries are a party or by which any of them are bound relating to the
issuance or sale by LPAB or any of its Subsidiaries of, or outstanding
securities convertible into or exchangeable for, any shares of capital stock of
any class of LPAB or any of its Subsidiaries. The Stockholder is the owner of
all outstanding shares of LPAB.
11. The total authorized capital stock of LAAB consists of 500 shares of Common
Stock of which 500 shares are issued and outstanding. All of the shares of
LAAB's Common Stock were duly authorized and validly issued. There are no
outstanding options, warrants, rights, commitments, agreements, understandings
or preemptive rights to which the Stockholder, LAAB or any of their respective
Subsidiaries are a party or by which any of them are bound relating to the
issuance or sale by LAAB or any of its Subsidiaries of, or outstanding
securities convertible into or exchangeable for, any shares of capital stock of
any class of LAAB or any of its Subsidiaries. The Stockholder is the owner of
all outstanding shares of LAAB.
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EXHIBIT G
---------
FORM OF BUYER COUNSEL OPINION
We have acted as counsel for Cabot Safety Corporation ("Buyer") in
connection with the sale of the shares pursuant to the Stock Purchase Agreement
between Buyer and Peltor Holding AB (the "Company"), Leif Palmaer Invest AB
("LPAB"), Leif Andersson Invest AB ("LAAB") (the Company, LPAB and LAAB
collectively referred to as the "Companies") and ACTIVE i Malmo AB (publ)
("Seller") dated as of April [ ], 1996, (the "Stock Purchase Agreement"). This
opinion is furnished pursuant to Section 6.2(b) of the Agreement.
1. Buyer is a corporation organized, validly existing and in good standing
under the laws of the State of Delaware.
2. Buyer has full corporate power and corporate authority to execute and
deliver the Stock Purchase Agreement and each other agreement, document and
instrument executed and delivered by it pursuant to the Stock Purchase Agreement
(the "Related Agreements"), to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution, delivery and
performance by Buyer of the Stock Purchase Agreement and each Related Agreement
have been duly and validly authorized by all necessary corporate action of Buyer
and no further corporate proceedings on the part of Buyer are required in
connection therewith.
3. The Stock Purchase Agreement and each Related Agreement have been duly
executed and delivered by Buyer. The Stock Purchase Agreement and each related
Agreement constitutes the legal, valid and binding obligation of Buyer
enforceable against such party in accordance with its terms, except to the
extent that the enforcement of any such agreement or any right or remedy
thereunder is subject to bankruptcy, insolvency, reorganization, fraudulent
conveyance, preferential transfers, moratorium or similar laws of general
application affecting creditor's rights and to equitable principles limiting the
right to obtain specific performance or other equitable relief.
4. The execution, delivery and performance by Buyer of the Stock Purchase
Agreement and each related Agreement: (i) does not violate any provisions of the
charters or by-laws of Buyer; (ii) does not violate any law, statute. rule or
regulation applicable to Buyer or its properties or require Buyer to obtain any
approval, consent or waiver of, or make any filing with, any governmental or
regulatory agency or administrative body or, to our knowledge, to obtain other
1
<PAGE> 75
approval, consent, waiver of, or to make any filing with, any other person or
entity, in each case that has not been obtained or made; and (iii) does not and
will not result in a breach of, constitute a default under, accelerate any
obligation under or give rise to a right of termination of any contract or
agreement included as an Exhibit to Buyer's Registration Statement on Form S-4
filed with the United States Securities and Exchange Commission on _____, 1996,
or any order, writ of judgment, injunction, decree, determination or arbitration
award known to us to which Buyer is a party or by which the property of Buyer is
bound or affected, or, to our knowledge, result in the creation or imposition of
any mortgage, pledge, lien, security interest or other charge or encumbrance on
any of the capital stock of Buyer or any property or asset owned by Buyer.
2
<PAGE> 76
EXHIBIT H
---------
FORM OF BUYER'S GENERAL RELEASE
This General Release is delivered pursuant to that certain Stock Purchase
Agreement (the "Stock Purchase Agreement") date as of April 25, 1996 by and
among Cabot Safety Corporation, a Delaware corporation ("Buyer"), Peltor Holding
AB, a Swedish corporation (the "Company"), Leif Palmaer Invest AB ("LPAB"), a
Swedish corporation, Leif Andersson Invest AB ("LAAB"), a Swedish corporation
and Active i Malmo AB, a Swedish corporation (the "Stockholder") pursuant to
which Buyer is purchasing form the Stockholder all of the outstanding shares of
the capital stock of the Company, all of the outstanding shares of the capital
stock of LPAB and all of the outstanding shares of the capital stock of LAAB.
Capitalized terms used in this Agreement and not defined herein shall have the
respective meanings ascribed to them in the Stock Purchase Agreement.
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the undesigned, the undersigned (the "Buyer") hereby
releases and discharges each of the present and former directors the Company and
their respective successors and assigns (each a "Released Party") of and from
any and all commitments, indebtedness, suits, demands, obligations and
liabilities of every kind and nature, including claims and causes of action both
at law and equity, which the Buyer and/or the Buyer's subsidiaries, successors
or assigns ever had, now has or, to the extent arising from or in connection
with any act, omission or state of facts taken or existing on or prior to the
Closing Date, may have after the date hereof, against any Released Party,
whether asserted, un-asserted, absolute, contingent, known or unknown, or in any
role or capacity, other than (i) claims or causes of action arising under or
pursuant to the Stock Purchase Agreement and each document executed in
connection therewith and (ii) claims or causes of action arising from wilful
misconduct or gross negligence on the part of any Released Party.
The Buyer hereby represents to the Released Parties that (i) it has not
assigned any claim or possible claim against any Released Party, (ii) it fully
intends to release all claims against the Released Parties including without
limitation unknown and contingent claims (other than those specifically reserved
above), and (iii) it has consulted with counsel with respect to the execution
and delivery of this general release and has been fully apprised of the
consequences hereof.
This Buyer's Release shall be governed by and construed in accordance with
the internal laws of Sweden.
1
<PAGE> 77
EXECUTED as of the [ ] day of May, 1996,
CABOT SAFETY CORPORATION
By: _____________________________
2
<PAGE> 1
Exhibit 2.20
STOCK PURCHASE AGREEMENT
by and among
CABOT SAFETY CORPORATION
("Buyer"),
EASTERN SAFETY EQUIPMENT CO., INC.
(the "Company"),
Alfred H. Jacobson
and
William Klein and Jack P. Hecht as Trustees
of a certain Trust
September 19, 1995
<PAGE> 2
<TABLE>
STOCK PURCHASE AGREEMENT
INDEX
<CAPTION>
Page
<S> <C> <C> <C>
SECTION 1. SALE OF SHARES AND PURCHASE PRICE...................................................... 1
1.1 Transfer of Company Shares............................................................. 1
1.2 Purchase Price......................................................................... 1
1.3 Escrow Funds........................................................................... 2
1.4 Closing Financial Statements; Purchase Price Adjustments............................... 2
1.5 Section 338(h)(10) Election; Grossing-Up of Purchase Price............................. 4
1.6 The Stockholders Representative........................................................ 5
1.6 Closing................................................................................ 6
1.7 Further Assurances..................................................................... 7
1.8 Non-Competition and Consulting Agreements.............................................. 7
1.9 Transfer Taxes......................................................................... 7
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND JACOBSON........................................................................... 7
2A.1 Making of Representations and Warranties............................................... 7
2A.2 Organization and Qualifications of the Company......................................... 7
2A.3 Subsidiaries........................................................................... 8
2A.4 Capital Stock.......................................................................... 8
2A.5 Authority of the Company and each Stockholder.......................................... 8
2A.6 Real and Personal Property............................................................ 10
2A.7 Financial Statements; Undisclosed Liabilities......................................... 11
2A.8 Taxes................................................................................. 12
2A.9 Collectibility of Accounts Receivable................................................. 14
2A.10 Inventories........................................................................... 14
2A.11 Absence of Certain Changes............................................................ 14
2A.12 Banking Relations..................................................................... 15
2A.13 Patents, Trade Names, Trademarks, Copyrights
and Proprietary Rights................................................................ 16
2A.14 Trade Secrets and Customer Lists...................................................... 16
2A.15 Contracts............................................................................. 17
2A.16 Litigation............................................................................ 18
2A.17 Compliance with Laws.................................................................. 18
2A.18 Insurance............................................................................. 18
2A.19 Warranty and Related Matters.......................................................... 19
2A.20 Investment Banking; Brokerage......................................................... 19
2A.21 Permits; Burdensome Agreements........................................................ 19
2A.22 Transactions with Interested Persons.................................................. 20
2A.23 Employee Benefit Programs............................................................. 20
2A.24 Environmental Matters................................................................. 21
2A.25 List of Material Suppliers............................................................ 22
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
2A.26 Backlog............................................................................... 23
2A.27 Employees; Labor Matters.............................................................. 23
2A.28 Customers and Distributors............................................................ 24
2A.29 Disclosure............................................................................ 24
SECTION 2B. REPRESENTATIONS AND WARRANTIES OF THE TRUSTS.......................................... 24
2B.1 Making of Representations and Warranties.............................................. 24
2B.1 Capital Stock......................................................................... 25
2B.2 Authority of each Trust............................................................... 25
SECTION 3. COVENANTS OF THE COMPANY AND THE
STOCKHOLDERS.......................................................................... 26
3.1 Making of Covenants and Agreements.................................................... 26
3.2 Conduct of Business................................................................... 26
3.3 Consents and Approvals................................................................ 28
3.4 Breach of Representations and Warranties.............................................. 29
3.5 Acquisition Proposals................................................................. 29
3.6 No Sales of Capital Stock............................................................. 29
3.7 Pre-Closing Cooperation on Transition Planning........................................ 29
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER............................................... 30
4.1 Making of Representations and Warranties.............................................. 30
4.2 Organization of Buyer................................................................. 30
4.3 Authority............................................................................. 30
4.4 Litigation............................................................................ 30
4.5 Investment Banking; Brokerage......................................................... 31
SECTION 5. COVENANTS OF BUYER.................................................................... 31
5.1 Making of Covenants and Agreements.................................................... 31
5.2 Consents and Approvals................................................................ 31
5.3 Confidentiality....................................................................... 31
SECTION 6. CONDITIONS............................................................................ 32
6.1 Conditions to the Obligations of Buyer................................................ 32
6.2 Conditions to the Obligations of the Company,
the Stockholders and the Beneficiaries................................................ 34
SECTION 7. TERMINATION OF AGREEMENT.............................................................. 35
7.1 Termination........................................................................... 35
7.2 Effect of Termination................................................................. 35
7.3 Right to Proceed...................................................................... 36
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
SECTION 8. SURVIVAL OF WARRANTIES; FEES AND EXPENSES............................................. 36
8.1 Survival of Warranties................................................................ 36
8.2 Fees and Expenses..................................................................... 36
SECTION 9. INDEMNIFICATION....................................................................... 37
9.1 Indemnification by Jacobson........................................................... 37
9.2 Limitations on Indemnification by Jacobson............................................ 39
9.3 Indemnification by Buyer.............................................................. 40
9.4 Limitation on Indemnification by Buyer................................................ 40
9.5 Notice; Defense of Claims............................................................. 41
9.6 Satisfaction of Indemnification Obligations........................................... 42
SECTION 10. MISCELLANEOUS......................................................................... 42
10.1 Law Governing......................................................................... 42
10.2 Notices............................................................................... 42
10.3 Entire Agreement...................................................................... 43
10.4 Assignability......................................................................... 43
10.5 Publicity and Disclosures............................................................. 43
10.6 Captions and Gender................................................................... 44
10.7 Certain Definitions................................................................... 44
10.8 Execution in Counterparts............................................................. 44
10.9 Amendments; Waivers................................................................... 44
10.10 Consent to Jurisdiction and Service................................................... 44
10.11 Certain Remedies; Severability........................................................ 44
EXHIBIT A Trusts and Beneficiaries
EXHIBIT B Ownership Percentages of Company Shares
EXHIBIT C Non-Competition Agreement
EXHIBIT D Consulting Agreement
EXHIBIT E Company Counsel Opinion
EXHIBIT F General Release
EXHIBIT G Buyer Counsel Opinion
</TABLE>
(iii)
<PAGE> 5
STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT entered into as of September 19, 1995 by and among Cabot Safety
Corporation, a Delaware corporation ("Buyer"), Eastern Safety Equipment Co.,
Inc., a New York corporation (the "Company"), Alfred H. Jacobson ("Jacobson"),
for himself and as trustee of the Trusts listed on EXHIBIT A (individually, a
"Trust" and collectively, the "Trusts") (Jacobson and the Trusts being referred
to herein as the "Stockholders").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Stockholders own of record and beneficially all of the issued
and outstanding capital stock of the Company, consisting of 785 shares of the
Company's common stock, no par value per share (said shares being referred to
herein as the "Company Shares");
WHEREAS, the Stockholders desire to sell all of the Company Shares to
Buyer, and Buyer desires to acquire all of the Company Shares;
WHEREAS, each of the persons named on EXHIBIT A (the "Beneficiaries") is
the beneficial owner through his or her interest in one or more of the Trusts of
that number of Company Shares set forth opposite such Beneficiary's name on
EXHIBIT A; and
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. SALE OF SHARES AND PURCHASE PRICE.
- --------------------------------------------
1.1 TRANSFER OF COMPANY SHARES. At the Closing, the Stockholders shall
deliver or cause to be delivered to Buyer certificates representing all of the
Company Shares. Such stock certificates shall be duly endorsed in blank for
transfer or shall be presented with stock powers duly executed in blank, with
such signature guarantees and such other documents as may be reasonably required
by Buyer to effect a valid transfer of such Company Shares by the Stockholders,
free and clear of any and all liens, encumbrances, charges or claims of any
nature whatsoever.
1.2 PURCHASE PRICE. In consideration of the sale by the Stockholders to
Buyer of the Company Shares and in reliance upon the representations and
warranties of the Company, the Stockholders and Beneficiaries herein contained
and made at the Closing and subject to the satisfaction of all of the conditions
contained herein, Buyer agrees to pay to the Stockholders a total aggregate
consideration (the "Purchase Price"), which shall be allocated among the
Stockholders in accordance with their percentage ownership of Company Shares as
set forth on EXHIBIT B, equal to:
<PAGE> 6
(a) Three Million Seven Hundred Seventy-Seven Thousand Dollars
($3,777,000);
(b) plus the Escrow Funds (as defined in the Escrow Agreement),
exclusive of the interest thereon; provided, however, that if the value of the
Escrow Funds declines below $3.0 million between the date hereof and the Closing
Date as a result of any investment or other losses, Buyer shall contribute in
escrow additional cash such as to restore the value of the Escrow Funds to $3.0
million;
(c) plus or minus, as applicable, the Adjustment Amount (if any), to
be determined in accordance with Section 1.4;
(d) plus the Gross-Up Amount, if applicable, to be determined in
accordance with Section 1.5, increased or decreased, as applicable, by the
Further Gross-Up Amount as determined in accordance with Section 1.5.
Immediately prior to the Closing, the Company shall distribute to Jacobson the
assets listed on Schedule 1.2 (the "Retained Assets"). At the Closing, Buyer
shall pay to the Stockholders the amounts set forth in clause (a) above and the
Escrow Agent shall deliver the Escrow Funds, exclusive of the interest thereon,
to the Stockholders by wire transfer of immediately available funds to accounts
of the Stockholders, written notice of which accounts has been provided to Buyer
and the Escrow Agent not less than three (3) business days prior to the Closing.
1.3 ESCROW FUNDS. Buyer, the Stockholders and The First National Bank of
Boston, as escrow agent (the "Escrow Agent"), are parties to an escrow agreement
dated as of date hereof (the "Escrow Agreement") pursuant to which Buyer
delivered to the Escrow Agent the amount of Three Million Dollars ($3,000,000)
in cash (the "Escrow Funds"). At the Closing, Buyer and Jacobson shall promptly
instruct the Escrow Agent in writing immediately to deliver the Escrow Funds to
Jacobson for the account of the Stockholders and to deliver to Buyer all
interest earned on the Escrow Funds. In the event that the Closing does not
occur when all conditions set forth in Section 6.1 have been satisfied, due
solely to the willful breach by Buyer of any of its covenants or agreements
contained herein, then Buyer and Jacobson shall promptly instruct the Escrow
Agent in writing to immediately deliver the Escrow Funds, inclusive of the
interest thereon, to Jacobson. In the event that this Agreement is terminated or
the Closing does not occur for any reason other than as set forth in the
immediately preceding sentence, then Buyer and Jacobson shall promptly instruct
the Escrow Agent in writing to immediately deliver the Escrow Funds and all
interest earned thereon to Buyer.
1.4 Closing Financial Statements; Purchase Price Adjustments.
--------------------------------------------------------------
(a) As soon as practicable following the Closing, but in no event
later than February 15, 1996, Jacobson shall cause a balance sheet of the
Company as of November 30, 1995 (the "Year-End Balance Sheet") together with
statements of income, retained earnings and cash flows for the fiscal year then
ended (collectively, the "Year-End Financial
2
<PAGE> 7
Statements") to be prepared in accordance with generally accepted accounting
principles and practices, applied consistently with past reporting periods of
the Company ("GAAP") and compiled by Kantro-Smith, Certified Public Accounts
("K-S"). Buyer and its auditors, Arthur Andersen & Co. LLP ("AA") shall have the
right to review the work papers of K-S.
(b) As soon as practicable following the Closing but in no event later
than 60 days following the Closing Date, Buyer shall cause a balance sheet as of
December 31, 1995 (the "Closing Balance Sheet") to be prepared in accordance
with GAAP and audited by AA and to be delivered to Jacobson. In connection
therewith, Buyer will (i) cause a complete physical inventory as of December 31,
1995 to be performed in connection with the preparation of the Closing Balance
Sheet to be updated as of the date of the Closing. Jacobson shall have the right
to review all work papers prepared by AA. On the basis of the Closing Balance
Sheet, Buyer shall pay to the Stockholders the Adjustment Amount, if the
Adjustment Amount is a positive number, or the Stockholders, jointly and
severally, shall pay to Buyer the Adjustment Amount, if the Adjustment Amount is
a negative number; subject, however, to the rights of the Stockholders as
provided in Section 1.4(c). The "Adjustment Amount" shall be either (i) the
positive amount (if any) by which, after giving effect to the distribution of
the Retained Assets based on their respective book value, the total assets less
the total liabilities of the Company as shown on the Closing Balance Sheet
exceed (x) $2,228,000 minus (y) the book value of the Retained Assets as
reflected in the Company's balance sheet as of November 30, 1994 referred to in
Section 2A.7(a)(i), or (ii) the negative amount (if any) by which, after giving
effect to the distribution of the Retained Assets based on their respective book
value, the total assets less the total liabilities of the Company as shown on
the Closing Balance Sheet are less than (x) $2,228,000 minus (y) the book value
of the Retained Assets as reflected in the Company's balance sheet as of
November 30, 1994 referred to in Section 2A.7(a)(i).
(c) Within 15 business days after Buyer's delivery of the Closing
Balance Sheet, Jacobson may deliver written notice (the "Protest Notice") to
Buyer of any objections, and the basis therefor, which Jacobson may have to the
Closing Balance Sheet. The failure of Jacobson to deliver such Protest Notice
within the prescribed time period will constitute Stockholders' acceptance of
the Closing Balance Sheet as delivered by Buyer. During the 10 business days
following Buyer's receipt of the Protest Notice, Buyer and Jacobson shall
attempt to resolve any disagreement with respect to the Closing Balance Sheet
and the appropriateness thereof. If at the end of the period specified in the
immediately preceding sentence, Buyer and Jacobson shall have failed to resolve
the disagreement specified in the Protest Notice, the items in dispute shall be
referred to Price Waterhouse & Co. (the "Dispute Accountants") for final
determination within 45 days. This provision for arbitration shall be
specifically enforceable by the parties, and the determination of the Dispute
Accountants in accordance with the provisions hereof shall be final and binding
upon Buyer and the Stockholders with no right of appeal therefrom. The
arbitration shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in Boston, Massachusetts. The fees
and expenses of the Dispute Accountants shall be paid by the party (I.E., Buyer,
on the one hand, or the Stockholders, on the other hand) whose last proposed
offer for the settlement of the items in dispute, taken as a whole, was farther
away
3
<PAGE> 8
from the final determination of the Dispute Accountants; PROVIDED HOWEVER, that
if the allocation of the Dispute Accountants' fees and expenses pursuant to this
paragraph is not feasible, the Dispute Accountants shall determine such
allocation among Buyer and the Stockholders in their discretion.
(d) The Stockholders, jointly and severally, and Buyer agree that
within 5 days after the final determination of the Closing Balance Sheet the
Stockholders shall pay to Buyer or Buyer shall pay to the Stockholders, as the
case may be, the Adjustment Amount and in the event that an Adjustment Amount is
due from the Stockholders but is not paid when due, such obligation may be
satisfied by set-off against any amounts payable to any Stockholder pursuant to
this Agreement or any other agreement contemplated hereby. If the Adjustment
Amount (exclusive of the Dispute Accountants' fees and expenses) exceeds
$50,000, interest shall accrue thereon and be payable therewith from the date of
the Closing to the day preceding the date of payment at the annual rate of 10%.
1.5 Section 338(h)(10) Election; Grossing-Up of Purchase Price.
----------------------------------------------------------
(a) With respect to the acquisition of the Company Shares hereunder,
(i) if Buyer and the Stockholders reach agreement on the matters described in
Section 1.5(b)(i) and (ii) hereof, Buyer shall have the right on or after the
Closing to make a timely election under Section 338(g) of the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) if Buyer makes such an election,
then (A) at the time of such election Buyer shall be obligated to make the
payments to the Stockholders specified in Section 1.5(b)(i), and shall deliver
to the Stockholders binding agreements to the effect described in Section
1.5(b)(ii) hereof, (B) the Stockholders shall be obligated, jointly with Buyer,
to make an election under Section 338(h)(10) of the Code (and any corresponding
elections under state or local tax law) (collectively, the "Section 338(h)(10)
Election"), (C) the Stockholders and Buyer shall, as promptly as practicable
following the Closing Date but not later than the date which is the fifteenth
day of the ninth month after the Closing Date, cooperate with each other to take
all actions necessary and appropriate (including timely filing of such forms,
returns, elections, schedules and other documents as may be required) to effect
and preserve a timely Section 338(h)(10) Election in accordance with Section 338
of the Code and the Treasury Regulations thereunder or any successor provisions
and (D) the Stockholders and Buyer shall report the sale of the Company Shares
pursuant to this Agreement consistent with the Section 338(h)(10) Election and
shall take no position contrary thereto in any Tax Return (as defined in Section
2A.8 hereof), any discussion with or proceeding before any taxing authority, or
otherwise.
(b) Between the date hereof and the Closing Date, Buyer and the
Stockholders shall cooperate in good faith, with the assistance of AA, on behalf
of Buyer, and K-S, on behalf of the Stockholders, to (i) determine the
difference (such difference the "Gross-Up Amount") between (A) the federal
income tax liabilities of the Stockholders as a result of the sale of the
Company Shares in the absence of the Section 338(h)(10) Election and (B) the
federal, state and local income tax liabilities of the Company and the
Stockholders as a result of the sale of the Company Shares if the Section
338(h)(10) Election is made, in each
4
<PAGE> 9
case based on appropriate and reasonable assumptions concerning applicable
income tax rates and other relevant matters (ii) agree on indemnification by
Buyer of the Stockholders with respect to possible additional tax liabilities
referred to in clause (i)(B) and related costs and expenses (including legal and
professional fees) and procedures for handling audits by or disputes with tax
authorities with respect thereto. At the Closing Buyer and the Stockholders
shall agree on the Gross-Up Amount and after the Closing, in connection with the
preparation of the Closing Balance Sheet, Buyer and the Stockholders shall
cooperate in good faith to determine any increase or decrease in such additional
federal, state and local income tax liabilities of the Company and of the
Stockholders resulting from the Section 338(h)(10) Election as a result of any
Adjustment Amount based on the same assumptions as for the determination of the
Gross-Up Amount (the "Further Gross-Up Amount"). The procedure for resolving
disputes with respect to the Adjustment Amount set forth in Section 1.4(b) shall
also apply to disputes with respect to the Gross-Up Amount and the Further
Gross-Up Amount. Upon Buyer's exercise of its right to make the Section
338(h)(10) Election, Buyer shall pay to the Stockholders the Gross-Up Amount,
increased or decreased, as the case may be, by the Further Gross-Up Amount, as
finally determined pursuant to the foregoing sentence. In connection with the
Section 338(h)(10) Election, Buyer shall, as soon as practicable following the
final determination of the Closing Balance Sheet pursuant to Section 1.4 hereof,
deliver to the Stockholders a schedule (the "Final Allocation Schedule")
indicating the allocation of the adjusted grossed-up basis deemed sales price
among the assets of the Company in accordance with section 338(b) of the Code
and any applicable Treasury Regulations (including Treasury Regulations Sections
1.338(h)(10)-1(d)(3) and 1.338(h)(10)-1(f)), all as determined by Buyer in good
faith.
(c) Subject to paragraph (b) above, Seller and Buyer (i) shall be
bound by the allocation contained in the Final Allocation Schedule for purposes
of determining any and all consequences with respect to taxes of the
transactions contemplated herein; (ii) shall be bound by the determination of
the Gross-Up Amount and the Further Gross-Up Amount; (iii) shall prepare and
file all Tax Returns to be filed with any taxing authority in a manner
consistent with such allocation; and (iv) shall take no position inconsistent
with such allocation in any Tax Return, any discussion with or proceeding before
any taxing authority, or otherwise. In the event that such allocation is
disputed by any taxing authority, the party receiving notice of such dispute
shall promptly notify and consult with the other party hereto concerning
resolution of such dispute, and no such dispute shall be finally settled or
compromised without the mutual consent of the Stockholders and Buyer, which
consent shall not be unreasonably withheld.
1.6 The Stockholders Representative.
-------------------------------
(a) By the execution and delivery of this Agreement, each of the
Stockholders hereby irrevocably constitutes and appoints Jacobson as his or her
true and lawful agent and attorney-in-fact (the "Representative"), with full
power of substitution to act in his, her or its name, place and stead with
respect to all transactions contemplated by and all terms and provisions of this
Agreement, and to act on his, her or its behalf in any dispute,
5
<PAGE> 10
litigation or arbitration involving this Agreement, and to do or refrain from
doing all such further acts and things, and execute all such documents as the
Representative shall deem necessary or appropriate in connection with the
transactions contemplated by this Agreement, including, without limitation, the
power:
(i) to act for each of the Stockholders with regard to matters
pertaining to the Closing and any adjustment to the Purchase Price pursuant
to Section 1.4 hereof; and
(ii) to act for each of the Stockholders with regard to matters
pertaining to indemnification referred to in this Agreement, including the
power to compromise any claim on behalf of any Trust and to transact
matters of litigation.
(b) If Jacobson dies or otherwise becomes incapacitated and unable to
serve as Representative, or is unwilling to serve as Representative, then Melvin
Paradise shall serve as the new Representative. The appointment of the
Representative shall be deemed coupled with an interest and shall be
irrevocable, and Buyer and any other person may conclusively and absolutely
rely, without inquiry, upon any action of the Representative on behalf of each
of the Stockholders in all matters referred to herein. All notices delivered by
Buyer, the Company (following the Closing) to the Representative (whether
pursuant hereto or otherwise) for the benefit of the Stockholders shall
constitute notice to the Stockholders. The Representative shall act for the
Stockholders on all of the matters set forth in this Agreement in the manner the
Representative believes to be in the best interest of the Stockholders and
consistent with his obligations under this Agreement, but the Representative
shall not be responsible to the Stockholders for any loss or damages it or they
may suffer by reason of the performance by the Representative of his duties
under this Agreement, other than loss or damage arising from willful violation
of the law or gross negligence in the performance of his duties under this
Agreement.
(c) All actions, decisions and instructions of the Representative
taken, made or given pursuant to the authority granted to the Representative
pursuant to paragraph (a) above shall be conclusive and binding upon each
Stockholder and its executors, heirs, legal representatives, successors and
assigns and no Stockholder shall have the right to object, dissent, protest or
otherwise contest the same.
(d) Buyer and the Company (following the Closing) shall be entitled to
rely conclusively on the instructions and decisions of the Representative as to
any actions required or permitted to be taken by the Stockholders or the
Representative hereunder, and no party hereunder shall have any cause of action
against Buyer for any action taken by any of them in reliance upon the
instructions or decisions of the Representative.
1.6 CLOSING. The transactions contemplated by this Agreement shall be
consummated at the closing (the "Closing") which will take place at the offices
of Goodwin, Procter & Hoar, Exchange Place, Boston, Massachusetts, on the later
of January 3, 1996 or
6
<PAGE> 11
the date three (3) business days following the satisfaction or waiver of the
conditions set forth in Section 6. Notwithstanding the foregoing, the Closing
may take place at such other place, time or date as may be mutually agreed upon
in writing by the Representative and Buyer. The date of the Closing is referred
to herein as the "Closing Date." Notwithstanding anything in Section 7.1 to the
contrary, in the event all conditions to Closing (other than conditions to be
fulfilled at the Closing) have been satisfied or waived on or prior to the
Outside Closing Date (as defined in Section 7.1(c)), then no party shall be
entitled to exercise its right of termination as contemplated therein by reason
of the fact that this Section 1.6 contemplates Closing following satisfaction of
waiver of conditions, such provision being included for the convenience of the
parties and their counsel in connection with the Closing.
1.7 FURTHER ASSURANCES. The Stockholders and the Representative from time
to time after the Closing at the request of Buyer and without further
consideration shall execute and deliver further instruments of transfer and
assignment and take such other action as Buyer may reasonably require to more
effectively transfer and assign to, and vest in, Buyer the Company Shares free
and clear of any and all liens, encumbrances, charges or claims and all rights
thereto, and to fully implement the provisions of this Agreement.
1.8 NON-COMPETITION AND CONSULTING AGREEMENTS. As a material inducement to
and a condition precedent of Buyer's purchase of the Company Shares, and
associated goodwill, Jacobson agrees to execute and deliver at the Closing (a) a
Non-Competition Agreement in the form of EXHIBIT C attached hereto (the
"Non-Competition Agreement") and (b) a Consulting Agreement in the form of
EXHIBIT D attached hereto (the "Consulting Agreement").
1.9 TRANSFER TAXES. All transfer taxes, fees and duties under applicable
law incurred in connection with the sale and transfer of the Company Shares
under this Agreement will be borne and paid by the Stockholders, and the
Stockholders shall promptly reimburse the Company and Buyer for any such tax,
fee or duty which it is required to pay under applicable law.
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
- ---------------------------------------------------------------
AND JACOBSON.
------------
2A.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to
Buyer to enter into this Agreement and consummate the transactions contemplated
hereby the Company and Jacobson hereby make to Buyer the representations and
warranties contained in this Section 2. The expression "Material Adverse Effect"
means a material adverse effect on the business, operations, results of
operations, properties, assets, condition (financial or otherwise) or prospects
of the Company.
2A.2 ORGANIZATION AND QUALIFICATIONS OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of New York with full corporate power and authority to own or lease its
properties and to conduct its
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business in the manner and in the places where such properties are owned or
leased and where such business is currently conducted or proposed to be
conducted. The copies of the charter documents of the Company as amended to
date, certified by the New York Secretary of State, and of the by-laws of the
Company, as amended to date, certified by the Company's Secretary, and
heretofore delivered to Buyer's counsel, are complete and correct, and no
amendments thereto are pending. The Company is duly qualified to do business as
a foreign corporation where such qualification is required under applicable law,
except where the failure to be so qualified would not have a Material Adverse
Effect.
2A.3 SUBSIDIARIES. The Company has no direct or indirect subsidiaries and
does not own any securities issued by any other business organization or
governmental authority, except U.S. Government securities, bank certificates of
deposit and money market accounts acquired as short-term investments in the
ordinary course of its business.
2A.4 Capital Stock.
-------------
(a) The total authorized capital stock of the Company consists of
1,000 shares of common stock, no par value per share (the "Common Stock"). As of
the date hereof, 785 shares of Common Stock are issued and outstanding and owned
beneficially and of record by the Stockholders. All of the issued and
outstanding shares of Common Stock are duly and validly issued, fully paid and
nonassessable. No shares of Common Stock are held in the treasury of the
Company. There are no outstanding subscriptions, options, warrants, rights,
preemptive rights, agreements, arrangements or commitments of any kind for or
relating to the issuance, sale, registration or voting of, or outstanding
securities convertible into or exchangeable for, any shares of capital stock of
any class or other equity interests of the Company.
(b) Each Stockholder owns beneficially and of record the number of
shares of Common Stock set forth opposite such Stockholder's name on EXHIBIT B,
free and clear of all pledges, liens, encumbrances, restrictions, voting
agreements or trusts, rights, claims or charges of any nature ("Claims"). Upon
delivery to Buyer at the Closing of the certificates representing the Company
Shares owned by each Stockholder duly endorsed in blank for transfer or with
stock powers attached duly executed in blank, against delivery of the Purchase
Price, good and valid title thereto shall be transferred to Buyer free and clear
of any and all Claims. Each Beneficiary has the interest specified in EXHIBIT A
in the Trusts described therein free and clear of any and all Claims.
2A.5 Authority of the Company and each Stockholder.
---------------------------------------------
(a) The Company has full right, power and authority to enter into this
Agreement and each agreement, document and instrument to be executed and
delivered by it pursuant to or as contemplated by this Agreement and to carry
out the transactions contemplated hereby and thereby. The execution, delivery
and performance by the Company of this Agreement and each such other agreement,
document and instrument have been duly
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authorized by all necessary action of the Company and its stockholders and no
other action on the part of the Company or its stockholders is required in
connection therewith. This Agreement and each agreement, document and instrument
to be executed and delivered by the Company pursuant to or as contemplated by
this Agreement constitute, or will when executed and delivered constitute, valid
and binding obligations of the Company, enforceable in accordance with their
respective terms. The execution, delivery and performance by the Company of this
Agreement and each such other agreement, document and instrument:
(i) do not and will not violate any provision of the charter or
by-laws of the Company;
(ii) do not and will not violate any laws of the United States, or any
state or other jurisdiction applicable to the Company or require the
Company to obtain any approval, consent or waiver of, or make any filing
with, any person or entity (governmental or otherwise) that has not been
obtained or made;
(iii) except as set forth on SCHEDULE 2.5, do not and will not result
in a breach of, constitute a default under, accelerate any obligation
under, require a consent under, cause a termination under, or give rise to
a right of termination of any indenture or loan or credit agreement or any
other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award, whether written or oral, to which the Company is a party
or by which the property of the Company is bound or affected, or result in
the creation or imposition of any mortgage, pledge, lien, security interest
or other charge or encumbrance on any of the assets of the Company.
(b) Jacobson has full right, authority, power and capacity to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by him pursuant to or as contemplated by this Agreement and to
carry out the transactions contemplated hereby and thereby. This Agreement and
each agreement, document and instrument to be executed and delivered by Jacobson
pursuant to or as contemplated by this Agreement constitute, or when executed
and delivered will constitute, valid and binding obligations of Jacobson,
enforceable in accordance with their respective terms. The execution, delivery
and performance by Jacobson of this Agreement and each such agreement, document
and instrument:
(i) do not and will not violate any laws of the United States, or any
state or other jurisdiction applicable to Jacobson or require Jacobson to
obtain any approval, consent or waiver of, or make any filing with, any
person or entity (governmental or otherwise) that has not been obtained or
made;
(ii) do not and will not result in a breach of, constitute a default
under, accelerate any obligation under or give rise to a right of
termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien,
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lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which Jacobson is a party or by which
the property of Jacobson is bound or affected, or result in the creation or
imposition of any mortgage, pledge, lien, security interest or other charge
or encumbrance on any of the assets or properties of the Company.
2A.6 Real and Personal Property.
--------------------------
(a) REAL PROPERTY. The Company does not own any real property. The
real property identified as being leased by the Company on Schedule 2.6(a) is
collectively referred to herein as the "Leased Real Property". The Leased Real
Property constitutes all the real property used or occupied by the Company in
the conduct of its business. The Company has a valid leasehold interest in all
of the Leased Real Property leased by it, free and clear of all liens and
encumbrances of any nature.
(i) DESCRIPTION. The Leased Real Property is the size and contains the
improvements, amenities and tenant spaces of the description and quantity
set forth in SCHEDULE 2.6(a).
(ii) LEASES. All of the leases of any of the Leased Real Property
(collectively, the "Leases") are as set forth on SCHEDULE 2.6(a). The
copies of the Leases delivered or furnished by the Company to Buyer
constitute all of the leases or tenancy agreements of or with respect to
the Leased Real Property, and are complete and correct. All Leases are
currently in full force and effect. Each party to the Leases has performed
all of its obligations under each of such Leases in all respects and is not
in default thereunder. Except as disclosed on SCHEDULE 2.6(a)(ii), the
consummation of the transactions contemplated by this Agreement will not
result in any modification, termination, breach or default or require any
consent under any Lease.
(iii) COMMISSIONS. There are no brokerage or leasing fees or
commissions or other compensation due or payable on an absolute or
contingent basis to any person, firm, corporation, or other entity with
respect to or on account of any of the Leases, or the Leased Real Property,
and no such fees, commissions or other compensation shall, by reason of any
existing agreement, become due after the date hereof.
(iv) PHYSICAL CONDITION. To the knowledge of the Company and Jacobson,
there is no material defect in the physical condition of or in any
improvements located on or constituting a part of the Leased Real Property.
(v) COMPLIANCE. To the knowledge of the Company and Jacobson, the
construction, installation, use and operation of the Leased Real Property
or the improvements thereon were and are in compliance, in all material
respects, with all applicable municipal and governmental laws, ordinances,
regulations, licenses, permits and authorizations.
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(vi) SERVICE CONTRACTS. A complete and correct list of all material
existing service, management, supply or maintenance or equipment lease
contracts and other contractual agreements to which the Company is a party
affecting the Leased Real Property or any portion thereof (the "Service
Contracts") is set forth on SCHEDULE 2.6(a)(vi). Each of the Service
Contracts is currently valid and in full force and effect and, with respect
to each of the Service Contracts, no situation exists which, with the
passage of time or notice or both, would cause the Company to be in default
thereunder, except where such default would not have a Material Adverse
Effect. All such Service Contracts are terminable upon no more than 30 days
written notice, at no cost, except as specified in SCHEDULE 2.6(a)(vi).
(b) PERSONAL PROPERTY. A complete description of the machinery,
equipment and other fixed assets ("Equipment") of the Company, and a complete
description of the location of such machinery, equipment and other fixed assets,
is contained in SCHEDULE 2.6(b) hereto. The Equipment is all of the personal
property used in the operation of the Company and is all of the personal
property necessary for the continued operation of the Company or the use of the
Leased Real Property. Except as specifically disclosed in SCHEDULE 2.6(b) or in
the Base Balance Sheet (as hereinafter defined), the Company has good and
marketable title to all of the personal property owned by it. None of such
personal property or assets is subject to any mortgage, pledge, lien,
conditional sale agreement, security title, encumbrance or other charge except
as specifically disclosed in SCHEDULE 2.6(b). The Base Balance Sheet reflects
all personal property of the Company, subject to dispositions and additions in
the ordinary course of business consistent with this Agreement. Except as
otherwise specified in SCHEDULE 2.6(b) hereto, the Equipment is in generally
good repair, normal wear and tear excepted, has been well maintained, and
conforms in all material respects with all applicable ordinances, regulations
and other laws.
2A.7 Financial Statements; Undisclosed Liabilities.
---------------------------------------------
(a) The Company has previously delivered to Buyer the following
financial statements:
(i) Balance sheets of the Company as of November 30, 1988, 1989, 1990,
1991, 1992, 1993 and 1994 and statements of income, retained earnings and
cash flows for the fiscal years then ended, compiled by K-S (the "Compiled
Financial Statements"); and
(ii) An unaudited consolidated balance sheet of the Company as of May
31, 1995 and statements of income, retained earnings and cash flows for the
six month period then ended, compiled by K-S and certified by Jacobson (the
"Unaudited Financial Statements").
The balance sheet as of November 30, 1994 included in the Compiled Financial
Statements is referred to herein as the "Base Balance Sheet." All financial
statements set forth above have
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been prepared in accordance with generally accepted accounting principles
applied consistently during the periods covered thereby (except that the
Unaudited Financial Statements are not accompanied by footnotes and are subject
only to normal year-end audit adjustments), are complete and correct in all
material respects and present fairly in all material respects the financial
condition of the Company at the dates of said statements and the results of its
operations for the periods covered thereby.
(b) As of the date of the Base Balance Sheet, the Company had no
liabilities of any nature, whether accrued, absolute, contingent, asserted or
unasserted, known or unknown (including without limitation liabilities as
guarantor or otherwise with respect to obligations of others, or liabilities for
taxes due or then accrued or to become due or contingent or potential
liabilities relating to activities of the Company or the conduct of its
businesses prior to the date of the Base Balance Sheet regardless of whether
claims in respect thereof had been asserted as of such date), which liabilities,
when taken individually or in the aggregate, are material, except liabilities
stated or adequately reserved against on the Base Balance Sheet or reflected in
Schedules furnished to Buyer hereunder as of the date hereof.
(c) As of the date hereof, the Company does not and as of the Closing
the Company will not have any liabilities of any nature, whether accrued,
absolute, contingent, asserted or unasserted, known or unknown (including
without limitation liabilities as guarantor or otherwise with respect to
obligations or others, or liabilities for taxes due or then accrued or to become
due or contingent or potential liabilities relating to activities of the Company
or the conduct of its business prior to the date hereof or the Closing, as the
case may be, regardless of whether claims in respect thereof had been asserted
as of such date), except liabilities (i) stated or adequately reserved against
on the latest balance sheet included in the Unaudited Financial Statements or
the notes thereto, (ii) reflected in Schedules furnished to Buyer hereunder on
the date hereof, or (iii) incurred after the date of the latest balance sheet
included in the Unaudited Financial Statements in the ordinary course of
business of the Company consistent with the terms of this Agreement.
2A.8 Taxes.
-----
(a) The Company has paid or caused to be paid all federal, state,
local, municipal, foreign, and other taxes, including without limitation income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), required to be paid by
it through the date hereof, whether disputed or not.
(b) The Company has in accordance with applicable law filed all
federal, state, local and foreign tax returns required to be filed by it through
the date hereof, and all such returns correctly and accurately set forth the
amount of any Taxes relating to the
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applicable period. A list of all federal, state, local and foreign income tax
returns filed with respect to the Company after 1987 is set forth in SCHEDULE
2.8 attached hereto, and said SCHEDULE 2.8 indicates those returns that have
been audited or currently are the subject of an audit. For every taxable period
of the Company ended on or after November 30, 1989, the Company has delivered to
Buyer complete and correct copies of all federal, state, local and foreign
income tax returns, examination reports and statements of deficiencies assessed
against or agreed to by the Company. SCHEDULE 2.8 attached hereto sets forth all
federal tax elections under the Internal Revenue Code of 1986, as amended (the
"Code"), that are in effect with respect to the Company or for which an
application by the Company is pending.
(c) Neither the Internal Revenue Service nor any other governmental
authority is now asserting or, to the knowledge of the Company or Jacobson,
threatening to assert against the Company any deficiency or claim for additional
Taxes. No claim has ever been made by an authority in a jurisdiction where the
Company does not file reports and returns that the Company is or may be subject
to taxation by that jurisdiction. There are no security interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax. The Company has not entered into a closing agreement
pursuant to Section 7121 of the Code.
(d) Except as set forth in SCHEDULE 2.8 attached hereto, there has not
been any audit of any tax return filed by the Company, no audit of any tax
return of the Company is in progress, and the Company has not been notified by
any tax authority that any such audit is contemplated or pending. Except as set
forth in SCHEDULE 2.8, no extension of time with respect to any date on which a
tax return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes.
(e) The Company has never consented to have the provisions of Section
341(f)(2) of the Code applied to it. The Company has not agreed to, and the
Company has not been requested by any governmental authority to, make any
adjustments under Section 281(a) of the Code by reason of a change in accounting
method or otherwise. The Company has never made any payments, is not obligated
to make any payments, and is not a party to any agreement that under certain
circumstances would obligate it to make any payments, that will not be
deductible under Section 280G of the Code. The Company has disclosed on its
federal income tax returns all positions taken therein that could give rise to a
penalty for underpayment of federal Tax under Section 6662 of the Code. The
Company has never had any liability for unpaid Taxes because it is a member of
an "affiliated group" (as defined in Section 1504(a) of the Code). The Company
has never filed, and has never been required to file, a consolidated, combined
or unitary tax return with any entity. Except as set forth in SCHEDULE 2.8
attached hereto, the Company is not a party to any tax sharing agreement.
(f) SCHEDULE 2.8 sets forth the following information with respect to
the Company as of the most recent practicable date (as well as on an estimated
pro forma basis as of the Closing Date giving effect to the consummation of the
transactions contemplated
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hereby): the tax basis of the Company in its assets and liabilities and the
amount of any unused and unexpired net operating loss, net capital loss,
investment credit, foreign tax credit, other credit or excess charitable
contribution carryforwards of the Company;
(g) The Company computes its federal taxable income under the accrual
method of accounting. For purposes of computing taxable income, all, if any,
inventories of the Company are maintained on a first-in, first-out ("FIFO")
basis.
(h) For purposes of this Section 2A.8, all references to Sections of
the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
2A.9 COLLECTIBILITY OF ACCOUNTS RECEIVABLE. All of the accounts receivable
of the Company shown or reflected on the Base Balance Sheet or existing at the
date hereof (less the reserve for bad debts set forth on the Base Balance Sheet)
are and all the accounts receivable of the Company existing on the Closing Date
will then be valid and enforceable claims, fully collectible and subject to no
setoff or counterclaim. The Company does not have any accounts or loans
receivable from any person, firm or corporation which is affiliated with the
Company or from any director, officer, employee or stockholder of the Company.
2A.10 INVENTORIES. Except as disclosed in SCHEDULE 2.10, all inventory
items shown on the Base Balance Sheet or existing at the date hereof are and all
inventories existing on the Closing Date will then be of a quality and quantity
saleable in the ordinary course of business of the Company at profit margins
consistent with the Company's experience in prior years. All inventory items
disclosed on SCHEDULE 2.10 as exceptions pursuant to the immediately preceding
sentence reflect write-downs to realizable values in the case of items which
have become obsolete or unsalable through regular distribution channels in the
ordinary course of the business of the Company. The values of the inventories
stated in the Base Balance Sheet and the latest balance sheet included in the
Unaudited Financial Statements reflect the normal inventory valuation policies
of the Company consistent with past practices and were determined in accordance
with generally accepted accounting principles, practices and methods
consistently applied. Purchase commitments for raw materials and parts are not
in excess of normal requirements and none is at a price materially in excess of
current market prices. Since the date of the Base Balance Sheet, no inventory
items have been sold or disposed of except through sales in the ordinary course
of business at profit margins consistent with the Company's experience in prior
years, and all sales commitments for the products of the Company are at prices
not less than inventory values plus selling expenses and said profit margins.
2A.11 ABSENCE OF CERTAIN CHANGES. Since November 30, 1994, the Company has
conducted its business only in the ordinary course and consistently with past
practices, and except as disclosed in SCHEDULE 2.11 attached hereto and except
as expressly permitted by this Agreement there has not been:
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(i) Any change in the properties, assets, liabilities, business,
operations, condition (financial or otherwise) or prospects of the Company
which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has had a
Material Adverse Effect with respect to the Company;
(ii) Any mortgage, encumbrance or lien placed on any of the properties
of the Company which remains in existence on the date hereof or will remain
on the Closing Date;
(iii) Any declaration, setting aside or payment of any dividend or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any shares of any capital stock of any class of the Company
or any options, warrants or other rights to acquire, or securities
convertible into or exchangeable for, any such capital stock;
(iv) Any material loss, destruction or damage to any property of the
Company, whether or not insured, which would have a Material Adverse
Effect;
(v) Any later disputes or work stoppages or claim of unfair labor
practices involving the Company and any increase, direct or indirect, in
the compensation paid or payable to any officer, director, employee, agent
or stockholder other than salary increases in the ordinary course of
business consistent with past practice;
(vi) Any obligation or liability incurred by the Company to any of its
officers, directors, stockholders or employees, or any loans or advances
made by the Company to its officers, directors, stockholders or employees,
except normal compensation and expense allowances payable to officers or
employees;
(vii) Any change in accounting methods or practices, credit practices
or collection policies used by the Company;
(viii) Any decline in the Gross Sales Margin Percentage (as hereafter
defined) (A) of two percent (2%) or more for any calendar month ended after
November 30, 1994 and (B) of five percent (5%) or more in the aggregate for
all calendar months ended after November 30, 1994; where "Gross Sales
Margin Percentage" shall mean the quotient of (A) "Net Sales" (defined as
gross sales less all discounts, returns and allowances), minus cost of
goods sold and (B) Net Sales, expressed as a percentage; or
(ix) Any material increase or notice thereof in the cost of the
Company's raw materials or purchased goods.
2A.12 BANKING RELATIONS. All of the arrangements which the Company has with
any banking institution are described in SCHEDULE 2.12 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account,
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borrowing arrangements, safe deposit box, etc.) and the person or persons
authorized in respect thereof.
2A.13 PATENTS, TRADE NAMES, TRADEMARKS, COPYRIGHTS AND PROPRIETARY RIGHTS.
All patents, patent applications, trade names, trademarks, trademark
registration applications copyrights, copyright registration applications and
other proprietary rights owned by or licensed to the Company or used or to be
used by the Company in its business as presently conducted or contemplated (the
"Proprietary Rights") are listed in SCHEDULE 2.13 attached hereto. All of the
patents, registered trademarks and copyrights of the Company and all of the
patent applications, trademark registration applications and copyright
registration applications of the Company have been duly registered in, filed in
or issued by the United States Patent and Trademark Office, the United States
Register of Copyrights or the corresponding offices of other countries
identified on SCHEDULE 2.13, and have been properly maintained and renewed in
accordance with all applicable provisions of law and administrative regulations
in the United States and each such country. Except as set forth in SCHEDULE
2.13, use of said patents, trade names, trademarks, copyrights or other
proprietary rights does not require the consent of any other person and the same
are freely transferable (except as otherwise provided by law). Except as set
forth in SCHEDULE 2.13, the Company has exclusive ownership or exclusive license
to use all patents, trade names, trademarks, copyrights, or other proprietary
rights used or to be used by it in its business as presently conducted or
contemplated free and clear of any attachments, liens, encumbrances or adverse
claims and neither the present or contemplated activities or products of the
Company infringe any such patents, trade names, trademarks or other proprietary
rights of others. Except as set forth in SCHEDULE 2.13, (a) no other person has
an interest in or right or license to use, or the right to license others to
use, any of said patents, patent applications, trade names, trademarks,
copyrights or other proprietary rights, (b) there are no claims or demands of
any other person pertaining thereto and no proceedings have been instituted, or
are pending or, to the knowledge of the Company and Jacobson, threatened, which
challenge the rights of the Company in respect thereof, and to the knowledge of
the Company and Jacobson, there is no basis for any such claims or demands, (c)
none of the patents, trade names, trademarks, copyrights or other proprietary
rights listed in SCHEDULE 2.13 is subject to any outstanding order, decree,
judgment or stipulation, or, to the knowledge of the Company and Jacobson, is
being infringed by others, (d) no proceeding charging the Company with
infringement of any adversely held patent, trade name, trademark or copyright
has been filed or, to the knowledge of the Company and Jacobson, is threatened
to be filed, and (e) to the knowledge of the Company and Jacobson, there exist
no unexpired patent or patent application which includes claims that would
materially adversely affect the products or business of the Company.
2A.14 TRADE SECRETS AND CUSTOMER LISTS. The Company has the right to use,
free and clear of any claims or rights of others, all trade secrets, inventions,
customer lists and manufacturing and secret processes required for or incident
to the manufacture or marketing of all products formerly or presently sold,
manufactured, licensed, under development or produced by it, including products
licensed from others. Any payments required to be made by the Company for the
use of such trade secrets, inventions, customer lists and manufacturing
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and secret processes are described in SCHEDULE 2.14. The Company is not using or
in any way making use of any confidential information or trade secrets of any
third party, including without limitation, a former employer of any present or
past employee of the Company or of any of the predecessors of the Company.
2A.15 CONTRACTS. Except for contracts, commitments, plans, agreements and
licenses described in SCHEDULE 2.15 (complete and correct copies of which have
been delivered to Buyer), the Company is not a party to or subject to:
(a) any plan or contract providing for bonuses, pensions, options,
stock purchases, deferred compensation, retirement payments, profit sharing,
collective bargaining or the like, or any contract or agreement with any labor
union;
(b) any employment contract or contract for services which requires
the payment of $50,000 or more annually or which is not terminable within 30
days by the Company without liability for any penalty or severance payment;
(c) any contract or agreement for the purchase of any commodity or raw
material except purchase orders in the ordinary course for less than $50,000 or
for the purchase of equipment for more than $25,000;
(d) any other contracts or agreements creating any obligation of the
Company of $25,000 or more with respect to any such contract or which by its
terms is not terminable without penalty by the Company within six months after
the date hereof;
(e) any contract or agreement providing for the purchase of all or
substantially all of its requirements of a particular product from a supplier;
(f) any contract or agreement for the sale or lease of its products
not made in the ordinary course of business;
(g) any contract with any sales agent or distributor of products of
the Company;
(h) any contract containing covenants limiting the freedom of the
Company to compete in any line of business or with any person or entity;
(i) any license agreement (as licensor or licensee);
(j) any indenture, mortgage, promissory note, loan agreement, guaranty
or other agreement or commitment for the borrowing of money and any related
security agreement; or
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(k) any material contract or agreement with any officer, employee,
director or stockholder of the Company or with any of their affiliates which is
not terminable by the Company within 30 days without liability for any penalty
or termination payment.
A written description of all oral contracts, agreements, arrangements or
understandings of the Company which are described in clause (a) through (k)
above is set forth on SCHEDULE 2.15.
All contracts, agreements, leases and instruments to which the Company is a
party or by which the Company is obligated are valid and are in full force and
effect and constitute legal, valid and binding obligations of the Company and,
to the knowledge of the Company and Jacobson, the other parties thereto,
enforceable in accordance with their respective terms. Neither the Company nor,
to the knowledge of the Company and Jacobson, any other party to any contract,
agreement, lease or instrument of the Company, is in default in complying with
any provisions thereof, and no condition or event or facts exists which, with
notice, lapse of time or both would constitute a default thereof on the part of
the Company or, to the knowledge of the Company and Jacobson, on the part of any
other party thereto in any such case that could have a Material Adverse Effect.
Neither the Company, nor Jacobson knows of any notice or threat of or basis for
the termination, expiration or modification of any such agreements within one
year from the date hereof (other than in accordance with their respective
terms), which termination, expiration or modification may have a Material
Adverse Effect.
2A.16 LITIGATION. Except for matters described in SCHEDULE 2.16, there is
no litigation or governmental or administrative proceeding or investigation
pending or, to the knowledge of the Company and Jacobson, threatened against the
Company or any officer, director, stockholder, key employee or other affiliate
of the Company which may have a Material Adverse Effect or which would prevent
or hinder the consummation of the transactions contemplated by this Agreement
nor, to the knowledge of the Company and Jacobson, has there occurred any event
or does there exist any condition on the basis of which any such claim may be
asserted. With respect to each matter set forth therein, SCHEDULE 2.16 sets
forth a description of the forums for the matter, the parties thereto and the
type and amount of relief sought.
2A.17 COMPLIANCE WITH LAWS. Except as set forth in SCHEDULE 2.17 hereto,
the Company is currently in compliance and has heretofore complied in all
material respects with all applicable statutes, ordinances, orders, rules and
regulations promulgated by any federal, state, municipal or other governmental
authority, and the Company has not received notice of a violation or alleged
violation of any such statute, ordinance, order, rule or regulation.
2A.18 INSURANCE. The physical properties, assets, business, operations,
employees, officers and directors of the Company are insured to the extent
disclosed in SCHEDULE 2.18 attached hereto and all insurance policies and
arrangements of the Company are disclosed in said Schedule. Said insurance
policies and arrangements are in full force and effect, all
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premiums with respect thereto are currently paid, and the Company is in
compliance in all material respects with the terms of their respective policies.
There is no claim by the Company pending under any such policies as to which
coverage has been questioned, denied or disputed by the insurer. Each such
insurance policy shall continue to be in full force and effect at and after the
Closing. Such policies of insurance are of the type and in amounts customarily
carried by persons conducting business similar to that of the Company.
2A.19 WARRANTY AND RELATED MATTERS. There are no existing or, to the
knowledge of the Company and Jacobson, threatened product liability, warranty,
failure to adequately warn or any other similar claims against the Company for
products or services provided by the Company, except as disclosed in SCHEDULE
2.19 hereto. The reserve for warranty and similar claims as set forth in the
Base Balance Sheet and in the latest balance sheet included in the Unaudited
Financial Statements is adequate to satisfy any and all such claims arising from
product sales prior to Closing. There are no statements, citations,
correspondence or decisions by any government or political subdivision thereof,
whether federal, state, local or foreign, or any agency or instrumentality of
any such government or political subdivision, or any court or arbitrator
(collectively, "Governmental Bodies") stating that any product manufactured,
marketed or distributed at any time by the Company (the "Company Products") is
defective or unsafe or fails to meet any product warranty or any standards
promulgated by any such Governmental Body. There have been no recalls ordered by
any such Governmental Body with respect to any Company Product. Neither the
Company nor Jacobson knows or has any reason to know of (a) any fact relating to
any Company Product that may impose upon the Company a duty to recall any
Company Product or a duty to warn customers of a defect in any Company Product,
(b) any latent or overt design, manufacturing or other defect in any Company
Product, or (c) any material liability for warranty or other claims or returns
with respect to any the Company Product except in the ordinary course of
business consistent with the past experience of the Company for such kind of
claims and liabilities. No claim has been asserted against the Company for
renegotiation or price redetermination of any business transaction, and, to the
knowledge of the Company and Jacobson, there are no facts upon which any such
claim could be based.
2A.20 INVESTMENT BANKING; BROKERAGE. Except as set forth in SCHEDULE 2.20,
there are no claims for investment banking fees, brokerage commissions, finder's
fees or similar compensation (exclusive of professional fees of lawyers and
accountants) in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company or any
Stockholder.
2A.21 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 2.21 lists all permits,
authorizations, qualifications, registrations, licenses, franchises,
certifications and other approvals (collectively, the "Approvals") required from
federal, state or local authorities in order for the Company to conduct its
businesses. The Company has obtained all the Approvals, which are valid and in
full force and effect, and is operating in compliance therewith, except for such
noncompliance which would not have a Material Adverse Effect. The Approvals
include, but are not limited to, those required under federal, state or local
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statutes, ordinances, orders, requirements, rules, regulations, or laws
pertaining to environmental protection, public health and safety, worker health
and safety, buildings, highways or zoning. None of the Approvals is subject to
termination by their express terms as a result of the execution of this
Agreement or the consummation of the transactions contemplated hereby, and no
further Approvals will be required in order to continue to conduct the business
currently conducted by the Company subsequent to the Closing. Except as
disclosed in SCHEDULE 2.21 or in any other Schedule hereto, the Company is not
subject to or bound by any agreement, judgment, decree or order which may
materially and adversely affect its properties, assets, business, condition
(financial or other) or prospects.
2A.22 TRANSACTIONS WITH INTERESTED PERSONS. Except as set forth in SCHEDULE
2.22 hereto, none of the Company, any Stockholder or any officer, supervisory
employee or director of the Company or, to the knowledge of the Company and
Jacobson, any of their respective spouses, children or other family members owns
directly or indirectly on an individual or joint basis any material interest in,
or serves as an officer or director or in another similar capacity of, any
competitor or supplier of the Company, or any organization which has a material
contract or arrangement with the Company.
2A.23 Employee Benefit Programs.
-------------------------
(a) SCHEDULE 2.23 sets forth a list of every Employee Program (as
defined below) that has been maintained (as such term is further defined below)
by the Company at any time during the three-year period ending on the date
hereof.
(b) The Eastern Equipment Co. Safety Pension Plan (the "Pension Plan")
previously maintained by the Company had, prior to its termination, received a
favorable determination letter from the Internal Revenue Service ("IRS")
regarding its initial qualification under such section and was, in fact,
qualified under the applicable section of the Code.
(c) There has not been any failure of any party to comply with any
laws applicable with respect to the Employee Programs that have been maintained
by the Company.
(d) Neither the Company nor any Affiliate has incurred any liability
under Title IV of ERISA which will not be paid in full prior to the Closing.
There has been no event that may cause the Company or any Affiliate to incur
liability or have a lien imposed on its assets under Title IV of ERISA. Neither
the Company nor any Affiliate has ever maintained a Multiemployer Plan. None of
the Employee Programs ever maintained by the Company or any Affiliate has ever
provided health care or any other non-pension benefits to any employees after
their employment was terminated (other than as required by part 6 of subtitle B
of title I of ERISA) or has ever promised to provide such post-termination
benefits.
(e) For purposes of this Section 2A.23:
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(i) "Employee Program" means (A) all employee benefit plans within the
meaning of ERISA Section 3(3), including, but not limited to, multiple
employer welfare arrangements (within the meaning of ERISA Section 3(40)),
plans to which more than one unaffiliated employer contributes and employee
benefit plans (such as foreign or excess benefit plans) which are not
subject to ERISA; and (B) all stock option plans, bonus or incentive award
plans, severance pay policies or agreements, deferred compensation
agreements, supplemental income arrangements, vacation plans, and all other
employee benefit plans, agreements, and arrangements not described in (A)
above. In the case of an Employee Program funded through an organization
described in Code Section 501(c)(9), each reference to such Employee
Program shall include a reference to such organization;
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide) benefits
under such Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise
covers employees of such entity (or their spouses, dependents, or
beneficiaries);
(iii) An entity is an "Affiliate" of the Company for purposes of this
Section 2A.23 if it would have ever been considered a single employer with
the Company under ERISA Section 4001(b) or part of the same "controlled
group" as the Company for purposes of ERISA Section 302(d)(8)(C); and
(iv) "Multiemployer Plan" means a (pension or non-pension) employee
benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.
2A.24 Environmental Matters.
---------------------
(a) Except as set forth in SCHEDULE 2.24 hereto, (i) the Company has
never generated, transported, used, stored, treated, disposed of, or managed any
Hazardous Waste (as defined below); (ii) no Hazardous Material (as defined
below) has ever been or is threatened to be spilled, released, or disposed of at
any site presently or formerly owned, operated, leased, or used by the Company,
or has ever come to be located in the soil or groundwater at any such site;
(iii) no Hazardous Material has ever been transported from any site presently or
formerly owned, operated, leased, or used by the Company for treatment, storage,
or disposal at any other place; (iv) the Company does not presently own,
operate, lease, or use, nor has the Company previously owned, operated, leased,
or used any site on which underground storage tanks are or were located; and (v)
no lien has ever been imposed by any governmental agency on any property,
facility, machinery, or equipment owned, operated, leased, or used by the
Company in connection with the presence of any Hazardous Material.
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(b) Except as set forth in SCHEDULE 2.24 hereto, (i) the Company does
not have any liability under, nor has the Company ever violated in any respect,
any Environmental Law (as defined below); (ii) the Company, any property owned,
operated, leased, or used by the Company, and any facilities and operations
thereon are presently in compliance in all respects with all applicable
Environmental Laws; (iii) the Company has never entered into or been subject to
any judgment, consent decree, compliance order, or administrative order with
respect to any environmental or health and safety matter or received any request
for information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law; and (iv) neither the
Company nor any Stockholder has any reason to believe that any of the items
enumerated in clause (iii) of this paragraph will be forthcoming.
(c) Except as set forth in SCHEDULE 2.24 hereto, no site owned,
operated, leased, or used by the Company contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls (PCBs) or equipment
containing PCBs, or any urea formaldehyde foam insulation.
(d) The Company has provided to Buyer copies of all documents,
records, and information available to the Company concerning any environmental
or health and safety matter relevant to the Company, whether generated by the
Company, or others, including, without limitation, environmental audits,
environmental risk assessments, site assessments, documentation regarding
off-site disposal of Hazardous Materials, spill control plans, and reports,
correspondence, permits, licenses, approvals, consents, and other authorizations
related to environmental or health and safety matters issued by any governmental
agency.
(e) For purposes of this Section 2A.24, (i) "Hazardous Material" shall
mean and include any hazardous waste, hazardous material, hazardous substance,
petroleum product, oil, toxic substance, pollutant, or contaminant, as defined
or regulated under any Environmental Law, or any other substance which may pose
a threat to the environment or to human health or safety; (ii) "Hazardous Waste"
shall mean and include any hazardous waste as defined or regulated under any
Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance, or by-law at the
foreign, federal, state, or local level, whether existing as of the date hereof,
previously enforced, or subsequently enacted; and (iv) "the Company" shall mean
and include the Company, its predecessors and all other entities for whose
conduct the Company is or may be held responsible under any Environmental Law.
2A.25 List of Material Suppliers.
--------------------------
SCHEDULE 2.25 sets forth a true and complete list of all suppliers of the
Company to whom during the twelve months ended December 31, 1994 the Company
made payments aggregating $100,000 or more (the "Key Suppliers") showing, with
respect to each, the name, address and dollar volume involved. The relationship
of the Company with the Key Suppliers are good commercial working relationships.
No Key Supplier has cancelled or otherwise
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terminated its relationship with the Company, or has during the last twelve
months decreased materially its services, supplies or materials to the Company.
No Key Supplier has, to the knowledge of the Company and Jacobson, any plan or
intention to terminate, to cancel or otherwise materially and adversely modify
its relationship with the Company or to decrease materially or limit its
services, supplies or materials to the Company. SCHEDULE 2.25(b) lists for each
Key Supplier all tools, molds, dies and other equipment held by such Key
Supplier and owned by the Company (the "Tooling"). The Company owns the Tooling
free of any rights or claims of the Key Suppliers (other than statutory
mechanics or materialman's liens) and has the right to demand that the Key
Suppliers return the Tooling to the Company without delay or penalty.
2A.26 BACKLOG. As of August 23, 1995 the Company has a backlog of firm
orders for the sale or lease of products or services, for which revenues have
not been recognized by the Company, as set forth in SCHEDULE 2.26.
2A.27 EMPLOYEES; LABOR MATTERS. At the date hereof the Company employs
approximately 76 full-time employees and one part-time employee and as of the
date hereof the Company generally enjoys a good employer-employee relationship.
The Company is not delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed for it to the date hereof or amounts required to be reimbursed to such
employees. Except as set forth in SCHEDULE 2.27, the Company is not obligated to
provide to any employee compensating time off or wages in lieu thereof. Upon
termination of the employment of any of said employees, the Company will not by
reason of the consummation of the transactions contemplated by this Agreement or
anything done prior to the Closing be liable to any of said employees for
so-called "severance pay" or any other payments. Except as set forth in SCHEDULE
2.27 attached hereto, the Company has not, or within the last three years had,
any policy, practice, plan or program of paying severance pay or any form of
severance compensation in connection with the termination of employment. The
Company is in compliance in all material respects with all applicable laws and
regulations respecting labor, employment, fair employment practices, terms and
conditions of employment, and wages and hours. There are no charges of
employment discrimination, wrongful termination, sexual harassment, breaches of
express or implied employment arrangements, or unfair labor practices, nor are
there any strikes, slowdowns, stoppages of work, or any other concerted
interference with normal operations existing, pending, or to the knowledge of
the and Jacobson, threatened against or involving the Company. No question
concerning representation exists respecting the employees of the Company. There
are no grievances, complaints or charges that have been filed against the
Company under any dispute resolution procedure (including, but not limited to,
any proceedings under any dispute resolution procedure under any collective
bargaining agreement) that might have an adverse effect on the Company or the
conduct of its business and no claim therefor has been asserted. Except as set
forth in SCHEDULE 2.27, no collective bargaining agreements are in effect or are
currently being or are about to be negotiated by the Company. The Company is,
and at all times since November 6, 1986 has been, in compliance in all material
respects with the requirements of the Immigration Reform Control Act of 1986.
There are no changes pending
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or, to the knowledge of the Company and Jacobson, are any changes threatened
with respect to (including, without limitation, resignation of) the senior
management or key supervisory personnel of the Company nor has the Company
received any notice or information concerning any prospective change with
respect to the senior management or key supervisory personnel of the Company.
2A.28 CUSTOMERS AND DISTRIBUTORS. SCHEDULE 2.28 sets forth any customer
(which in the case of chains of affiliated retail outlets shall mean all such
outlets considered as a whole, though SCHEDULE 2.28 shall list separately each
individual store or customer location to which the Company has shipped any
products during the past twelve calendar months), representative or distributor
(whether pursuant to a commission, royalty or other arrangement) who accounted
for more than one percent (1%) of the sales of the Company for the twelve months
ended November 30, 1994 and for the eight months ended July 31, 1995
(collectively, the "Customers and Distributors"). For each account listed on
SCHEDULE 2.28, such schedule sets forth the amount of net sales (defined as
gross sales net of all discounts, returns and allowances and all charges, such
as cooperative advertising or similar items) for the eight months immediately
preceding the date hereof. The relationships of the Company with the Customers
and Distributors are good commercial working relationships. No Customer or
Distributor has cancelled or otherwise terminated its relationship with the
Company, or has during the last twelve months decreased materially its services,
to the Company or its usage, purchase or distribution of the services or
products of the Company. No Customer or Distributor has, to the knowledge of the
Company and Jacobson, any plan or intention to terminate, to cancel or otherwise
materially and adversely modify its relationship with the Company (including
plans to solicit competitive bids or proposals from competitors of the Company
for the supply of product categories supplied by the Company) or to decrease
materially or limit its services to the Company or its usage, purchase or
distribution of the services or products of the Company.
2A.29 DISCLOSURE. The representations, warranties and statements contained
in this Agreement and in the certificates, exhibits and schedules delivered by
the Company or any Stockholder to Buyer pursuant to this Agreement do not
contain any untrue statement of a material fact with respect to the business
conducted by the Company, and do not omit to state a material fact with respect
to the business heretofore conducted by the Company required to be stated
therein or necessary in order to make such representations, warranties or
statements not misleading in light of the circumstances under which they were
made. There are no facts known to the Company or Jacobson which presently or may
in the future have a Material Adverse Effect which has not been specifically
disclosed herein or in a Schedule furnished herewith, other than economic
conditions affecting the industry of the Company generally.
SECTION 2B. REPRESENTATIONS AND WARRANTIES OF THE TRUSTS.
- ----------- --------------------------------------------
2B.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to
Buyer to enter into this Agreement and consummate the transactions contemplated
hereby the
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Company and each of the Trusts hereby make to Buyer the representations and
warranties contained in this Section 2B.
2B.1 Capital Stock.
-------------
Each Trust owns beneficially and of record the number of shares of
Common Stock set forth opposite such Trust's name on EXHIBIT B, free and clear
of all Claims. Upon delivery to Buyer at the Closing of the certificates
representing the Company Shares owned by such Trust duly endorsed in blank for
transfer or with stock powers attached duly executed in blank, against delivery
of the Purchase Price, good and valid title thereto shall be transferred to
Buyer free and clear of any and all Claims. Each Beneficiary has the interest
specified in EXHIBIT A in the Trusts described therein free and clear of any and
all Claims.
2B.2 Authority of each Trust.
-----------------------
Each Trust has full right, authority, power and, in the case of
individuals, capacity to enter into this Agreement and each agreement, document
and instrument to be executed and delivered by or on behalf of him or it
pursuant to or as contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby. This Agreement and each agreement,
document and instrument to be executed and delivered by each Trust pursuant to
or as contemplated by this Agreement constitute, or when executed and delivered
will constitute, valid and binding obligations of such Trust as the case may be,
enforceable in accordance with their respective terms. The execution, delivery
and performance by each Trust of this Agreement and each such agreement,
document and instrument:
(i) in the case of each Trust, do not and will not violate any
provision of the declaration of trust or other organizational document of
such Trust;
(ii) do not and will not violate any laws of the United States, or any
state or other jurisdiction applicable to such Trust or require such Trust
to obtain any approval, consent or waiver of, or make any filing with, any
person or entity (governmental or otherwise) that has not been obtained or
made;
(iii) do not and will not result in a breach of, constitute a default
under, accelerate any obligation under or give rise to a right of
termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which such Trust is a party or by which the property
of such Trust is bound or affected, or result in the creation or imposition
of any mortgage, pledge, lien, security interest or other charge or
encumbrance on any of the Purchased Shares owned by such Trust.
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SECTION 3. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
- --------------------------------------------------------
3.1 MAKING OF COVENANTS AND AGREEMENTS. The Company and each Stockholder
hereby jointly and severally covenant and agree as set forth in this Section 3.
Neither the Stockholders nor any Beneficiary shall have any right of indemnity
or contribution from the Company with respect to the breach of any covenant or
agreement hereunder.
3.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing, each Stockholder and each Beneficiary will cause the Company to do and
the Company will do the following, unless Buyer shall otherwise consent in
writing:
(a) conduct their businesses only in the ordinary course consistent
with past practices, refrain from changing or introducing any method of
management or operations except in the ordinary course of business and in a
manner consistent with past practices and maintain levels of working capital
consistent with past practices;
(b) refrain from making any purchase, sale or disposition of any asset
or property other than in the ordinary course of business, from purchasing or
selling any capital asset costing more than $10,000 and from mortgaging,
pledging, subjecting to a lien or otherwise encumbering any of its properties or
assets;
(c) refrain from incurring or modifying any contingent liability as a
guarantor or otherwise with respect to the obligations of others, and from
incurring or modifying any other contingent or fixed obligations or liabilities
except in the ordinary course of business and consistently with past practices;
(d) refrain from making any change in its incorporation documents,
by-laws or authorized or issued capital stock or from acquiring any securities
issued by any other business organization other than short-term investments in
the ordinary course of business;
(e) refrain from declaring, setting aside or paying any dividend,
making any other distribution in respect of its capital stock, making any direct
or indirect redemption, purchase or other acquisition of its capital stock or
options, warrants, or other rights with respect thereto, issuing, granting,
awarding, selling, pledging, disposing of or encumbering or authorizing the
issuance, grant, award, sale, pledge, disposition or encumbrance of any shares
of, or securities convertible or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class of the Company or entering into any agreement or commitment with respect
to any of the foregoing; provided, however, that the Company may pay dividends
to the Stockholders in an amount not to exceed the actual net income of the
Company through November 30, 1995 (to the extent not previously distributed by
the Company except if distributions are made by the Stockholders to pay income
taxes on their allocable share of the Company's net income reported by the
Stockholder's for any taxable year, including the current fiscal year ending
November 30, 1995 and the period commencing on December 1, 1995 and ending on
the Closing Date), so
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long as (i) no such dividends or distributions are paid or made after December
31, 1995 and (ii) all such dividends or distributions are reflected in the
Closing Balance Sheet for purposes of the calculation of the Adjustment Amount
pursuant to Section 1.4;
(f) refrain from making any change in the compensation payable or to
become payable to any of its officers, employees or agents, or granting any
severance or termination pay to, or entering into or amending any employment,
severance or other agreement or arrangement with, any director, officer or other
employee of the Company or any Stockholder or Beneficiary, or establishing,
adopting or entering into or amending any collective bargaining, bonus,
incentive, deferred compensation, profit sharing, stock option or purchase,
insurance, pension, retirement or other employee benefit plan;
(g) refrain from prepaying any loans, including without limitation
loans from the Stockholders, the Beneficiaries, officers or directors (if any)
or family members of any of the foregoing, making any change in its borrowing
arrangements or modifying, amending or terminating any of its contracts except
in the ordinary course of business, or waiving, releasing or assigning any
material rights or claims;
(h) use its best efforts to prevent any change with respect to its
management and supervisory personnel or banking arrangements;
(i) use its best efforts to keep intact its business organization and
to preserve the goodwill of and business relationships with all suppliers,
customers, distributors and others having business relations with it;
(j) pay all accounts payable in the ordinary course of business in a
manner consistent with past practice and in any event within 60 days unless they
are being disputed in good faith, and otherwise refrain from paying, discharging
or satisfying any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and in a manner consistent with
past practices of liabilities reflected or reserved against in the Base Balance
Sheet or incurred since the date of the Base Balance Sheet in the ordinary
course of business and in a manner consistent with past practices (provided that
the Company shall in no event prepay any long-term indebtedness);
(k) use its best efforts to have in effect and maintain at all times
all insurance of the kind, in the amount and with the insurers set forth in
SCHEDULE 2.18 or equivalent insurance with any substitute insurers approved by
Buyer;
(l) refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable) or from making any tax
election or settling or compromising any federal, state, local or foreign income
tax liability;
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(m) refrain from entering into any executory agreement, commitment or
undertaking to do any of the activities prohibited by the foregoing provisions;
(n) permit Buyer and its authorized representatives (including without
limitation attorneys, accountants, investment bankers and pension and
environmental consultants) to have full access to all of its properties, assets,
books, records, business files, executive personnel, tax returns, contracts and
documents and furnish to Buyer and its authorized representatives such financial
and other information with respect to its business or properties as Buyer may
from time to time reasonably request;
(o) provide to Buyer (i) weekly reports of Net Sales and related Gross
Sales Margin Percentage (as defined in Section 2A.11), (ii) monthly financial
statements (unaudited) prepared in the ordinary course of business, including a
balance sheet as of month-end and monthly statements of operations and cash
flows as soon as practicable, but in any event not later than 30 days after the
end of each month and (iii) a balance sheet of the Company as of October 31,
1995 together with statements of operations for the eleven months then ended to
be prepared in accordance with generally accepted accounting principles and
practices, applied consistently with past reporting periods of the Company
("GAAP") as soon as practicable, but in any event not later than three (3)
business days prior to the Closing.
(p) in connection with any filings to be made by Buyer under the
Securities Act of 1933, as amended (the "Securities Act"), or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (i) provide for inclusion
therein or filing therewith the financial and other information and documents
required by applicable laws and regulations, (ii) consider promptly the
Company's reasonable requests for any additional information or documents and
use commercially reasonable efforts to make such available, and (iii) generally
cooperate with the Company and its representatives and agents in connection
therewith, provided that all expenses relating thereto shall be paid directly
and promptly by Buyer.
3.3 CONSENTS AND APPROVALS. The Company and each Stockholder shall use his
or its best efforts to obtain or cause to be obtained prior to the Closing all
necessary consents and approvals to the performance of the obligations of the
Company and each Stockholder under this Agreement, including, without
limitation, the consents and authorizations described in SCHEDULE 3.3 and such
other authorizations, waivers, consents and permits as may be necessary to
permit the Company to retain in full force and effect without penalty subsequent
to the Closing all contracts, permits, licenses and franchises of or applicable
to the business of the Company. As soon as practicable after the date hereof,
the Stockholders shall make or file, if so required, and shall cause the Company
to, and the Company shall make or file document submissions, applications,
statements and reports to all federal, state or local government agencies or
entities which are required to be made prior to the Closing by or on behalf of
the Company, any Stockholder, or any Beneficiary pursuant to any applicable
statute, rule or regulation in connection with this Agreement and the
transactions contemplated hereby. The Company shall promptly inform Buyer of any
inquiries or communications from or to
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such governmental agencies and provide copies of any written communications
relating thereto.
3.4 BREACH OF REPRESENTATIONS AND WARRANTIES. Promptly upon the occurrence
of, or promptly upon the Company or any Stockholder becoming aware of the
impending or threatened occurrence of any event which would cause or constitute
a material breach, or would have caused or constituted a material breach had
such event occurred or been known prior to the date hereof, of any of the
representations and warranties of the Company or any Stockholder contained in or
referred to in this Agreement or in any Schedule hereto, the Company and such
Stockholder shall give detailed written notice thereof to Buyer, and the Company
and the Stockholders shall use their best efforts to prevent or promptly remedy
the same.
3.5 ACQUISITION PROPOSALS. Unless and until this Agreement shall have been
terminated pursuant to Section 7, neither the Company nor any Stockholder shall,
nor will permit any director, officer, employee or agent of the Company to,
directly or indirectly, (i) take any action to solicit, initiate submission of
or encourage, proposals or offers from any person relating to any acquisition or
purchase of all or (other than in the ordinary course of business) a portion of
the assets of, or any equity interest in, the Company, any merger or business
combination with the Company or any public or private offering of shares of the
capital stock or financing or joint venture involving the Company (an
"Acquisition Proposal"), (ii) participate in any discussions or negotiations
regarding an Acquisition Proposal with any person or entity other than Buyer and
its representatives, (iii) furnish any information or afford access to the
properties, books or records of the Company to any person or entity that may
consider making or has made an offer with respect to an Acquisition Proposal
other than Buyer and its representatives, or (iv) otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do any of the foregoing. The Company and each
Stockholder will promptly notify Buyer upon receipt of any offer or indication
that any person is considering making an offer with respect to an Acquisition
Proposal or any request for information relative to the Company or for access to
the properties, books and records of the Company, and will keep Buyer fully
informed of the status and details of any such offer, indication or request.
3.6 NO SALES OF CAPITAL STOCK. Between the date of this Agreement and the
Closing, none of the Stockholders shall sell, exchange, deliver, assign, pledge,
encumber or otherwise transfer or dispose of any shares of capital stock of the
Company, owned beneficially or of record by such Stockholder, nor grant any
right of any kind to acquire, dispose of, vote or otherwise control in any
manner such shares of capital stock of the Company; provided, however, that
anything herein to the contrary notwithstanding, any transferee, executor, heir,
legal representative, successor or assign of any such Stockholder shall be bound
by this Agreement.
3.7 PRE-CLOSING COOPERATION ON TRANSITION PLANNING. Between the date of
this Agreement and the Closing, the Stockholders shall cooperate with Buyer in
the implementation
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of steps designed to facilitate the Transition of the Company's operations after
the Closing in accordance with Buyer's business plan.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
- --------------------------------------------------
4.1 MAKING OF REPRESENTATIONS AND WARRANTIES. Buyer hereby represents and
warrants to each Stockholder and the Company as follows:
4.2 ORGANIZATION OF BUYER. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is conducted.
4.3 AUTHORITY. All necessary corporate action has been taken by Buyer to
authorize the execution, delivery and performance of this Agreement and each
agreement, document and instrument to be executed and delivered by Buyer
pursuant to this Agreement. This Agreement and each agreement, document and
instrument to be executed and delivered by Buyer pursuant to this Agreement (to
the extent it contains obligations to be performed by Buyer) constitutes, or
when executed and delivered by Buyer will constitute, valid and binding
obligations of Buyer enforceable in accordance with their respective terms. The
execution, delivery and performance by Buyer of this Agreement and each such
agreement, document and instrument:
(a) do not and will not violate any provisions of the Certificate of
Incorporation or By-Laws of Buyer;
(b) do not and will not violate any United States laws or laws of the
jurisdiction of incorporation of Buyer or of any other jurisdiction, or require
Buyer to obtain any approval, consent or waiver of, or to make any filing with,
any person or entity that has not been obtained or made; and
(c) do not and will not result in a breach of, constitute a default
under, accelerate any obligation under, require a consent under, cause a
termination under or give rise to a right of termination of any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, order, writ, judgment, injunction, decree, determination or arbitration
award to which Buyer is a party or by which the property of Buyer is bound or
affected, or result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any property or asset owned
by Buyer.
4.4 LITIGATION. There is no litigation pending or, to the knowledge of
Buyer, threatened against Buyer which would prevent or hinder the consummation
of the transactions contemplated by this Agreement.
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4.5 INVESTMENT BANKING; BROKERAGE. There are no claims for investment
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees of lawyers and accountants) in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of Buyer or its affiliates.
SECTION 5. COVENANTS OF BUYER.
- -----------------------------
5.1 MAKING OF COVENANTS AND AGREEMENTS. Buyer makes the covenants and
agreements set forth in this Section 5.
5.2 CONSENTS AND APPROVALS. Buyer will use its best efforts to obtain all
necessary consents and approvals to the performance of its obligations under
this Agreement and the transactions contemplated hereby. Buyer shall promptly
inform the Company of any inquiries or communications from any such governmental
agencies and provide copies of any written communication relating thereto.
5.3 CONFIDENTIALITY. From the date of this Agreement until the Closing, or
for a period of five years from the date of this Agreement if the Closing does
not take place for any reason, all confidential business and related information
furnished to Buyer and its affiliates and representatives by the Company or any
Stockholder shall be kept confidential by Buyer and its affiliates and
representatives; PROVIDED, HOWEVER, that the foregoing shall be inapplicable (a)
with respect to information which (i) is or becomes available to the public
without breach of this confidentiality obligation, or (ii) is or becomes
available to Buyer from a third party, PROVIDED that the third party did not
receive the same, directly or indirectly, from the Company or any Stockholder
and was not under an obligation of confidentiality to the source of such
information at the time it was disclosed to Buyer, (b) to the extent disclosure
is required in filings contemplated by this Agreement and (c) to the extent
disclosure is required by any applicable law or regulation, by any authorized
administrative or governmental agency or, in the opinion of counsel to Buyer, in
connection with applicable requirements of the securities laws or any stock
exchange or self-regulatory organization. In addition to the foregoing, prior to
the Closing (and if the Closing does not occur, forever), except as contemplated
by this Section 5.3, Buyer shall not, and shall communicate to its employees,
agents, representatives and advisors that they are not authorized to and must
not use any confidential or related business information of the Company for any
purpose other than the consummation of the transactions contemplated hereby, and
if this Agreement is terminated for any reason Buyer shall return or certify the
destruction of all documents and materials obtained from (or reflecting
information obtained from) the Company or any Stockholder under this Agreement.
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SECTION 6. CONDITIONS.
- ---------------------
6.1 CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligation of Buyer to
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing, of the following conditions (any
one or more of which may be waived in whole or in part by Buyer):
(a) REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the
representations and warranties of the Company and each Stockholder contained in
Sections 2A and 2B hereof shall be true and correct in all material respects
(except with respect to the representations and warranties contained in Section
2A.4 and 2B.1, which shall be true and correct in each and every respect) on and
as of the Closing Date, with the same effect as though made on and as of the
Closing Date (it being understood that representations and warranties made "as
of the date hereof" shall be deemed to have been made as of the Closing Date);
the Company and each Stockholder shall, on or before the Closing Date, have
performed and satisfied all agreements and conditions hereunder which by the
terms hereof are to be performed and satisfied by the Company or such
Stockholder on or before the Closing Date; the Company shall have delivered to
Buyer a certificate dated the Closing Date signed on its behalf by its President
and by its chief accounting officer to the foregoing effect, and each
Stockholder shall have delivered to Buyer a certificate dated the Closing Date
to the foregoing effect with respect to their representations, warranties and
covenants. Notwithstanding the foregoing, in the event the Company or the
Stockholders cannot deliver the certificates contemplated by this Section 6.1(a)
due to changes in circumstances after the date hereof that would constitute
exceptions to the representations and warranties set forth herein if the same
were made at the Closing and instead elect to deliver such certificates
indicating such exceptions in reasonable detail, and Buyer nonetheless elects to
close, Buyer shall be deemed to have waived the condition set forth in this
Section 6.1(a) as to such matters and the Stockholders shall not be liable
therefor because there shall have been no breach, without limitation, however,
of Buyer's rights under Section 9 with respect to breaches of representations
made at the date hereof or other breaches of covenant.
(b) OPINIONS OF COUNSEL. On the Closing Date, Buyer shall have
received an opinion of Paradise & Alberts, L.L.P. counsel for the Company and
the Stockholders, dated as of the Closing Date and addressed to Buyer,
substantially in the form of Exhibit E hereto.
(c) APPROVALS AND CONSENTS. The Company and each Stockholder shall
have received all required authorizations, waivers, consents and permits to
permit the consummation of the transactions contemplated by this Agreement, in
form and substance reasonably satisfactory to Buyer, from all third parties,
including, without limitation, applicable governmental authorities, regulatory
agencies, lessors, lenders and contract parties, required in connection with the
consummation of the transactions contemplated hereby or the Company's permits,
leases, licenses and franchises, or to avoid a breach, default, termination,
acceleration or modification of any material agreement, contract, instrument,
mortgage, lien,
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lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award.
(d) NO ACTIONS OR PROCEEDINGS. No action or proceeding by or before
any court, administrative body or governmental agency shall have been instituted
or threatened which would enjoin, restrain or prohibit, or might result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of Buyer make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
(e) PROCEEDINGS SATISFACTORY TO BUYER. All actions, proceedings,
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Goodwin, Procter & Hoar as counsel
for Buyer, and such counsel shall have received on behalf of Buyer such other
certificates, opinions, and documents in form satisfactory to such counsel, as
Buyer may reasonably require from the Company and the Stockholders.
1.(f) [Intentionally Omitted]
(g) NO MATERIAL ADVERSE CHANGE. There shall not have been any change
or series of changes that, in the reasonable business judgment of Buyer acting
in good faith, materially adversely affects or could be anticipated to affect in
the future the business, operations, results of operations, properties, assets,
condition (financial or otherwise) or prospects of the Company since the date
hereof, whether or not in the ordinary course of business, including, without
limitation, (i) knowledge that any customer or distributor has canceled or
otherwise terminated its relationship with the Company or decreased materially
its services to the Company or its usage, purchase or distribution of the
services or products of the Company or (ii) knowledge that any customer or
distributor has any plan or intention to terminate or cancel its relationship
with the Company or to decrease materially or limit its services to the Company
or its usage, purchase or distribution of the services or products of the
Company, if either (A) the matters described in clauses (i) and (ii) above
relate to Home Depot or Lowes or (B) the matters described in clauses (i) or
(ii) above relate to any other individual customer or distributor or account,
whether or not listed on Schedule 2.28, or any group of customers, distributors
or accounts which in the aggregate accounts or account for over $1 million of
the Company's sales on an annualized basis (other than Echo).
(h) GENERAL RELEASES. Each Stockholder and each Beneficiary shall have
executed and delivered to Buyer a General Release in substantially the form of
Exhibit F hereto.
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(i) CONSULTING AND NON-COMPETITION AGREEMENT. Alfred H. Jacobson shall
have executed and delivered to Buyer, the Consulting Agreement and the
Non-Competition Agreement.
(j) RESIGNATIONS. The Company shall have delivered to Buyer the
resignations of all of the Directors of the Company and of such officers of the
Company as may be requested by Buyer at least five days prior to the Closing,
such resignations to be effective at the Closing.
6.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY, THE STOCKHOLDERS AND THE
BENEFICIARIES. The obligations of the Company, the Stockholder and the
Beneficiaries to consummate this Agreement and the transactions contemplated
hereby are subject to the fulfillment, prior to or at the Closing Date, of the
following conditions (any one or more of which may be waived in whole or in part
by the Representative):
(a) REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the
representations and warranties of Buyer contained in Section 4 shall be true and
correct in all material respects on and as of the Closing Date, with the same
effect as though made on and as of the Closing Date (it being understood that
representations and warranties made "as of the date hereof" shall be deemed to
have been made as of the Closing Date); Buyer shall, on or before the Closing
Date, have performed and satisfied all agreements and conditions hereunder which
by the terms hereof are to be performed and satisfied by Buyer on or before the
Closing Date; and Buyer shall have delivered to the Company a certificate signed
on its behalf by its President and Chief Financial Officer and dated as of the
Closing Date certifying to the foregoing effect.
(b) OPINION OF COUNSEL. At the Closing Date, the Stockholders and
Beneficiaries shall have received an opinion of Goodwin, Procter & Hoar counsel
for Buyer, dated as of the Closing Date and addressed to the Stockholders and
the Beneficiaries, substantially in the form of EXHIBIT G hereto.
(c) NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or might result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Representative make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
(d) PROCEEDINGS SATISFACTORY TO THE COMPANY. All proceedings to be
taken by Buyer in connection with the consummation of the Closing on the Closing
Date and the other transactions contemplated hereby and all certificates,
opinions, instruments and other
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documents required to effect the transaction contemplated hereby reasonably
requested by the Company will be reasonably satisfactory in form and substance
to the Company.
(e) CONSULTING AND NON-COMPETITION AGREEMENTS. The Company shall have
executed and delivered the Consulting Agreement and the Non-Competition
Agreement.
SECTION 7. TERMINATION OF AGREEMENT.
- -----------------------------------
7.1 TERMINATION. This Agreement may be terminated any time prior to the
Closing Date as follows:
(a) With the mutual consent of Buyer and the Representative on behalf
of the parties to this Agreement.
(b) [Intentionally Omitted]
(c) By either the Company and the Representative, acting jointly, or
Buyer, if the Closing has not occurred on or before March 31, 1996 (the "Outside
Closing Date").
(d) By Buyer, if there has been a material misrepresentation or breach
of warranty on the part of the Company or any Stockholder in the representations
and warranties contained herein or a material breach of covenants on the part of
the Company or any Stockholder and the same has not been cured within 30 days
after notice thereof. In the event of any termination pursuant to this Section
7.1(d), written notice setting forth the reasons therefor shall forthwith be
given by Buyer to the Company and the Representative.
(e) By the Company and the Representative, acting jointly, if there
has been a material misrepresentation or breach of warranty on the part of Buyer
in the representations and warranties contained herein or a material breach of
covenants on the part of Buyer and the same has not been cured within 30 days
after notice thereof. In the event of any termination pursuant to this Section
7.1(e), written notice setting forth the reasons therefor shall forthwith be
given by the Company to Buyer.
Notwithstanding anything herein to the contrary, the right to
terminate this Agreement under this Section 7.1 shall not be available to any
party to the extent such party's breach of its obligations under this Agreement
has been the cause of, or resulted in, the failure of the Closing to occur on or
before such date (as a result, for example, of an action or failure to act
causing a failure of a condition precedent).
7.2 EFFECT OF TERMINATION. All obligations of the parties hereunder shall
cease upon any termination pursuant to Section 7.1, provided, however, that (i)
the provisions of Section 1.3, Section 5.3, this Section 7, Section 8.2 and
Section 10.5 hereof shall survive any termination of this Agreement in any
event; (ii) nothing herein shall relieve any party from any
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liability for a material error or omission in any of its representations or
warranties contained herein or a material failure to comply with any of its
covenants, conditions or agreements contained herein; (iii) any party may
proceed as further set forth in Section 7.3 below and (iv) in accordance with
the Escrow Agreement, if the failure of the Closing to occur is due solely to
the willful breach by Buyer of any of its covenants or agreements contained
herein, then the Escrow Funds (exclusive of interest) shall be delivered to
Jacobson and if the termination of this Agreement or the failure of the Closing
to occur is due to any other reason, then the Escrow Funds and all interest
accrued thereon shall be delivered back to Buyer.
7.3 RIGHT TO PROCEED. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Section 6.1 hereof have
not been satisfied, Buyer shall have the right to proceed with the transactions
contemplated hereby without waiving any of its rights hereunder, and if any of
the conditions specified in Section 6.2 hereof have not been satisfied, the
Representative on behalf of the Stockholders shall have the right to proceed
with the transactions contemplated hereby without waiving any of his or their
rights hereunder. Notwithstanding the foregoing, in the event that prior to
Closing the Representative informs Buyer in writing in reasonable detail that
the condition in Section 6.1(a) cannot be satisfied as provided in such Section
6.1(a), or Buyer informs the Representative in writing in reasonable detail that
the condition in Section 6.2(a) cannot be satisfied due to a breach of the
representations and warranties of Buyer contained in Section 4 or the
non-performance of the obligations of the Buyer hereunder, then in the event
that the non-defaulting party shall nonetheless elect to proceed with the
Closing, following the Closing, such party shall be deemed to have waived its
rights with respect to the circumstances described in reasonable detail
constituting such breach, but shall not be deemed to have waived such rights
with respect to any other thing or matter.
SECTION 8. SURVIVAL OF WARRANTIES; FEES AND EXPENSES.
- ----------------------------------------------------
8.1 SURVIVAL OF WARRANTIES. All representations, warranties, agreements,
covenants and obligations herein or in any Schedule or certificate delivered by
any party incident to the transactions contemplated hereby are material and may
be relied upon by the party receiving the same and shall survive the Closing
regardless of any investigation by or knowledge of such party and shall not
merge into the performance of any obligation by any party hereto, subject to the
provisions of Section 9 hereof.
8.2 FEES AND EXPENSES. (a) Each of the parties will bear its own expenses
in connection with the negotiation and the consummation of the transactions
contemplated by this Agreement, and no expenses of the Company, any Stockholder
or any Beneficiary relating in any way to the purchase and sale of the Company
Shares hereunder and the transactions contemplated hereby, including without
limitation legal, accounting or other professional expenses of the Company,
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any Stockholder or any Beneficiary, shall be charged to or accrued or paid by
the Company or Buyer.
(b) The Stockholders will pay all costs incurred, whether at or
subsequent to the Closing, in connection with the transfer of the Company Shares
to Buyer as contemplated by this Agreement, including without limitation, all
transfer taxes and charges applicable to such transfer, and all costs of
obtaining permits, waivers, registrations or consents with respect to any
assets, rights or contracts of the Company.
SECTION 9. INDEMNIFICATION.
- --------------------------
9.1 INDEMNIFICATION BY JACOBSON. Jacobson on behalf of himself and the
other Stockholders and their respective successors, executors, administrators,
estates, heirs and permitted assigns as contemplated by Section 10.4, agrees
subsequent to the Closing to indemnify and hold harmless Buyer and its
affiliates and their respective officers, directors, employees and agents
(individually, a "Buyer Indemnified Party" and collectively, the "Buyer
Indemnified Parties") from and against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing and including any loss of
Tax benefit or increase in Taxes payable for future periods) sustained, suffered
or incurred by or made against any Buyer Indemnified Party (a "Loss" or
"Losses") arising out of, based upon or in connection with:
(a) conditions, circumstances or occurrences which constitute or
result in any breach of any representation or warranty made by the Company or
any Stockholder in this Agreement or in any Schedule, exhibit, certificate,
financial statement, agreement or other instrument delivered under or in
connection with this Agreement, or by reason of any claim, action or proceeding
asserted or instituted arising out of any matter or thing covered by any such
representations or warranties (collectively, "Buyer Representation and Warranty
Claims");
(b) any breach of any covenant or agreement made by the Company or any
Stockholder in this Agreement or in any Schedule, exhibit, certificate,
financial statement, agreement or other instrument delivered under or in
connection with this Agreement, or by reason of any claim, action or proceeding
asserted or instituted arising out of any matter or thing covered by any such
covenant or agreement;
(c) liabilities relating to the activities or conduct of the business
of the Company on or prior to the Closing Date, including without limitation (i)
any and all claims for injury (including death), claims for damage, direct or
consequential, or product liability claims resulting from or connected with
products sold or services provided by the Company
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prior to the Closing Date, (ii) other personal injury or property damage claims
relating to events occurring on or prior to the Closing Date, (iii) amounts due
in connection with any Employee Program maintained or contributed to by the
Company on or prior to the Closing Date, (iv) amounts paid or payable relating
to environmental matters including Losses resulting from or in connection with
the use, storage, release or discharge into or presence in the ground, water or
atmosphere of any Hazardous Waste or Hazardous Material or any violation of an
Environmental Law which occurred on or prior to the Closing Date, (v) Losses
relating to the failure of the Company to comply with applicable laws or
regulations, and (vi) any liability for Taxes arising from an event or
transaction prior to the Closing or as a result of the Closing which have not
been paid or provided for by the Company or the Stockholders prior to the
Closing or reflected as a liability on the Closing Balance Sheet, including
without limitation, any increase in Taxes due to the unavailability of any loss
or deduction claimed by the Company; and
(d) (i) federal or state income Taxes payable by the Company as a
result of the loss of its status as a "Subchapter S" corporation under the Code
for any period prior to the Closing and (ii) any fees and expenses of the
Company or any Stockholder (including without limitation legal fees and
accounting fees) relating to the execution, delivery or performance of this
Agreement paid, assumed or otherwise borne by the Company or Buyer.
Claims under clauses (a) through (d) of this Section 9.1 hereinafter
collectively referred to as "Buyer Indemnifiable Claims," and Losses in respect
of such claims shall be hereinafter collectively referred to as "Buyer
Indemnifiable Losses."
The rights of Buyer Indemnified Parties to recover indemnification in
respect of any occurrence referred to in clauses (b) and (c) of this Section 9.1
shall not be limited by the fact that such occurrence may not constitute an
inaccuracy in or breach of any representation or warranty referred to in clause
(a) of this Section 9.1.
Notwithstanding anything in this Section 9.1 to the contrary, Losses
incurred by a Buyer Indemnifiable Party with respect to liabilities described in
Section 9.1(c) above (i) that have not been specifically disclosed by the
Stockholders in this Agreement or in the Schedules hereto, shall be deemed to be
Buyer Indemnifiable Losses; (ii) that have been specifically disclosed by the
Stockholders in this Agreement or in the Schedules hereto and which have been
reserved for on the Base Balance Sheet shall not be deemed to be Buyer
Indemnifiable Losses except to the extent that any such Losses exceed the amount
actually reserved on the Base Balance Sheet with respect to the liabilities
corresponding to such Losses; and (iii) that have not been reserved for on the
Base Balance Sheet, whether or not disclosed in this Agreement or in the
Schedules hereto, shall be deemed to be Buyer Indemnifiable Losses. For the
purposes of the immediately preceding sentence, references to "reserved for" or
"reserved" shall mean actual reserves specifically set forth on the Base Balance
Sheet, regardless of whether or not such reserves are required by GAAP.
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9.2 Limitations on Indemnification by Jacobson.
------------------------------------------
(a) TIME LIMITS FOR CLAIMS. The right of Buyer Indemnified Persons to
make Buyer Indemnifiable Claims with respect to Buyer Indemnifiable Losses or
matters that may give rise to Buyer Indemnifiable Losses shall expire on the
third anniversary of the Closing Date; provided, however, that the limitation of
this paragraph (a) shall not apply to Buyer Indemnifiable Losses with respect to
Taxes of the Company (including its predecessors) with respect to which Buyer
Indemnifiable Claims shall expire six (6) months after the later of (i) the
sixth anniversary of the Closing Date or (ii) with respect to any Taxes of the
Company for which tax returns have been filed, termination of the applicable
statute of limitations relating thereto plus any extensions thereof; and
provided further, however, that in each case if prior to the applicable date of
expiration of the time limit for making Buyer Indemnifiable Claims a specific
state of facts shall have become known (which in the case of a failure to file a
Tax return, if any, shall mean receipt of notice from a taxing authority as to
possible Tax liability) which may constitute or give rise to any Buyer
Indemnifiable Loss as to which indemnity may be payable and a Buyer Indemnified
Party shall have given notice of such facts to the Representative, then the
right to indemnification with respect thereto shall remain in effect until such
matter shall have been finally determined and disposed of, and any
indemnification due in respect thereof shall have been paid, according to the
date on which notice of the applicable claim is given.
(b) GENERAL THRESHOLD. Subject to the exceptions set forth in Section
9.2(d), Jacobson shall not be obligated to indemnify Buyer Indemnified Parties
except to the extent the cumulative amount of Buyer Indemnifiable Losses exceeds
Fifty Thousand Dollars ($50,000) (the "Threshold") whereupon the full amount of
such losses shall be recoverable in accordance with the terms hereof.
(c) GENERAL MAXIMUM INDEMNIFICATION. Subject to the exceptions set
forth in Section 9.2(d), Jacobson shall not be obligated to indemnify Buyer
Indemnified Parties after the cumulative amount of Buyer Indemnifiable Losses
exceeds the sum of the payments made or to be made to Jacobson for his account
pursuant to Sections 1.2(a), (b) and (c), the Non- Competition Agreement and the
Consulting Agreement.
(d) DOLLAR-FOR-DOLLAR CLAIMS. Notwithstanding anything herein to the
contrary, Buyer Indemnified Parties shall not be subject to any limitation,
whether pursuant to this Section 9.2 hereof or otherwise, and shall be entitled
to dollar-for-dollar recovery, in seeking indemnification from Jacobson with
respect to the following:
(i) Losses arising from fraud or an intentional misrepresentation on
the part of the Company or any Stockholder;
(ii) Losses arising from breach of a covenant by the Company or any
Stockholder; and
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(iii) Losses involving a breach by the Company or the Stockholders of
any of the representations and warranties contained in Sections 2A.4, 2A.5,
2.20 and 2.22.
(e) SET-OFF. Indemnification due to Buyer Indemnified Parties hereunder may
not be satisfied by set-off against any amounts payable pursuant to this
Agreement or any other agreement to any Stockholder except:
(i) As provided in Section 1.4(c) hereof with respect to any unpaid
Adjustment Amount; and
(ii) With respect to Losses arising out of or in connection with any
breach by Jacobson of the Non-Competition Agreement.
(f) NO LIMITATION OF RIGHTS. Notwithstanding anything herein to the
contrary, the limitations set forth in this Section 9.2 shall apply only with
respect to post-Closing indemnification obligations and shall in no way limit
any rights Buyer Indemnified Parties may have in law or equity, consistent with
Section 7.2, in the event the Closing does not occur.
9.3 INDEMNIFICATION BY BUYER. Buyer agrees subsequent to the Closing to
indemnify and hold the Stockholders and their respective successors, executors,
administrators, and estates (individually a "Stockholder Indemnified Party" and
collectively the "Stockholder Indemnified Parties") harmless from and against
and in respect of all losses, liabilities, obligations, damages, deficiencies,
actions, suits, proceedings, demands, assessments, orders, judgments, fines,
penalties, costs and expenses (including reasonable fees, disbursements and
expenses of attorneys, accountants and consultants) of any kind or nature
whatsoever (whether or not arising out of third-party claims and including all
amounts paid in investigation, defense or settlement of the foregoing)
sustained, suffered or incurred by or made against any Stockholder Indemnified
Party based upon any breach of any representation, warranty or covenant made by
Buyer in this Agreement or in any certificate delivered by Buyer hereunder, or
by reason of any claim, action or proceeding asserted or instituted growing out
of any matter or thing constituting such a breach ("Stockholder Indemnifiable
Claims").
9.4 Limitation on Indemnification by Buyer.
--------------------------------------
(a) TIME LIMIT FOR CLAIMS. No indemnification shall be payable to
Stockholder Indemnified Parties with respect to Stockholder Indemnifiable Claims
asserted pursuant to Section 9.3 after the third anniversary of the Closing
Date; provided, that if prior to the date of expiration of indemnification a
specific state of facts shall have become known which may constitute or give
rise to any Stockholder Indemnifiable Claim as to which indemnity may be payable
and a Stockholder Indemnified Party shall have give notice of such facts to
Buyer, then the right to indemnification with respect thereto shall remain in
effect until
40
<PAGE> 45
such matter shall have been paid, according to the date on which notice of the
applicable claim is given; and
(b) Notwithstanding anything herein to the contrary, the limitations
set forth in this Section 9.4 shall apply only with respect to post-Closing
indemnification obligations and shall in no way limit any rights Stockholder
Indemnifiable Parties may have in law or equity, consistent with Section 7.2, in
the event the Closing does not occur.
9.5 NOTICE; DEFENSE OF CLAIMS. Promptly after receipt by an indemnified
party of notice of any claim, liability or expense to which the indemnification
obligations hereunder would apply, the indemnified party shall give notice
thereof in writing to the indemnifying party, but the omission to so notify the
indemnifying party promptly will not relieve the indemnifying party from any
liability except to the extent that the indemnifying party shall have been
prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. If within 20 days after receiving such notice the indemnifying party
gives written notice to the indemnified party stating that (i) it would be
liable under the provisions hereof for indemnity in the amount of such claim if
such claim were successful and (ii) that it disputes and intends to defend
against such claim, liability or expense at its own cost and expense, then
counsel for the defense shall be selected by the indemnifying party (subject to
the consent of the indemnified party which consent shall not be unreasonably
withheld) and the indemnified party shall not be required to make any payment
with respect to such claim, liability or expense as long as the indemnifying
party is conducting a good faith and diligent defense at its own expense;
provided, however, that the assumption of defense of any such matters by the
indemnifying party shall relate solely to the claim, liability or expense that
is subject or potentially subject to indemnification. The indemnifying party
shall have the right, with the consent of the indemnified party, which consent
shall not be unreasonably withheld, to settle all indemnifiable matters related
to claims by third parties which are susceptible to being settled provided the
indemnifying parties' obligation to indemnify the indemnified party therefor
will be fully satisfied. The indemnifying party shall keep the indemnified party
apprised of the status of the claim, liability or expense and any resulting
suit, proceeding or enforcement action, shall furnish the indemnified party with
all documents and information that the indemnified party shall reasonably
request and shall consult with the indemnified party prior to acting on major
matters, including settlement discussions. Notwithstanding anything herein
stated, the indemnified party shall at all times have the right to fully
participate in such defense at its own expense directly or through counsel;
provided, however, if the named parties to the action or proceeding include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate under applicable standards of
professional conduct, the expense of separate counsel for the indemnified party
shall be paid by the indemnifying party. If no such notice of intent to dispute
and defend is given by the indemnifying party, or if such diligent good faith
defense is not being or ceases to be conducted, the indemnified party shall, at
the expense of the indemnifying party, undertake the defense of (with counsel
selected by
41
<PAGE> 46
the indemnified party), and shall have the right to compromise or settle
(exercising reasonable business judgment), such claim, liability or expense. If
such claim, liability or expense is one that by its nature cannot be defended
solely by the indemnifying party, then the indemnified party shall make
available all information and assistance that the indemnifying party may
reasonably request and shall cooperate with the indemnifying party in such
defense.
9.6 SATISFACTION OF INDEMNIFICATION OBLIGATIONS. Any indemnity payable
pursuant to this Section 9 shall be paid within the thirty (30) days after the
indemnified party's request therefor.
SECTION 10. MISCELLANEOUS.
- -------------------------
10.1 LAW GOVERNING. This Agreement shall be construed under and governed by
the internal laws of the State of New York without regard to its conflict of
laws provisions.
10.2 NOTICES. Any notice, request, demand other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if delivered or sent by facsimile transmission, upon receipt, or (ii) if
sent by registered or certified mail upon the sooner of receipt or the
expiration of three days after deposit in United States post office facilities
properly addressed with postage prepaid. All notices will be sent to the
addresses set forth below or to such other address as such party may designate
by notice to each other party hereunder:
TO BUYER: Cabot Safety Corporation
-------- One Washington Mall, 8th Floor
Boston, MA 02108-2610
Attn: Mark V.B. Tremallo, General Counsel
Facsimile: (617) 371-4233
with a copy to: Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109-2881
Attn: Richard E. Floor, P.C.
Facsimile: (617) 523-1231
TO THE COMPANY: Eastern Safety Equipment Co., Inc.
-------------- 59-20 56th Avenue
Maspeth, NY 11378
Attn: President
Facsimile: (203) 481-1706
42
<PAGE> 47
with a copy to: Paradise & Alberts, L.L.P.
630 Third Avenue
New York, NY 10017
Attn: Melvin Paradise, Esquire
Facsimile: (212) 490-2946
TO THE STOCKHOLDERS,
-------------------
c/o the Representative Alfred H. Jacobson
c/o Eastern Safety Equipment Co., Inc.
59-20 56th Avenue
Maspeth, NY 11378
Any notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.
10.3 ENTIRE AGREEMENT. This Agreement, including the Schedules and Exhibits
referred to herein and the other writings specifically identified herein or
contemplated hereby or delivered in connection with the transactions
contemplated hereby, is complete, reflects the entire agreement of the parties
with respect to its subject matter, and supersedes all previous written or oral
negotiations, commitments and writings.
10.4 ASSIGNABILITY. This Agreement shall be assignable by Buyer to a
corporation or partnership controlling, controlled by or under common control
with Buyer although no such assignment shall relieve Buyer of any liabilities or
obligations under this Agreement, but this Agreement may not be assigned or
delegated by the Stockholders or the Company without the prior written consent
of Buyer. This Agreement and the obligations of the parties hereunder (including
specifically but without limitation the Indemnification obligations of the
Stockholders set forth in Section 9) shall be binding upon and enforceable by,
and shall inure to the benefit of, the parties hereto and their respective
successors, executors, administrators, estates, heirs and permitted assigns, and
no others.
10.5 PUBLICITY AND DISCLOSURES. Until the Closing, so long as this
Agreement is in effect, neither the Stockholders, the Company or Buyer nor any
of their respective subsidiaries or affiliates shall issue or cause the
publication of any press release or other announcement or disclosure (including,
without limitation, any such announcement or disclosure to employees or
customers of the Company) with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of Buyer, in the case of a
desired press release or announcement by the Stockholders or the Company, or of
the Representative in the case of a desired press release or announcement by
Buyer, in any such case which consent shall not be unreasonably withheld, except
to the extent disclosure by Buyer is required by any applicable law or
regulation, by any authorized administrative or governmental agency or, in the
opinion of counsel to Buyer, by virtue of Buyer's status as a publicly reporting
company pursuant to applicable requirements of the securities laws or any stock
exchange or self-regulatory organization.
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<PAGE> 48
10.6 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
10.7 Certain Definitions. For purposes of this Agreement, the term:
-------------------
(a) "affiliate" of a person shall mean a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise; and
(c) "person" means an individual, corporation, partnership,
association, trust or any unincorporated organization
10.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same document.
10.9 AMENDMENTS; WAIVERS. This Agreement may not be amended or modified,
nor may compliance with any condition or covenant set forth herein be waived,
except by a writing duly and validly executed by Buyer, the Company and the
Representative, or, in the case of a waiver, the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any such right, power or privilege, or any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege.
10.10 CONSENT TO JURISDICTION AND SERVICE. Each of the parties hereto
consents to personal jurisdiction, service of process and venue in the federal
or state courts of New York with respect to any and all claims or disputes
between the parties, arising directly or indirectly in connection with this
Agreement and related agreements and schedules, including, but not limited to,
any and all claims for indemnification and other rights established by this
Agreement.
10.11 CERTAIN REMEDIES; SEVERABILITY. It is specifically understood and
agreed that any breach of this Agreement by any of the parties hereto will
result in irreparable injury to the aggrieved party, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy for such breach and that, in addition to any other
44
<PAGE> 49
remedy it may have, such aggrieved party shall be entitled to enforce the
specific performance of this Agreement by the breach party through both
temporary and permanent injunctive relief, without the necessity of proving
actual damages, but without limitation of their rights to recover such damages.
In case any of the provisions contained in this Agreement shall for any reason
be held to be invalid, illegal or unenforceable in any respect, any such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had been limited or modified (consistent with
its general intent) to the extent necessary to make it valid, legal and
enforceable, or if it shall not be possible to so limit or modify such invalid,
illegal or unenforceable provision or part of a provision, this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
[Remainder of page intentionally left blank]
45
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
BUYER
-----
CABOT SAFETY CORPORATION
ATTEST:
By:
- --------------------------- --------------------------------------------
, Secretary John D. Curtin, Jr., Chairman
COMPANY
-------
EASTERN SAFETY EQUIPMENT CO., INC.
ATTEST:
By:
- --------------------------- --------------------------------------------
, Secretary Alfred H. Jacobson, Chief Executive Officer
STOCKHOLDERS
------------
-----------------------------------------------
Alfred H. Jacobson
TRUST CREATED BY AGREEMENT
BETWEEN ALFRED H. JACOBSON,
GRANTOR, AND WILLIAM KLEIN AND
JACK P. HECHT, TRUSTEES, DATED
AUGUST 13, 1981.
By:
--------------------------------------------
William Klein, Trustee
By:
--------------------------------------------
Jack P. Hecht, Trustee
46
<PAGE> 51
<TABLE>
EXHIBITS A AND B (COMBINED)
---------------------------
<CAPTION>
NAME OF CLASS A CLASS B
SHAREHOLDERS COMMON SHARES COMMON SHARES
------------ ------------- -------------
<S> <C> <C>
Alfred H. Jacobson 3 (100%) 699.44 (89.48%)
William Klein and 27.52 (3.506%)
Jack Hecht, trustees
fbo Ilene Jacobson
u/t/a dtd 8/13/81
William Klein and 27.52 (3.506%)
Jack Hecht, trustees
fbo Sharyn Jacobson
u/t/a dtd 8/13/81
William Klein and 27.52 (3.506%)
Jack Hecht, trustees
fbo Lauren Jacobson
u/t/a dtd 8/13/81
</TABLE>
47
<PAGE> 52
Exhibit C
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT dated as of January __, 1996 by and among Cabot
Safety Corporation, a Delaware corporation ("Cabot Safety") and Eastern Safety
Equipment Co., Inc., a New York corporation ("Eastern Safety"), and Alfred H.
Jacobson ("Mr. Jacobson"). Reference is made to that certain Stock Purchase
Agreement (the "Stock Purchase Agreement") dated September 19, 1995 by and among
Eastern Safety and Cabot Safety and Mr. Jacobson and certain trusts named
therein (the "Trusts"), pursuant to which Cabot Safety is purchasing from Mr.
Jacobson and the Trusts are selling to Cabot Safety all of the outstanding
shares of the capital stock of Eastern Safety subject to the terms and
conditions set forth in the Stock Purchase Agreement. Capitalized terms used in
this Agreement and not defined herein shall have the respective meanings
ascribed to them in the Stock Purchase Agreement.
WITNESSETH
----------
WHEREAS, immediately prior to the Closing, Mr. Jacobson and the Trusts were
the record and beneficial owner 100% of the issued and outstanding shares of
Common Stock of Eastern Safety (the "Shares");
WHEREAS, Mr. Jacobson has for many years served as President of Eastern
Safety; and
WHEREAS, as a material inducement to and a condition precedent of Cabot
Safety's purchase of all of the Common Stock of Eastern Safety and associated
goodwill, and in consideration Cabot Safety's covenants and agreements contained
in the Stock Purchase Agreement and of the payment made pursuant to Section 2.01
thereof, Mr. Jacobson is executing and delivering this Agreement concurrently
with such purchase.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. NON-COMPETITION. In view of the fact that Mr. Jacobson has for
many years served as President of Eastern Safety and that activities of Mr.
Jacobson in violation of the terms hereof would deprive Cabot Safety of the
benefit of its bargain under the Stock Purchase Agreement, and as a material
inducement to and a condition precedent of Cabot Safety's purchase of the
Shares, and in consideration of the payment to Mr. Jacobson of the consideration
to be paid by Cabot Safety to Mr. Jacobson hereunder and pursuant to the Stock
Purchase Agreement, and to insure Cabot Safety the full benefit of the
acquisition of the Shares and preserve the goodwill associated with the business
of Eastern Safety acquired thereby, Mr. Jacobson hereby agrees to the following
restrictions on his activities:
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<PAGE> 53
(a) NON-COMPETITION AGREEMENT. Mr. Jacobson hereby agrees that during
the period commencing on the date hereof and ending five (5) years after the
date hereof, he will not, without the express written consent of the Board of
Directors of Cabot Safety, which consent they may grant or withhold in their
sole discretion, directly or indirectly, anywhere in the geographic area set
forth in Section 1(c) below, engage in any activity which is, or participate,
promote or invest in or assist (whether as owner, part-owner, shareholder,
partner, director, officer, trustee, employee, agent, consultant, or creditor or
in any other individual or representative capacity) any business activity or
organization other than Cabot Safety, Eastern Safety or any of their affiliates
whose activities, products or services are in the Designated Industry; except
that Mr. Jacobson may make passive investments in a competitive enterprise the
shares of which are publicly traded if such investment constitutes less than one
(1) percent of the equity of such enterprise. Without implied limitation, the
forgoing covenant shall include hiring or attempting to hire for or on behalf of
himself or any such business activity or organization in the Designated Industry
any officer or other employee of Eastern Safety, Cabot Safety or any of their
respective affiliates, encouraging for or on behalf of himself or any such
business activity or organization in the Designated Industry any officer or
other employee to terminate his or her relationship or employment with Eastern
Safety, Cabot Safety or any of their respective affiliates, soliciting for or on
behalf of himself or any such business activity or organization in the
Designated Industry any customer, distributor, agent or supplier of Eastern
Safety, Cabot Safety or any of their respective affiliates, and diverting to any
Person (as hereinafter defined) any client or business opportunity of Eastern
Safety, Cabot Safety or any of their respective affiliates in the Designated
Industry. As of the date of this Agreement, Mr. Jacobson is not performing any
consulting or other duties for, and is not a party to any similar agreement
with, any business or venture competing with Eastern Safety, Cabot Safety or any
of their respective affiliates. For purposes of this Section 1, the term
"Designated Industry" shall mean (i) the business of manufacturing and selling
safety equipment and related products and any and all activities relating
thereto, and (ii) any other business conducted by Eastern Safety, Cabot Safety
or any of their respective affiliates or which Cabot Safety, Eastern Safety or
any of their respective affiliates contemplated or planned to engage in as of
the date hereof and as of the date when Mr. Jacobson ceases to be a consultant
of Eastern Safety for any reason.
(b) NON-COMPETITION PAYMENT. As additional consideration for the
execution and delivery by Mr. Jacobson of this Agreement, Eastern Safety agrees
to make twenty (20) quarterly payments in the amount of $12,500 each, with the
first such payment being due on the date hereof, subsequent payments being due
on April 1, July 1, October 1 and January 1 of each year and the last such
payment being due on October 1, 2000. Cabot Safety hereby agrees to guarantee
the payment of the foregoing consideration by Eastern Safety. If Mr. Jacobson
dies prior to receipt of all payments, provided in this Section 1(b), then the
unpaid amounts will be paid to his wife and, if she predeceases him, or dies
prior to receiving all such payments, then the unpaid amounts will be paid to
Mr. Jacobson's issue in equal shares per stirpes. "Disability" shall mean that
Consultant is unable to perform his normal duties because of his mental or
physical health. Such disability shall be confirmed by medical evidence
furnished by the Consultant.
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<PAGE> 54
(c) GEOGRAPHIC AREA. The provisions of Section 1(a) of this Agreement
shall apply in the following geographic areas:
(i) All states and countries in which any of Eastern Safety, Cabot
Safety or any of their respective affiliates are as of the date hereof
conducting any business activities or contemplating the commencement of
business activities;
(ii) All states and countries in which any of Eastern Safety, Cabot
Safety or any of their respective affiliates commence conducting business
activities during the term of this Agreement; and
(iii) The United States of America and the rest of the world.
SECTION 2. CONFIDENTIALITY. In view of the fact that Mr. Jacobson has for
many years served as President of Eastern Safety, Mr. Jacobson has had access to
confidential records, data, customer lists, trade secrets and similar
confidential information owned or used in the course of business by Eastern
Safety, Cabot Safety and their affiliates (the "Confidential Information"). Mr.
Jacobson agrees (a) to hold the Confidential Information in strict confidence,
(b) not to disclose the Confidential Information to any Person, and (c) not to
use, directly or indirectly, any of the Confidential Information for any
competitive or commercial purpose; PROVIDED, HOWEVER, that the limitations set
forth above shall not apply to any Confidential Information which (i) is then
generally known to the public; (ii) became or becomes generally known to the
public through no fault of Mr. Jacobson; or (iii) is disclosed in accordance
with an order of a court of competent jurisdiction or applicable law. On the
date hereof, all data, memoranda, customer lists, notes, programs and other
papers and items, and reproductions thereof relating to the foregoing matters in
Mr. Jacobson' possession or control, shall be returned to Cabot Safety or the
applicable affiliate and remain in its possession.
SECTION 3. SCOPE OF AGREEMENT. The parties acknowledge that the time,
scope, geographic area and other provisions of this Agreement have been
specifically negotiated by sophisticated commercial parties and agree that (a)
all such provisions are reasonable under the circumstances of the transactions
contemplated by the Stock Purchase Agreement, (b) are given as an integral and
essential part of the transactions contemplated by the Stock Purchase Agreement
and (c) but for the covenants of Mr. Jacobson contained in this Agreement, Cabot
Safety would not enter into the Stock Purchase Agreement or consummate the
transactions contemplated thereby. Mr. Jacobson has independently consulted with
his counsel and has been advised in all respects concerning the reasonableness
and propriety of the covenants contained herein, with specific regard to the
businesses conducted by Cabot Safety and its affiliates.
SECTION 4. SPECIFIC PERFORMANCE; SEVERABILITY. It is specifically
understood and agreed that any breach of the provisions of this Agreement by Mr.
Jacobson will result in irreparable injury to Eastern Safety, Cabot Safety and
their respective affiliates, that the remedy at law alone will be an inadequate
remedy for such breach and that, in addition to any other remedy it may have,
Eastern Safety, Cabot Safety and their affiliates shall be entitled to
50
<PAGE> 55
enforce the specific performance of this Agreement by Mr. Jacobson through both
temporary and permanent injunctive relief without the necessity of proving
actual damages. In the event that any covenant contained in this Agreement shall
be determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable by reason of its extending for too great a period of time or over
too great a geographical area or by reason of its being too extensive in any
other respect or by other reason, it shall be interpreted to extend only over
the maximum period of time for which it may be enforceable and/or over the
maximum geographical area as to which it may be enforceable and/or to the
maximum extent in all other respects as to which it may be enforceable, all as
determined by such court in such action. If it shall not be possible to so limit
or modify such invalid, illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or part of a provision had never been contained in this
Agreement. The existence of any claim or cause of action which Mr. Jacobson may
have against, Eastern Safety, Cabot Safety or any of their affiliates shall not
constitute a defense or bar to the enforcement of any of the provisions of this
Agreement and shall be pursued through separate court action by Mr. Jacobson.
SECTION 5. JURISDICTION. The parties hereby irrevocably submit to the
non-exclusive jurisdiction to enforce the covenants contained in this Agreement
of the courts of the State of New York. In the event that the courts of such
state shall hold such covenants unenforceable (in whole or in part) by reason of
the breadth of such scope or otherwise, it is the intention of the parties
hereto that such determination shall not bar or in any way affect the right of
Cabot Safety to the relief provided for herein in the courts of any other state
within the geographic scope of such covenants, as to breaches of such covenants
in such other respective states, the above covenants as they relate to each
state being, for this purpose, severable into diverse and independent covenants.
SECTION 6. NOTICES. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given if delivered, telegraphed or
mailed by certified or registered mail:
To Eastern Safety or Cabot Safety: With a copy to:
Cabot Safety Corporation Goodwin, Procter & Hoar
One Washington Mall, 8th Floor Exchange Place
Boston, MA 02108-2610 Boston, MA 02109-2881
Attn: Mark V.B. Tremallo Attn: Richard E. Floor, P.C.
General Counsel
To Mr. Jacobson: With a copy to:
17165 Royal Cove Way,
Boca Raton, Florida 33496 Paradise & Alberts, L.L.P.
630 Third Avenue
New York, NY 10017
Attn: Melvin Paradise, Esq.
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<PAGE> 56
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
SECTION 7. MISCELLANEOUS. This Agreement shall be governed by and construed
under the laws of the State of New York, and shall not be modified or discharged
in whole or in part except by an agreement in writing signed by Cabot Safety and
Mr. Jacobson. The prevailing party in any controversy hereunder shall be
entitled to reasonable attorneys' fees and expenses. The failure of any of the
parties to require the performance of a term or obligation or to exercise any
right under this Agreement or the waiver of any breach hereunder shall not
prevent subsequent enforcement of such term or obligation or exercise of such
right or the enforcement at any time of any other right hereunder or be deemed a
waiver of any subsequent breach of the provision so breached, or of any other
breach hereunder. This Agreement shall inure to the benefit of, and be binding
upon, successors of Cabot Safety by way of merger, consolidation or transfer of
substantially all the assets of Cabot Safety, and may not be assigned by Mr.
Jacobson. This Agreement supersedes all prior understandings and agreements
between the parties relating to the subject matter hereof (without limitation of
the Stock Purchase Agreement).
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first set forth above.
CABOT SAFETY CORPORATION
By:
------------------------------
John D. Curtin, Jr., Chairman
EASTERN SAFETY EQUIPMENT CO., INC.
By:
------------------------------
[Name, Title]
------------------------------
Alfred H. Jacobson
52
<PAGE> 57
Exhibit D
CONSULTING AGREEMENT
--------------------
AGREEMENT dated as of January __, 1996 by and among Cabot Safety
Corporation, a Delaware corporation ("Cabot Safety"), Eastern Safety Equipment
Co., Inc., a New York corporation ("Eastern Safety"), and Alfred H. Jacobson
("Consultant").
WHEREAS, Consultant, Cabot Safety, Eastern Safety and certain trusts (the
"Trusts") entered into a Stock Purchase Agreement dated September 19, 1995 (the
"Purchase Agreement"), pursuant to which Cabot Safety is acquiring on the date
hereof all of the Common Stock of Eastern Safety from Consultant and the Trusts;
and
WHEREAS, to induce Cabot Safety to purchase all of the shares of capital
stock of Eastern Safety pursuant to the Purchase Agreement, Consultant agreed to
execute this Agreement and the execution of this Agreement by Consultant is a
condition precedent to the consummation of the transactions contemplated by the
Purchase Agreement; and
WHEREAS, the parties hereto desire to enter into a consulting arrangement
whereby Consultant shall continue to advise and assist Eastern Safety on the
terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Consulting Arrangement.
----------------------
(a) Eastern Safety engages Consultant for a term (the "Term")
commencing on the date hereof and terminating on December 31, 2000 (the
"Termination Date"). During the Term of this Agreement Consultant agrees to:
(i) introduce Cabot Safety to Eastern Safety's key customers and
suppliers;
(ii) provide guidance on consolidations, relocations and staffing
decisions;
(iii) analyze new product developments or merchandising concepts;
(iv) attend key industry events and internal sales meetings; and
(v) provide general insight relating to strategies for the
future of Eastern Safety.
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<PAGE> 58
(b) During the Term of this Agreement, Consultant agrees to the
following minimum time commitment (subject to Section 1(d) below) for each of
the years encompassing the Term of this Agreement for the performance of the
services listed in Section 1(a) above:
Years Number of Days Per Year
----- -----------------------
1996 30
1997 20
1998, 1999 and 2000 10
(c) In addition, Consultant agrees that, if requested by Cabot Safety,
Consultant shall make himself available upon reasonable notice and on mutually
acceptable dates to perform services hereunder during the first year of the Term
of this Agreement, for up to 15 additional days (subject to Section 1(d) below).
Thereafter, any request by Cabot Safety to Consultant to make himself available
for additional days will be at Consultant's sole discretion.
(d) Consultant agrees that for purposes of Sections 1(b) and (c) above
reasonable travel time to and from locations within the continental United
States where Consultant is required to perform services pursuant to this
Agreement shall not be counted as part of the time devoted by Consultant to the
performance of services hereunder.
2. Compensation.
------------
(a) In consideration of Consultant's services as set forth in Section
1(b), Eastern Safety shall pay Consultant a fee equal to $37,500 per calendar
quarter for twenty calendar quarters (with the first such payment due on the
date hereof, subsequent payments being due on April 1, July 1, October 1 and
January 1 of each year and the last such payment being due on October 1, 2000.
Cabot Safety hereby agrees to guarantee the payment of the foregoing
consideration by Eastern Safety.
(b) If Cabot Safety or Eastern Safety requests that Consultant expend
time providing services hereunder in excess of the time specific in Section
1(b), Consultant will receive additional compensation at the rate of $2,500 per
day (subject to Section 1(d) above).
(c) During the Term of this Agreement, Cabot Safety shall provide
Consultant with medical coverage for Consultant and his spouse at no cost to
Consultant on the same terms and conditions as in effect from time to time for
Cabot Safety's employees generally. Such coverage shall be subject to (i) the
terms of the applicable plan documents (including, as applicable, provisions
granting discretion to the Board of Directors of Cabot Safety or any
administrative or other committee provided for therein or contemplated thereby)
and (ii) generally applicable policies of Cabot.
(d) Cabot Safety shall promptly reimburse Consultant for all
reasonable business expenses, including airfare, hotels, customer meals and
business telephone calls, incurred by Consultant during the Term of this
Agreement in the performance of services
54
<PAGE> 59
hereunder in accordance with Cabot Safety's practices for Cabot Safety's
employees with a similar level of responsibility, as in effect from time to
time.
(e) Cabot Safety and Eastern Safety agree and acknowledge that the
services to be provided by Consultant hereunder shall be performed principally
in Florida, Massachusetts and localities where principal trade shows and other
industry events take place, with travel to such other locations as Cabot Safety
or Eastern Safety shall reasonably indicate, as required by the type of services
to be performed by Consultant.
3. Termination for Breach; Death or Disability.
-------------------------------------------
(a) Notwithstanding anything to the contrary contained herein, Cabot
Safety can terminate this Agreement and the services of Consultant set forth
herein effective upon prior written notice of 30 days that Consultant has
breached his obligations (i) under Section 1 of this Agreement or (ii) Section 1
of a certain Non Competition Agreement of even date herewith by and among Cabot
Safety, Eastern Safety and Consultant which breach is not cured within such 30
days after notice.
(b) Consultant agrees that any breach of this Agreement could cause
irreparable damage to Cabot Safety. Cabot Safety shall have the right to
injunctive or other equitable relief (in addition to other legal obligations
hereunder).
(c) If during the Term of this Agreement Consultant dies or is unable
to perform his services hereunder due to disability (as defined below), Eastern
Safety shall continue to make the payments set forth in Section 2(a) for the
balance of the Term.
If Consultant dies prior to receipt of all payments provided in Section
2(a), then the unpaid amounts will be paid to his wife and, if she predeceases
him, or dies prior to receiving all such payments, then the unpaid amounts will
be paid to Consultant's issue in equal shares per stirpes. "Disability" shall
mean that Consultant is unable to perform his normal duties because of his
mental or physical health. Such disability shall be confirmed by medical
evidence furnished by the Consultant.
4. Confidential Information; Trade Secrets.
---------------------------------------
(a) Consultant acknowledges and agrees that information concerning the
work conducted by Cabot Safety and Eastern Safety may constitute confidential
information, trade secrets or copyrightable or patentable works or expressions,
including, but not limited to, knowhow, design information or concepts,
advertising concepts, matters which are subject to trademark, copyright or
patent protection, manufacturing information or concepts, marketing or sales
information, price and cost information, customer information, including points
of contact at customers and product requirements and buying habits of customers,
financial information regarding Cabot Safety and Eastern Safety, information
regarding suppliers, and all personnel information. Consultant further
acknowledges that such information will be entrusted to him by Cabot Safety and
Eastern Safety and that Consultant will take all steps necessary to protect the
confidentiality of such information, including
55
<PAGE> 60
abiding by all internal regulations, policies, procedures or safeguards to
protect such information from disclosure and to implement any necessary
regulations, procedures or safeguards to protect any such confidential
information or trade secret information from disclosure or to allow such
information in any way to lose its protection as intangible assets of Cabot
Safety or Eastern Safety. Consultant agrees to execute any documents necessary
to protect the rights or interests of Cabot Safety or Eastern Safety in such
inventions, patentable developments, copyrightable works, designs, trademarks,
advertising concepts or other confidential or trade secret information.
(b) During the Term and at all times thereafter, Consultant promises
and agrees not to reproduce or disclose to any other person or entity any trade
secrets or confidential information other than in connection with the
performance of his services hereunder, unless specifically authorized in writing
in advance by the Board of Directors of Cabot Safety to do so.
(c) Consultant also acknowledges that by virtue of his past employment
with Eastern Safety and his services hereunder he has had and will have access
to confidential information, trade secrets, copyrightable works or expressions,
design information or concepts, manufacturing information or concepts,
patentable information or concepts, advertising concepts, and other confidential
information and trade secrets of Eastern Safety as set forth more fully above,
which are the intangible assets of Eastern Safety. Consultant agrees that his
participation in the development of these intangible assets or his knowledge of
the existence of such information does not give rise to any rights on
Consultant's behalf to disclose or utilize these intangible assets or
information.
(d) Consultant acknowledges that during the course of his employment
with Eastern Safety and his services hereunder he has had and will obtain
knowledge and skills pertaining to Eastern Safety's industry, manufacturing
processes, methods of production, methods of buying and selling which are
"know-how" acquired by virtue of Consultant's relationship with Eastern Safety.
This "know-how" is also an intangible asset of Eastern Safety.
5. Miscellaneous.
-------------
(a) In case any of the provisions contained in this Agreement shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
any invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, but this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had been limited or modified
(consistent with its general intent) to the extent necessary so that it shall be
valid, legal and enforceable, or if it shall not be possible to so limit or
modify such invalid or illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such invalid or illegal or
unenforceable provision or part of a provision had never been contained herein
and the parties will use their best efforts to substitute a valid, legal and
enforceable provision which, insofar as practicable, implements the purpose and
intents thereof. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
56
<PAGE> 61
(b) This Agreement shall not be modified or discharged in whole or in
part except by an agreement in writing signed by the parties hereto. It shall
inure to the benefit of the successors of Cabot Safety and Eastern Safety by way
of merger, consolidation or transfer of substantially all of the assets of Cabot
Safety or Eastern Safety.
(c) Consultant's obligations hereunder shall not be deemed to
constitute employment by Cabot Safety or Eastern Safety of Consultant. Nothing
contained in this Agreement shall be construed to constitute Consultant as a
partner, employee or agent of Cabot Safety or Eastern Safety, not shall
Consultant hold himself out as such. Consultant has no right or authority to
incur, assume or create, in writing or otherwise, any warranty, liability or
other obligation of any kind, express or implied, in the name of or on behalf of
Cabot Safety or Eastern Safety, it being intended by both Consultant and Cabot
Safety or Eastern Safety that Consultant shall remain an independent contractor
responsible for it's own actions. Consultant agrees to indemnify and hold Cabot
Safety or Eastern Safety harmless from and against any damage or expenses,
including reasonable attorney's fees, arising out of a breach of the provisions
of this Section.
(d) Consultant shall not assign, transfer or otherwise dispose of this
Agreement in whole or in part to any individual, firm or corporation without the
prior written consent of Cabot Safety.
(e) This Agreement constitutes the entire agreement between the
parties hereto and supersedes all previous negotiations, agreements and
commitments with respect thereto, and shall not be released, discharged, changed
or modified in any manner except by instruments signed by duly authorized
officers or representatives of each of the parties hereto.
(f) All notices and other communications in connection with this
Agreement shall be in writing and shall be sent to the respective parties at the
following addresses, or to such other addresses as may be designated by the
parties in writing from time to time in accordance with this Section, by
registered or certified air mail, postage prepaid, or by express courier
service, service fee prepaid, or by telefax with a hard copy to follow via air
mail or express courier service in accordance with this Section.
TO EASTERN SAFETY OR
CABOT SAFETY: Cabot Safety Corporation
One Washington Mall, 8th Floor
Boston, MA 02108-2610
Attn: Mark V.B. Tremallo, General Counsel
With copy to: Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Attn: Richard E. Floor, P.C.
57
<PAGE> 62
TO CONSULTANT: Alfred H. Jacobson
17165 Royal Cove Way
Boca Raton, Florida 33496
With copy to: Paradise & Alberts, L.L.P.
630 Third Avenue
New York, NY 10017
Attn: Melvin Paradise, Esq.
All notices shall be deemed received (i) if given by hand, immediately, (ii) if
given by air mail, three (3) business days after posting, (iii) if given by
express courier service, the next business day in the jurisdiction of the
recipient, or (iv) if given by telefax, upon receipt thereof by the recipient's
telefax machine as indicated either in the sender's identification line produced
by the recipient's telefax machine or in the sender's transmission confirmation
report as produced electronically by the sender's telefax machine.
(g) This Agreement may be executed in counterparts, each of which
shall be deemed to be an original and all of which together shall be deemed to
be one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Consulting Agreement
under seal as of the date first set forth above.
CABOT SAFETY CORPORATION
By:
-----------------------------
John D. Curtin, Jr., Chairman
EASTERN SAFETY EQUIPMENT CO., INC.
By:
-----------------------------
Name/Title
---------------------------------
Alfred H. Jacobson
58
<PAGE> 63
EXHIBIT E TO STOCK PURCHASE AGREEMENT
-------------------------------------
FORM OF
-------
OPINION OF PARADISE & ALBERTS/COMPANY COUNSEL
---------------------------------------------
[Introduction]
1. The Company is a corporation organized, validly existing and in good
standing under the laws of the State of New York.
2. Each of the Trusts is duly organized and validly existing under the laws
of the State of [New York].
3. The Company has full corporate power and authority to execute, deliver
and perform the Stock Purchase Agreement and each agreement, document and
instrument to be executed and delivered by it, as the case may be, pursuant to
the Stock Purchase Agreement (the "Related Agreements") and to consummate the
transactions contemplated thereby. The execution, delivery and performance by
the Company of the Stock Purchase Agreement and each Related Agreement has been
duly and validly authorized by all necessary corporate action of the Company and
no further corporate proceedings on the part of the Company are required in
connection therewith.
4. Each of the Trusts has full right, power and authority under its
[Declaration of Trust] to enter into the Stock Purchase Agreement and each
Related Agreement and to carry out the transactions contemplated thereby. The
execution, delivery and performance by each of the Trusts of each of the Stock
Purchase Agreement and each Related Agreement has been duly authorized by all
necessary action and no further action or proceedings on the part of any of the
Trusts are required in connection therewith.
5. Each of the Stock Purchase Agreement and each Related Agreement has been
duly executed and delivered by each of the Stockholders and each of the
Beneficiaries. Each of the Stock Purchase Agreement and each Related Agreement
constitutes the legal, valid and binding obligation of each of the Stockholders
and each of the Beneficiaries enforceable against such party in accordance with
its terms, except to the extent that the enforcement of any such agreement or
any right or remedy thereunder is subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, preferential transfer, moratorium or
similar laws of general application affecting creditors' rights and to equitable
principles (regardless of whether enforceability is considered in a proceeding
at law or in equity) limiting the right to obtain specific performance or other
equitable relief.
6. The execution and delivery by each of the Stockholders, each of the
Beneficiaries and the Company of the Stock Purchase Agreement and each Related
Agreement and the consummation of the transactions contemplated thereby: (i) do
not violate any provision of the Articles of Incorporation or bylaws of the
Company; (ii) do not violate any provision of the [Declaration of Trust] of any
of the Trusts; (iii) do not violate any statute, rule or regulation applicable
to any of the of the Stockholders, the Beneficiaries or the Company or their
respective properties or, require any of the Stockholders, the Beneficiaries
59
<PAGE> 64
or the Company to obtain any approval, consent or waiver of, or to make any
filing with, any governmental or regulatory agency or administrative body,
except for filings required to be made with and approvals required to be
obtained from the authorities listed on Schedule 3.3 to the Stock Purchase
Agreement or, to our knowledge, to obtain any other approval, consent or waiver
of, or to make any other filing with, any other person or entity, in each case
that has not been obtained or made; and (iv) does not result in a breach of,
constitute a default under, accelerate any obligation under or give rise to a
right of termination of any contract or agreement known to us or any order,
writ, judgment, injunction, decree, determination or arbitration award known to
us to which any of the Stockholders, the Beneficiaries or the Company is a party
or by which the property of any of the Stockholders, the Beneficiaries or the
Company (as applicable) is bound or affected, or, to our knowledge, result in
the creation or imposition of any mortgage, pledge, lien, security interest or
other charge or encumbrance on any of the Company Shares or any property or
asset owned by the Stockholders, the Beneficiaries or the Company.
7. To our knowledge, after due inquiry, there are no actions, suits, claims
or proceedings pending or overtly threatened in writing against any of the
Stockholders, the Beneficiaries or the Company, whether at law or in equity, or
before or by any federal, state, municipal or other governmental body, which
seek to enjoin, restrain or prohibit or might result in damages in respect of,
the Stock Purchase Agreement or the complete consummation of the transactions
contemplated by the Stock Purchase Agreement.
8. Delivery of certificates for the Company Shares and payment therefor by
Buyer as provided in the Stock Purchase Agreement will pass to Buyer all of the
rights of the Company Shares, free and clear of any adverse claims, assuming
that Buyer is purchasing the Company Shares in good faith and is not aware,
after due inquiry, of any adverse claim with respect thereto as provided in the
Uniform Commercial Code.
9. The total authorized capital stock of the Company consists of ________
shares of Common Stock, of which ______ shares are issued and outstanding. All
of the Company Shares are duly authorized, validly issued, fully paid and
non-assessable. To our knowledge there are no outstanding options, warrants,
rights, commitments, agreements, understandings or preemptive rights to which
the Company is a party or by which the Company is bound relating to the issuance
or sale by the Company of, or outstanding securities convertible into or
exchangeable for, any shares of capital stock of any class of the Company. The
Stockholders are the record owners of the number of shares of Common Stock set
forth in Exhibit B to the Stock Purchase Agreement.
60
<PAGE> 65
EXHIBIT F TO STOCK PURCHASE AGREEMENT
-------------------------------------
FORM OF GENERAL RELEASE
-----------------------
This General Release is delivered pursuant to Section 6.l(g) of the Stock
Purchase Agreement (the "Stock Purchase Agreement") dated as of September __,
1995 by and among Cabot Safety Corporation, a Delaware corporation ("Buyer"),
Alfred H. Jacobson for himself and as trustee of the Trusts listed on Exhibit A
to the Stock Purchase Agreement (collectively, the "Trusts") (Jacobson and the
Trusts being referred to herein as the "Stockholders") and each of the
beneficiaries of the Trusts (the "Beneficiaries"). Capitalized terms used herein
and not otherwise defined shall have the meanings provided in the Stock Purchase
Agreement.
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the undersigned, the undersigned (the
"Securityholder") hereby releases and discharges Buyer and the Company, each of
the present and former shareholders, directors, officers, employees and agents
of Buyer and the Company, affiliates of any of the foregoing and their
respective successors and assigns (each a "Released Party") of and from any and
all commitments, indebtedness, suits, demands, obligations and liabilities of
contingent or otherwise every kind and nature, including claims and causes of
action both in law and in equity, which the Securityholder and/or [his heirs,
executors, administrators] [its Beneficiaries] or assigns ever had, now has or,
to the extent arising from or in connection with any act, omission or state of
facts taken or existing on or prior to the Closing Date, may have after the date
hereof, against any Released Party, whether asserted, unasserted, absolute,
contingent, known or unknown, other than claims or causes of action arising
under or pursuant to the Stock Purchase Agreement, and each document executed in
connection therewith, including without limitation the delivery of any cash
payment to be received by the Securityholder pursuant thereto [, the Consulting
Agreement among the Company, Buyer and the Securityholder of even date and the
Non-Competition Agreement among the Company, Buyer and the Securityholder of
even date.]
The undersigned hereby represents to the Released Parties that (i) [he] has
not assigned any claim or possible claim against any Released Party, (ii) [he]
fully intends to release all claims against the Released Parties including
without limitation unknown and contingent claims (other than those specifically
reserved above), and (iii) [he] has consulted with counsel with respect to the
execution and delivery of this general release and has been fully apprised of
the consequences hereof.
This general release shall be governed by and construed in accordance with
the internal laws of the State of New York.
EXECUTED as of __________________, 1996.
---------------------------
- ---------------------------
Witness
61
<PAGE> 66
EXHIBIT G TO STOCK PURCHASE AGREEMENT
-------------------------------------
FORM OF
-------
OPINION OF GOODWIN, PROCTER & HOAR/BUYER COUNSEL
------------------------------------------------
1. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
2. Buyer has full corporate power and corporate authority to execute and
deliver the Stock Purchase Agreement and each other agreement, document and
instrument executed and delivered by it pursuant to the Stock Purchase Agreement
(the "Related Agreements"), to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution, delivery and
performance by Buyer of the Stock Purchase Agreement and each Related Agreement
have been duly and validly authorized by all necessary corporate action of Buyer
and no further corporate proceedings on the part of Buyer are required in
connection therewith.
3. Each of the Stock Purchase Agreement and each Related Agreement has been
duly executed and delivered by Buyer. Each of the Stock Purchase Agreement and
each Related Agreement constitutes the legal, valid and binding obligation of
Buyer enforceable against such party in accordance with its terms, except to the
extent that the enforcement of any such agreement or any right or remedy
thereunder is subject to bankruptcy, insolvency, reorganization, fraudulent
conveyance, preferential transfers, moratorium or similar laws of general
application affecting creditors' rights and to equitable principles limiting the
right to obtain specific performance or other equitable relief.
4. The execution, delivery and performance by Buyer of the Stock Purchase
Agreement and each Related Agreement: (i) does not violate any provision of its
charter or by-law; (ii) does not violate any law, statute, rule or regulation
applicable to Buyer or its properties or require Buyer to obtain any approval,
consent or waiver of, or to make any filing with, any governmental or regulatory
agency or administrative body or, to our knowledge, to obtain any other
approval, consent or waiver of, or to make any other filing with, any other
person or entity, in each case that has not been obtained or made; and (iii)
does not and will not result in a breach of, constitute a default under,
accelerate any obligation under or give rise to a right of termination of any
material contract or agreement known to us to which Buyer is a party or any
order, writ of judgment, injunction, decree, determination or arbitration award
known to us to which Buyer is a party or by which the property of Buyer is bound
or affected, or, to our knowledge, result in the creation or imposition of any
mortgage, pledge, lien, security interest or other charge or encumbrance on any
of the capital stock of Buyer or any property or asset owned by Buyer.
Except as otherwise indicated, the foregoing opinion shall be subject to
federal and Massachusetts law and the Delaware General Corporate Law.
62
<PAGE> 1
EXHIBIT 2.21
AMENDMENT TO
STOCKHOLDERS' AGRREEMENT
AGREEMENT entered into as of July 3, 1996 by and among Vestar Equity
Partners, L.P. ("Vestar"), Cabot CSC Corporation, formerly known as Cabot Safety
Corporation ("Cabot"), Aearo Corporation, formerly known as Cabot Safety
Holdings Corporation ("Holdings"), Cabot Corporation ("Cabot Parent") and the
parties identified on the signature pages hereto as Management Investors (the
"Management Investors").
W I T N E S S E T H
WHEREAS, Vestar, Cabot, Holdings, Cabot Parent and Management
Investors, who beneficially own in excess of a majority of the shares owned by
all Management Investors, have reached a mutual understanding to amend the
Stockholders' Agreement dated July 11, 1995 between the parties (the
"Stockholders' Agreement") by changing Section 2.1 as set forth below.
NOW, THEREFORE, in order to consummate said amendments and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
(A) Section 2.1 of the Stockholders' Agreement is hereby replaced in
its entirety with the following:
2.1 Election and Removal of Directors. (a) Each Stockholder hereby
agrees that so long as this Agreement shall remain in effect such
Stockholder will vote all of the Common Stock owned or held of record
by such Stockholder so as to elect and, during such period, to continue
in office a Board of Directors of Holdings (the "Holdings Board") and
Holdings' direct subsidiary, Cabot Safety Corporation (the "CSC Board")
and, if so requested by Vestar and Cabot, each other Subsidiary of
Holdings (the "Subsidiary Boards"), each consisting solely of the
following:
(i) 3 designees of Vestar (the "Vestar Designees"), so long as
(A) the Vestar Relative Percentage is not less than 75 % or
(B) Vestar and its Affiliates beneficially own on a fully
diluted basis an aggregate number of shares of Common Stock
not less than 50% of the number of shares of Common Stock
beneficially owned on a fully diluted basis by Vestar on the
date of its execution and delivery of this Agreement; and
(ii) 2 designees of Cabot (the "Cabot Designees"), so long as (A)
the Cabot Relative Percentage is not less than 75% or (B)
Cabot and its Affiliates beneficially own on a fully diluted
basis an aggregate number of shares of Common Stock not less
than 50% of the number of shares of Common Stock
beneficially owned on a fully diluted basis by Cabot on the
date of its execution and delivery of this Agreement; and
<PAGE> 2
(iii) 2 additional directors who are neither partners, officers or
employees of any of Vestar and its Affiliates, nor officers
or employees of any of Cabot or its Affiliates, nor officers
or employees of Holdings or any of its Subsidiaries (the
"Independent Directors"), who will be nominated by the
Holdings Board; and
(iv) 2 designees of the Management Investors (the "Management
Directors"), so long as the Management Investors together
beneficially own on a fully diluted basis an aggregate
number of shares of Common Stock not less than 25 % of the
number of shares of Common Stock beneficially owned on a
fully diluted basis by the Management Investors on the
Closing Date, deeded that the two initial designees shall be
John D. Curtin, Jr. and Albert F. Young, Jr., and, in the
case of subsequent designees other than these initial
designees, shall be officers serving in similar capacities
designated by the holders of a majority of the Common Stock
held by Management Investors; and
(v) if Vestar exercises its right to enlarge the Holdings Board,
the CSC Board and the Subsidiary Boards pursuant to Section
2. 1 (b) hereof, 4 additional designees of Vestar (the
"Additional Vestar Designees"), so long as (A) the Vestar
Relative Percentage is not less than 75 % or (B) Vestar and
its Affiliates beneficially own on a fully diluted basis an
aggregate number of shares of Common Stock not less than 75
% of the number of shares of Common Stock beneficially owned
on a fully diluted basis by Vestar on the date of its
execution and delivery of this Agreement, provided that
Vestar will notify Cabot in writing in advance of the
identities of such Additional Vestar Designees and obtain
Cabot's approval thereof, which such approval shall not be
unreasonably withheld.
(b) So long as (A) the Vestar Relative Percentage is not less than 75 %
or (B) Vestar and its Affiliates beneficially own on a fully diluted basis an
aggregate number of shares of Common Stock not less than 75 % of the number of
shares of Common Stock beneficially owned on a fully diluted basis by Vestar on
the date of its execution and delivery of this Agreement (the condition
described in either (A) or (B) above being referred to herein as the "Vestar
Threshold"), Vestar shall have the right to request that the Holdings Board, the
CSC Board and the Subsidiary Boards, as applicable, be enlarged by 4 members to
a total, of 13 members, whereupon the Holdings Board, the CSC Board and the
Subsidiary Boards, as applicable, shall take such action as may be required to
so increase number of directors and each Stockholders shall vote all of the
Common Stock owned or held of record by such Stockholder so as to elect and,
during such period, to continue in office the Additional Vestar Designees
nominated pursuant to Section 2. 1(v) above. The election of the Additional
Vestar Designees shall be effected at a special meeting of stockholders
2
<PAGE> 3
called by the President of Holdings at the request of Vestar, at the next annual
meeting of stockholders or by written consent in lieu of a meeting of
stockholders, and at each subsequent annual meeting until Vestar requests that
the Holdings Board, the CSC Board and the Subsidiary Boards, as applicable, be
reduced to 9 members and the Additional Vestar Designees cease to serve as
directors. If and when the Vestar Threshold is no longer satisfied, the term of
office of each Additional Vestar Designee so elected shall terminate and the
Holdings Board, the CSC Board and the Subsidiary Boards, as applicable, shall
take such action as may be necessary to reduce the number of directors by 4.
(c) If at any time during the period specified in paragraph (a) above
any of the Stockholders entitled to designate directors pursuant to Section 2.
1(a)(i), (a)(ii), (a)(iv) or (a)(v) (excluding the Independent Directors) shall
notify the others of its desire to remove, with or without Cause, any director
of Holdings or any of its Subsidiaries previously designated by them and their
respective Permitted Transferees, each Stockholder shall vote all of the voting
Securities owned or held of record by it so as to remove such director.
(d) If at any time during the period specified in paragraph (a) above
any director previously designated by any Stockholder entitled to designate
directors pursuant to Section 2.1(a)(i), (a)(ii), (a)(iv) or (a)(v) (excluding
the Independent Directors) ceases to serve on the Holdings Board, the CSC Board
or any Subsidiary Board (whether by reason of death, resignation, removal or
otherwise), the Stockholder or Stockholders who designated such director shall
be entitled to designate a successor director to fill the vacancy created
thereby on the terms and subject to the conditions of paragraph (a). Each
Stockholder agrees that such Stockholder will vote all of the voting Securities
owned or held of record by such Stockholder so as to elect any such director.
(e) The parties hereto hereby agree that any individual designated as a
director of Holdings or any of its Subsidiaries may (and shall, at the request
of Vestar or Cabot) be removed for Cause by the Stockholders, if Cause for
removal exists. No such removal of an individual designated pursuant to this
Section 2.1 shall affect any of the Stockholders' rights to designate a
different individual pursuant to this Section 2. 1.
(f) Notwithstanding the foregoing, in the event that both Cabot and
Vestar and their respective Affiliates own on a fully diluted basis an aggregate
number of shares of Common Stock which is less than 10% of the number of shares
of Common Stock respectively owned by them on the Closing Date, then the
provisions of this Section 2. 1 shall terminate.
3
<PAGE> 4
(B) Section 4. 1 (a) of the Stockholders' Agreement is hereby amended by adding
at the end thereof the following new sentence:
Anything to the contrary in this Agreement notwithstanding, whether or
not a Common Stock Request is received by Holdings prior to July 11,
1998, Holdings shall effect the registration under the Securities Act
of all of the shares of Common Stock owned or to be acquired upon
conversion, exercise or exchange of Common Stock Equivalents by Vestar
and its Affiliates, Cabot and its Affiliates and the Management
Investors at such time, and shall use its best efforts to cause a
so-called "shelf" registration statement pursuant to Rule 415 under the
Securities Act with respect thereto to be declared effective on July
11, 1998, or as soon thereafter as practicable, and thereafter to
remain in effect, subject to customary interruption as reasonably
required in accordance with applicable law in connection with material
undisclosed corporate developments and the like, until all such shares
of Common Stock are eligible to be sold pursuant to Rule 144(k) under
the Securities Act.
(C) Except as specifically amended hereby, the Stockholders' Agreement shall
remain unchanged and continue in full force and effect.
[END OF TEXT]
4
<PAGE> 5
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
VESTAR EQUITY PARTNERS, L.P.
By: Vestar Associates, L.P.,
its general partner
By: VESTAR ASSOCIATES CORPORATION,
its general partner
By:
------------------------------------
Name:
Title:
CABOT CSC CORPORATION
By:
------------------------------------
Title:
Aearo Corporation (formerly Cabot Safety
Holdings Corporation)
By:
------------------------------------
Title:
CABOT CORPORATION
By:
------------------------------------
Title:
SEELIG FAMILY LIFETIME TRUST
By:
------------------------------------
Title:
------------------------------------
Leonard Lieberman
5
<PAGE> 6
MANAGEMENT INVESTORS:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
6
<PAGE> 1
Exhibit 2.22
AMENDMENT TO
STOCK PURCHASE AGREEMENT
dated April 25, 1996
by and among
CABOT SAFETY CORPORATION
("Buyer"),
PELTOR HOLDING AB
(the "Company"),
LEIF PALMAER INVEST AB
("LPAB"),
LEIF ANDERSSON INVEST AB
("LAAB")
and
ACTIVE I MALMO AB (publ.)
(the "Stockholder")
May 15, 1996
AMENDMENT TO STOCK PURCHASE AGREEMENT
<PAGE> 2
AMENDMENT TO
------------
STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT entered into as of May 15, 1996, by and among Cabot Safety
Corporation, a Delaware corporation ("Buyer"), Peltor Holding AB, & Swedish
corporation (the "Company"), AB Leif Palmaer Invest AB, a Swedish corporation
("LPAB"), Leif Andersson Invest AB, a Swedish corporation ("LAAB"), (the
Company, LPAB and LAAB collectively referred to as the "Companies"), and Active
i Malmo (publ.) a Swedish corporation (the "Stockholder").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Buyer, the Stockholder, LPAB and LAAB have reached a mutual
understanding to amend the Stock Purchase Agreement dated April 25, 1996 between
the parties by changing the Sections as set forth below in the manner stated in
Section 10.10 of the Stock Purchase Agreement.
NOW, THEREFORE, in order to consummate said amendments and in consideration
of the mutual agreements set forth herein, the parties hereto agree as follows:
(A) Section 1.2 of the Stock Purchase Agreement is hereby replaced in its
entirety by the following:
1.2 Purchase Price.
---------------
(a) In consideration of the sale by the Stockholder to Buyer of the Company
Shares, LPAB and LAAB Shares and in reliance upon the representations and
warranties of the Company, LAAB, LPAB and the Stockholder herein contained and
made at the Closing and subject to the satisfaction of all of the conditions
contained herein, Buyer agrees to pay to the Stockholder a total aggregate
consideration (the "Purchase Price") equal to:
(i) Sixty Five Million Five Hundred Thousand Dollars ($65,500,000); less
any dividends, distributions, and redemptions declared by the Company, LPAB or
LAAB after December 31, 1995, including without limitation the proposed dividend
of SEK 30,0 million described in the Company's annual report for the year ended
December 31, 1995 and disclosed in Schedule 3.2;
(ii) minus the Adjustment Amount (if any), to be determined in accordance
with Section 1.3.
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<PAGE> 3
(b) The Purchase Price shall be payable as follows:
(i) At the Closing, Buyer shall deliver to the Escrow Agent (as defined in
Section 1.9) Ten Million Dollars ($10,000,000) to be held as escrow funds (the
"Escrow Funds") as provided in the Escrow Agreement (as defined in Section 1.9);
(ii) At the Closing, Buyer shall pay to the Stockholder by wire transfer of
immediately available funds to an account of the Stockholder, written notice of
which account has been provided to Buyer not less than three (3) business days
prior to the Closing the difference between the amount set forth in clause
(a)(i) above and Ten Million Dollars ($10,000,000) delivered to the Escrow Agent
pursuant to clause (b)(i) above; and
(iii) The amount set forth in clause (a)(ii) above shall be determined and
paid in accordance with Section 1.3.
(B) Section 1.3(a) of the Stock Purchase Agreement is hereby replaced in its
entirety by the following:
1.3 Closing Statements; Purchase Price Adjustments.
-----------------------------------------------
(a) As soon as practicable following the Closing, but in no event later than
60 days following the Closing Date, the Company shall prepare in accordance with
generally accepted accounting principles in Sweden consistently applied by the
Company as if the Company were during all relevant periods an independent entity
("Swedish GAAP"), to have reviewed by Arthur Andersen & Co., LLP ("AA") and to
have delivered to the Stockholder (i) a consolidated balance sheet as of the
Closing Date (the "Closing Balance Sheet") of the Company and its subsidiaries,
(ii) a calculation of working capital (determined in accordance with Swedish
GAAP) as of the Closing Date for the Company and its subsidiaries on a
consolidated basis (the "Closing Working Capital"), (iii) a calculation of net
worth (determined in accordance with Swedish GAAP) as of the Closing Date for
the Company and its subsidiaries on a consolidated basis (the "Closing Net
Worth") and (iv) a consolidated statement of operations and statement of cash
flows of the Company and its subsidiaries for the period from January 1, 1996
through the Closing Date (the "Closing Income Statement") (the Closing Balance
Sheet, calculation of Closing Working Capital, calculation of Closing Net Worth
and Closing Income Statement shall be referred to herein collectively as the
"Closing Statements"). On the basis of the Closing Statements, the Stockholder
shall pay to Buyer the Adjustment Amount, as defined below, if the Adjustment
Amount is a negative number; subject, however, to the rights of the Stockholder
as provided in Section 1.3(b). A negative "Adjustment Amount" shall be payable
by the Stockholder if and to the extent that either (i) the Closing Net Worth is
less than SEK 96,0 million or (ii) the Closing Working Capital is less than SEK
38,8 million. Such Adjustment should be made on a dollar for dollar basis
calculated as by the exchange rate US$ for SEK on the Closing Date.
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date set forth above by their duly authorized representative.
BUYER
-----
CABOT SAFETY CORPORATION
ATTEST:
By: /s/ John D. Curtin, Jr.
- ---------------------------- ---------------------------------
[ ], secretary
PELTOR HOLDING AB
ATTEST:
/s/ Lennart Molvin By: /s/ Bo Hakansson
- ---------------------------- ---------------------------------
[ ], secretary
ACTIVE I MALMO AB (publ.)
ATTEST:
/s/ Lennart Molvin By: /s/ Bo Hakansson
- ---------------------------- ---------------------------------
[ ], secretary
LEIF PALMAER INVEST AB
ATTEST:
/s/ Lennart Molvin By: /s/ Bo Hakansson
- ---------------------------- ---------------------------------
[ ], secretary
LEIF ANDERSSON INVEST AB
ATTEST:
/s/ Lennart Molvin By: /s/ Bo Hakansson
- ---------------------------- ---------------------------------
[ ], secretary
<PAGE> 1
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AEARO CORPORATION
Aearo Corporation, a corporation organized and existing under the laws
of the State of Delaware (the "Company"), hereby certifies as follows:
I . The name of the Company is Aearo Corporation. The date of the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was March 10, 1995. The name under which the Company
filed its original Certificate of Incorporation was CBAQ Holdings Corporation.
2. This Second Amended and Restated Certificate of Incorporation
amends, restates and integrates the provisions of the Amended and Restated
Certificate of Incorporation of the Company filed with the Secretary of State of
the State of Delaware on July 7, 1995 (the "First Amended and Restated
Certificate of Incorporation"), was duly adopted by the Board of Directors of
the Company in accordance with the provisions of Sections 141(f), 242 and 245 of
the General Corporation Law of the State of Delaware (the "DGCL") and was duly
adopted by the stockholders of the Company in accordance with the applicable
provisions of Sections 242 and 245 of the DGCL.
3. The text of the First Amended and Restated Certificate of
Incorporation is hereby amended and restated in its entirety to provide as
herein set forth in full.
ARTICLE I
NAME
The name of the Company is Aearo Corporation.
<PAGE> 2
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Company in the State of
Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
PURPOSES
The nature of the business or purposes to be conducted or promoted by
the Company is to engage in any lawful act or activity for which corporations
may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
Section 1. Number of Shares.
The total number of shares of capital stock which the Company shall
have the authority to issue is 60,200,000 shares, of which (a) 200,000 shares
shall be redeemable preferred stock, par value $.01 per share (the "Redeemable
Preferred Stock"), (b) 10,000,000 shares shall be preferred stock, par value
$.01 per share (the "Undesignated Preferred Stock") and (c) 50,000,000 shares
shall be common stock, par value $.01 per share (the "Common Stock"). As set
forth in this Article IV, the Board of Directors or any authorized committee
thereof is authorized from time to time to establish and designate one or more
series of Undesignated Preferred Stock, to fix and determine the variations in
the relative rights and preferences as between the different series of
Undesignated Preferred Stock in the manner hereinafter set forth in this Article
IV, and to fix or alter the number of shares comprising any such series and the
designation thereof to the extent permitted by law.
The number of authorized shares of the class of Undesignated Preferred
Stock may be increased or decreased (but not below the number of shares
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock entitled to vote, without a vote of the holders of the Undesignated
Preferred Stock, pursuant to the resolution or resolutions establishing the
class of Undesignated Preferred Stock or this Second Amended and Restated
Certificate of Incorporation, as it may be amended from time to time.
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<PAGE> 3
Section 2. General.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, Sections 3, 4
and 5 of this Article IV.
Section 3. Common Stock.
Subject to all of the rights, powers and preferences of the
Undesignated Preferred Stock and the Redeemable Preferred Stock, and except as
provided by law or in this Article IV (or in any certificate of designation of
any series of Undesignated Preferred Stock) or by the Board of Directors or any
authorized committee thereof pursuant to this Article IV:
(a) the holders of the Common Stock shall have the exclusive
right to vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for
payment upon the Common Stock out of any assets or funds of the Company legally
available for the payment of dividends, but only when and as declared by the
Board of Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution
or winding up of the Company, the net assets of the Company shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests.
Section 4. Undesignated Preferred Stock.
Subject to any limitations prescribed by law, the Board of Directors or
any authorized committee thereof is expressly authorized to provide for the
issuance of the shares of Undesignated Preferred Stock in one or more series of
such stock, and by filing a certificate pursuant to applicable law of the State
of Delaware, to establish or change from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and the relative, participating, optional or other special rights of the shares
of each series and any qualifications, limitations and restrictions thereof. Any
action by the Board of Directors or any authorized committee thereof under this
Section 4 shall require the affirmative vote of a majority of the directors then
in office or a majority of the members of such committee. The Board of Directors
or any authorized committee thereof shall have the right to determine or fix one
or more of the following with respect to each series of Undesignated Preferred
Stock to the extent permitted by law:
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<PAGE> 4
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Company;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Company and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued;
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Undesignated
Preferred Stock (or series thereof) and whether such shares may be reissued as
shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications, limitations
and restrictions thereof as the Board of Directors or any authorized committee
thereof may deem advisable.
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<PAGE> 5
Section 5. Redeemable Preferred Stock.
(a) CERTAIN DEFINITIONS.
As used herein, the following terms shall have the following meanings
(with terms defined in the singular having comparable meanings when used in the
plural and vice versa), unless the context otherwise requires:
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under the
Exchange Act.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means a day other than a Saturday, Sunday, national or
New York State holiday or other day on which commercial banks in New York City
are authorized or required by law to close.
"Call Redemption" has the meaning specified in Section 6(a) hereof.
"Capital Stock" means any and all shares, interests, participation,
rights or other equivalents (however designated) of corporate stock.
"Common Stock" means the common stock, par value $.01 per share, of
the Company and any other class of common stock hereafter authorized by the
Company from time to time.
"Company" means Aearo Corporation (formerly known as Cabot Safety
Holdings Corporation) or any successor entity thereof.
"Dividend Payment Date" means the September 30, December 31, March 31
and June 30, of each year.
"Dividend Period" means the Initial Dividend Period and, thereafter,
each Quarterly Dividend Period.
"Dividend Record Date" means with respect to the dividend payable on
each Dividend Payment Date, the immediately preceding September 15, December 15,
March 15, and June 15 or such other record date as may be designated by the
Board of Directors with respect to the dividend payable on such Dividend Payment
Date; provided, however, that such record date may not be more than sixty (60)
days or less than ten (10) days prior to such Dividend Payment Date.
"Exchange Act" means the Securities Exchange Act of 1934, and the rules
and regulations promulgated thereunder, as the same may be amended from time to
time.
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<PAGE> 6
"Holder" means a registered holder of shares of Preferred Stock.
"Initial Dividend Period" means the dividend period commencing on the
Original Issue Date and ending on and including September 30, 1995.
"Junior Securities" has the meaning specified in Section (c)(i) hereof.
"Liquidation Preference" means the Original Liquidation Preference,
plus an amount equal to all accrued and unpaid dividends, including dividends on
unpaid dividends, whether or not declared (including an amount equal to a
prorated dividend from the last Dividend Payment Date to the date such
Liquidation Preference is being determined), with dividends that would otherwise
be payable in additional shares of Preferred Stock being valued at $1,000 per
share. The Liquidation Preference of a share of Preferred Stock will increase on
a daily basis as dividends accrue on such share, whether or not declared, and
will decrease only to the extent such dividends are actually paid, all as
provided in Section (d) hereof.
"Original Issue Date" means the date upon which the Preferred Stock was
originally issued by the Company.
"Original Liquidation Preference" means $1,000 per share of Preferred
Stock.
"Parity Securities" has the meaning specified in Section (c)(ii)
hereof.
"Person" means any individual, corporation, partnership, trust, joint
stock company, business trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Preferred Stock" means the 12.5% Preferred Stock, par value $.01 per
share, of the Company authorized by this Certificate of Designations (as the
same may be amended from time to time).
"Quarterly Dividend Period" means the quarterly period commencing on
and including the day after the immediately preceding Dividend Payment Date and
ending on and including the immediately subsequent Dividend Payment Date.
"Redemption Date" has the meaning specified in Section (f)(iii) hereof.
"Redemption Notice" has the meaning specified in Section (f)(ii)
hereof.
"Redemption Price" means a price per share equal to the Liquidation
Preference as of the applicable Redemption Date.
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<PAGE> 7
"SEC" means the Securities and Exchange Commission.
"Senior Financing Debt" means (i) the Credit Agreement dated as of July
11, 1995 among Cabot Safety Acquisition Corporation, the lenders parties thereto
and Bankers Trust Company, as administrative agent, as such agreement may be
amended or supplemented from time to time (the "Credit Agreement"), (ii) the
12 1/2% Senior Subordinated Notes due 2005 issued by Cabot Safety Acquisition
Corporation (the "Senior Subordinated Notes"), (iii) any agreement extending the
maturity of, or restructuring all or any portion of, the debt under the Credit
Agreement or the Senior Subordinated Notes or any successor agreements thereto
and (iv) any agreement with one or more financial institutions refinancing all
or any portion of the debt under the Credit Agreement or the Senior Subordinated
Notes or any successor agreements thereto.
"Stockholders' Agreement" shall mean the Stockholders' Agreement, dated
as of July 11, 1995, among Vestar Equity Partners, L.P., Cabot CSC Corporation,
Cabot Corporation, the Company, and the other parties thereto, as amended as of
July 3, 1996.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which fifty percent (50%)
or more of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or fifty percent (50%) or more of the
equity interest therein, is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the other Subsidiaries of such
Person or a combination thereof.
(b) DESIGNATION.
The series of preferred stock authorized hereunder shall be designated
as the "12.5% Preferred Stock." The number of shares constituting such series
shall be 180,000. The par value of the Preferred Stock shall be $.01 per share.
All shares of Preferred Stock shall be identical with one another in all
respect.
(c) RANK.
The Preferred Stock shall rank, with respect to dividend rights and
rights on liquidation, dissolution and winding-up of the affairs of the Company:
(i) senior to all classes or series of Common Stock of the
Company and to all classes and series of stock of the Company now or
hereafter authorized, issued or outstanding which by their terms
expressly provide that they are junior to the Preferred Stock
(collectively referred to herein as "Junior Securities");
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<PAGE> 8
(ii) on a parity with all classes and series of stock of the
Company now or hereafter authorized, issued or outstanding which by their terms
expressly provide that they shall rank on a parity with the Preferred Stock
(collectively referred to herein as "Parity Securities"); and
(iii) junior to all other classes or series of Capital Stock of
the Company now or hereafter issued.
(d) DIVIDENDS, ETC.
(i) The Holders of outstanding shares of Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available for the payment of dividends, dividends at the rate per
share of 3.125% of the Original Liquidation Preference per quarter. All
dividends shall be cumulative and shall be payable in arrears on each Dividend
Payment Date commencing on September 30, 1995, in preference to and with
priority over dividends on Junior Securities. Such quarterly dividends (whether
payable in cash or stock or both) shall be fully cumulative and shall accrue
(whether or not earned or declared, whether or not there are funds legally
available therefor), without interest from the first day of the quarterly period
in which such dividend may be payable as herein provided, except that with
respect to the first quarterly dividends such dividend shall accrue from the
Original Issue Date. Any dividend payments made with respect to Preferred Stock
may be made, subject to the terms hereof, at the option of and in the sole
discretion of the Board of Directors, in cash or, in full or in part, by issuing
fully paid and nonassessable shares of Preferred Stock such that the Original
Liquidation Preference of the shares of Preferred Stock so issued plus the
amount of cash dividend paid in part, if any, is equal to the amount of the cash
dividend which would otherwise be paid on such Dividend Payment Date if such
dividend were paid entirely in cash; provided that if the Company intends to pay
dividends on any Parity Securities other than in Junior Securities or Parity
Securities, prior to the payment of such dividend, the Company shall first set
aside and irrevocably deposit in trust for the Holders of the Preferred Stock
money sufficient to pay, or shall pay to such Holders in cash, the then current
quarterly dividend on the Preferred Stock. The issuance of such shares of
Preferred Stock (plus the amount of cash dividends, if any, paid together
therewith) shall constitute full payment of such dividend. In no event shall an
election by the Board of Directors to pay dividends, in full or in part, in cash
on any Dividend Payment Date preclude the Board of Directors from electing
either such alternative in respect of all or any portion of any subsequent
dividend.
(ii) All dividends and distributions paid with respect to shares
of the Preferred Stock pursuant to Section (d)(i) hereof shall be paid pro rata
to the Holders entitled thereto. If the Board of Directors elects on any
Dividend Payment Date to pay
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<PAGE> 9
any dividend partially in shares of Preferred Stock, the proportion of such cash
and shares of Preferred Stock shall be the Same for each outstanding share of
Preferred Stock. No interest shall be payable in respect of any dividend payment
or payments on the Preferred Stock which may be in arrears. Any dividend not
paid pursuant to this Section (d) shall be fully cumulative and shall accrue
(whether or not earned or declared), within interest as set forth in Section
(d)(i) hereof and shall be in arrears until paid. Dividends shall accrue as set
forth in Section (d)(i) hereof (whether or not earned or declared, whether or
not permitted under any agreement of the Company and whether or not there are
funds legally available therefor), without interest on any such dividend which
is in arrear as through such dividend had been paid on the relevant Dividend
Payment Date in shares of Preferred Stock pursuant to Section (d)(i) hereof.
(iii) The Company shall not declare, pay or set apart for payment
any dividend on any of the Junior Securities or make any distribution in respect
thereof either directly or indirectly and whether in cash, obligations or shares
of the Company or other property, unless (a) the Company shall have satisfied
all of its redemption and repurchase obligations under Section (f) hereof, if
any, (b) in the case of a dividend or distribution other than a dividend or
distribution payable solely in additional Junior Securities, dividends shall
have been paid in full in respect of the Preferred Stock on all Preferred Stock
shall have been redeemed by the Company pursuant to Section (f) hereof or funds
shall have been redeemed by the Company pursuant to Section (f) hereof or funds
shall have been set apart sufficient for such redemption and (c) the Company is
in compliance with any and all of its covenants hereunder.
(iv) Whenever dividends on the Preferred Stock are in arrears,
the Company shall not declare dividends on or make any other distribution in
respect of any Parity securities except for dividends paid pro rata on the
Preferred Stock.
(v) Each fractional share of Preferred Stock outstanding shall be
entitled to a ratably proportionate amount of dividends accruing with respect to
each outstanding share of Preferred Stock pursuant to Section (d)(i) hereof, and
all such dividends with respect to such outstanding fractional shares shall be.
fully cumulative and shall accrue (whether or not declared), and shall be
payable in the same manner and at such times as provided for in Section (d)(i)
hereof with respect to dividends on each outstanding share of Preferred Stock.
The amount of dividends accrued on the Preferred Stock for any period less than
a full Quarterly Dividend Period (including the Initial Dividend Period) shall
be equal to a pro rata portion of the total dividend payable for the Quarterly
Dividend Period during which such period occurs, based on the actual number of
days elapsed in such period for which payable and the total number of days in
the applicable Quarterly Dividend Period. Dividends shall accrue on a daily
basis during each Dividend Period as provided above, and the Liquidation
Preference of each outstanding share of Preferred Stock shall be correspondingly
increased on a daily
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<PAGE> 10
basis. Each Such dividend shall be payable to Holders of record as their names
shall appear on the stock books Of the Company on the Dividend Record Date for
such dividends, except that dividend in arrears for any past Dividend Payment
Date may be declared and paid at any time without reference to such regular
Dividend Payment Date to Holder of record on such date not more than sixty (60)
days or less than ten (10) days prior to the date of payment as shall be
determined by the Board of Directors.
(vi) Dividends shall cease to accrue in respect of any particular
share of Preferred Stock on the Redemption Date with respect thereto.
(vii) The Company shall not enter into any agreement that
prohibits, conflicts with or would be breached by the Company's performance of
its obligations hereunder.
(e) PAYMENT ON LIQUIDATION.
(i) Upon any involuntary liquidation, dissolution or winding-up
of the affairs of the Company, the Holders of Preferred Stock will be entitled
to receive out of the assets of the Company available for distribution to the
holders of its Capital Stock, whether such assets are capital or surplus, (A) an
amount in cash per share equal to the Liquidation Preference determined as of
the date of such involuntary liquidation, dissolution or winding-up, before any
payment or other distribution is made on any winding-up, before any payment or
other distribution is Junior Securities, including Common Stock of the Company
and (B) cash per share on a ratable basis with the holders of Party Securities,
up to the amount of the Liquidation Preference determined as of the date of such
involuntary liquidation, dissolution or winding-up. Holders of Preferred Stock
shall not be entitled to any other distribution in the event of involuntary
liquidation, dissolution or winding up of the affairs of the Company. If upon
any involuntary liquidation, dissolution or winding up of the affairs of the
Company, the assets of the Company are not sufficient to pay in full the
liquidation payments payable to the holders of outstanding shares of the
Preferred Stock and the holders of any Parity Securities, then all such holders
shall share equally and ratably in any distribution of assets in proportion to
the full liquidation payments determined as of the date of such involuntary
liquidation, dissolution or winding-up, to which each of them is entitled.
(ii) For purposes of this Section (e) only, neither the sale,
lease, conveyance, exchange or transfer (for cash, shares of stock, securities
or other consideration) of all or substantially all of the property or assets of
the Company nor the consolidation or merger of the Company with or into one or
more corporations shall be deemed to be a liquidation, dissolution or winding-up
of the affairs of the Company unless such sale, lease, conveyance, exchange,
transfer, consolidation or merger shall be in connection with any such
liquidation, dissolution or winding-up.
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(f) REDEMPTION.
(i) Call Redemption. The Company may redeem at the option of the
Company in its sole discretion, to the extent it has funds legally available
therefor, at any time or from time to time, in whole or in part, shares of
Preferred Stock (a "Call Redemption") at the Redemption Price. With respect to
any Call Redemption of fewer than all the outstanding shares of Preferred Stock,
the number of shares to be redeemed shall be determined by the Board of
Directors and the shares to be redeemed shall be selected pro rata.
(ii) Notice of Call Redemption. Notice of any Call Redemption of
shares of Preferred Stock, specifying the time and place of redemption and the
Redemption Price (a "Redemption Notice"), shall be sent by overnight delivery
service to each Holder of Preferred Stock to be redeemed, at the address for
such Holder shown on the Company's record not more than sixty (60) nor less than
thirty (30) days prior to the Redemption Date. If less than all the shares of
Preferred Stock owned by such Holder are then to be redeemed, the Redemption
Notice shall also specify the number of shares which are to be redeemed;
provided, however, that no failure to give such Redemption Notice nor any defect
therein shall affect the validity of the procedure for the redemption of any
shares of Preferred Stock to be redeemed except as to the Holder to whom the
Company has failed to give said Redemption Notice or except as to the Holder
whose Redemption Notice was defective. Each such Redemption Notice shall state:
(i) the Redemption Date; (ii) the Redemption Price; (iii) the number of shares
of Preferred Stock to be redeemed and, if fewer than all the shares of Preferred
Stock held by a Holder are to be redeemed, the number of shares thereof to be
redeemed from such Holder; (iv) the manner and place or places at which payment
for the shares of Preferred Stock offered for redemption will be made,
presentation and surrender to the Company of the certificates evidencing the
shares being redeemed; (v) that dividends on the shares of Preferred Stock being
redeemed shall cease to accrue on the Redemption Date unless the Company
defaults in the payment of the Redemption Price; and (vi) that the rights of
Holden of Preferred Stock as stockholder of the Company with respect to shares
being redeemed shall terminate as of the Redemption Date unless the Company
defaults in the payment of the Redemption Price. Upon mailing any such
Redemption Notice, the Company shall become obligated to redeem at the
Redemption Price on the applicable Redemption Date all shares of Preferred
Stock therein specified.
(iii) Redemption Date. The Company shall fix the date for a Call
Redemption (the "Redemption Date") no earlier than thirty (30) but not more than
sixty (60) days after the Redemption Notice is sent as set forth in Section
(f)(ii) hereof.
(iv) Payment and Surrender. On any Redemption Date, the full
Redemption Price shall become payable in cash for the shares of Preferred Stock
being redeemed on such Redemption Date. As a condition of payment of the
Redemption Price, each Holder of Preferred Stock must surrender the certificate
or certificates representing the shares of
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<PAGE> 12
Preferred Stock being redeemed to the Company in the manner and at the place
designated in the Redemption Notice. Each surrendered certificate shall be
canceled and refired. All redemption payments will be made to the Holders of the
shares being redeemed.
(v) Termination. On any Redemption Date, unless the Company
defaults in the payment in full of the Redemption Price, dividends on the
Preferred Stock called for redemption shall cease to accumulate, and all rights
of Holders of such redeemed shares shall terminate, except for the right to
receive the Redemption Price.
(g) CERTAIN COVENANTS.
(i) Redemptions, Etc.
(A) No Junior Securities, nor any warrants, rights, calls or
options exercisable for or convertible into, or any obligations
evidencing the right to purchase or acquire, any Junior Securities, may
be repurchased, redeemed or otherwise acquired or retired for value,
either directly or indirectly , nor may funds be apart or payment with
respect thereto either directly or indirectly, whether in cash,
obligations or shares of the Company or other property, so long as any
shares of Preferred Stock shall be outstanding; provided, that the
limitations of the foregoing sentence shall not apply to the repurchase
of such Junior Securities, warrants, rights, calls, options or
obligations (including any accrued interest or dividends thereon) owned
by any employee of the Company or any of its Subsidiaries or any of
such employee's permitted transferees upon the death, disability,
retirement of other termination of employment of such employee pursuant
to the terms of a subscription agreement or option agreement between
the Company and such employee to the extent that such repurchase is not
an event which would constitute (or with notice or lapse of time or
both would constitute) an event of default (which event of default has
not be cured or waived) under any Senior Financing Debt.
(B) Parity Securities, nor any warrants, rights, calls or options
exercisable for or convertible into, or any obligations evidencing the
right to purchase or acquires any Parity Securities, may be
repurchased, redeemed or otherwise acquired or retired for value either
directly or indirectly, nor may funds be set apart for payment with
respect thereto either directly or indirectly, whether in cash,
obligations or shares of the Company or other property, so long as any
seemed dividends on the Preferred Stock shall remain unpaid
(ii) Subsidiary Payments.
The Company shall not permit any Subsidiary of the Company to Make any
payments in respect of dividends or other distributions on, or repurchase,
redemption, or other
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acquisition or retirement for value of, either directly or indirectly,
securities of the Company of any class for any reason unless the Company
would be permitted by this Section (g) of Section (d) hereof to make such
payments.
(h) VOTING RIGHTS.
(i) Preferred Stock, except as otherwise required by law or as
provided in this Section (h), shall be non-voting. The increase or decrease in
the amount of authorized capital stock any class, including Preferred Stock,
shall not require the consent of the holders of Preferred Stock and shall not be
deemed to materially and adversely affect the specified designations,
preferences or special rights of the Preferred Stock.
(ii) Without the written approval of each Holder of shares of
Preferred Stock then outstanding, the Company will not merge or consolidate with
or into any other Person in any transaction in which the Common Stock would be
converted into or exchanged, in whole or in part, for cash (other than in
respect of factional shares), securities or other property other than common
stock of the surviving or resulting corporation, unless the consideration
payable to the Holders of Preferred Stock in such transactions an amount in cash
equal to the Liquidation Preference of such Preferred Stock.
(iii) The written approval of each Holder of shares of Preferred
Stock then outstanding shall be necessary for authorizing, effecting or
validating the amendment, alteration or repeat of any of the provisions of the
Certificate of Incorporation or of any certificate amendatory thereof or
supplemental thereto (including any Certificate of Designation or any similar
document relating to any series of Preferred Stock) which would adversely affect
the preferences, rights, powers or privileges of the Preferred Stock;
(i) MUTILATED OR MISSING PREFERRED STOCK CERTIFICATES.
If any of the Preferred Stock certificates shall be mutilated, lost,
stolen or destroyed, the Company shall issue, in exchange and substitution for
any upon cancellation of the mutilated Preferred Stock certificate, or in lieu
of and substitution for the Preferred Stock certificate lost, stolen or
destroyed, a new Preferred Stock certificate of like tenor and representing an
equivalent amount of shares of Preferred Stock, but only upon receipt of
evidence of such loss, theft or destruction of such Preferred Stock certificate
and indemnity, if requested.
(j) REISSUANCE OF PREFERRED STOCK.
Shares of Preferred Stock that have been issued and reacquired in any
manner, including shares purchased or redeemed or exchanged, shall (upon
compliance with any applicable provisions of the laws of the State of Delaware)
have the status of authorized and
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unissued shares of preferred stock undesignated as to series and, subject to
Section (h) hereof, may be redesigned and reissued as part of any series of
preferred stock other than the Preferred Stock.
(k) BUSINESS DAY.
If any payment, redemption or exchange shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment, redemption
or exchange shall be made on the immediately succeeding Business Day.
(l) HEADINGS OF SUBDIVISIONS.
The headings of various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the
provisions hereof.
(m) SEVERABILITY OF PROVISIONS.
If any right, preference or limitation of the Preferred Stock set forth
in these resolutions and the Certificate of Designations filed pursuant hereto
(as such Certificate of Designations may be amended from time to time) is
invalid, unlawful or incapable of being enforced by reason of any rule or law or
public policy, all other rights, preferences and limitations set forth in such
Certificate of Designation, as amended, which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless as expressed herein.
(n) NOTICE TO THE COMPANY
All notices and other communications required or permitted to be given
to the Company hereunder shall be made by courier to the Company at its
principal executive offices (currently located on the date of the adoption of
these resolutions at the following address: Cabot Safety Holdings Corporation,
One Washington Mall - 8th Floor, Boston, MA 02108- 2610. Attention: General
Counsel. Minor imperfections in any such notice shall not affect the validity
thereof.
(o) LIMITATIONS.
Except as may otherwise be required by law, the shares of Preferred
Stock shall not have any powers, preferences or relative, participating,
optional or other special rights other than those specifically set forth in this
resolution (as such resolution may be amended from time to time) or otherwise in
the certificate of incorporation of the Company.
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<PAGE> 15
No share or shares of the Redeemable Preferred Stock acquired by the Company
by reason of redemption, purchase or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares which the
Company shall be authorized to issue. The Company may from time to time take
such appropriate corporate action as may be necessary to reduce the authorized
number of shares of the Redeemable Preferred Stock accordingly.
ARTICLE V
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of the
Company at any annual or special meeting of stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be taken or effected by a written consent of stockholders in lieu thereof,
provided, however that (a) action solely with respect to the removal and
replacement of a director pursuant to Section 5(x) of Article VI hereof, may be
taken by written consent of stockholders in lieu of a meeting, so long as Vestar
Equity Partners, L.P, is a signatory to such written consent and such action is
approved by holders of a majority of the shares then entitled to vote at an
election of directors, (b) action solely with respect to the removal and
replacement of a director pursuant to Section 5(y) of Article VI hereof, may be
taken by written consent of stockholders in lieu of a meeting, so long as Cabot
Corporation is a signatory to such written consent and such action is approved
by holders of a majority of the shares then entitled to vote at an election of
directors and (c) action solely with respect to the removal and replacement of a
director pursuant to Section 5(z) of Article VI hereof, may be taken by written
consent of stockholders in lieu of a meeting, so long as Management Investors
(as defined in that certain Stockholders' Agreement dated as of July 11, 1995,
among Vestar Equity Partners, L.P., Cabot CSC Corporation, Cabot Corporation,
the Company, and the other parties thereto, as amended as of July 3, 1996, but
without giving effect to any subsequent amendments (the "Stockholders'
Agreement")) holding at least a majority of the shares of Common Stock then
beneficially owned by all Management Investors are signatories to such written
consent and such action is approved by holders of a majority of the shares then
entitled to vote at an election of directors.
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<PAGE> 16
ARTICLE VI
DIRECTORS
Section 1. General.
The business and affairs of the Company shall be managed by or under the
direction of the Board of Directors except as otherwise provided herein or
required by law.
Section 2. Election of Directors.
Election of directors need not be by written ballot unless the By-laws of
the Company shall so provide.
Section 3. Terms of Directors.
The number of directors of the Company shall be fixed by resolution duly
adopted from time to time by the Board of Directors. The directors, other than
those who may be elected pursuant to Section 2.1(a)(v) of the Stockholders'
Agreement, and those who may be elected by the holders of any series of
Undesignated Preferred Stock of the Company, shall be classified, with respect
to the term for which they severally hold office, into three classes, as nearly
equal in number as possible. The initial Class I Directors of the Company shall
be [INSERT NAMES]; the initial Class II Directors of the Company shall be
[INSERT NAMES]; and the initial Class III Directors of the Company shall be
[INSERT NAMES]. The initial Class I Directors shall serve for a term expiring at
the annual meeting of stockholders to be held following the end of the Company's
1997 fiscal year; the initial Class II Directors shall serve for a term
expiring, at the annual meeting of stockholders to be held following the end of
the Company's 1998 fiscal year; and the initial Class III Directors shall serve
for a term expiring at the annual meeting of stockholders to be held following
the end of the Company's 1998 fiscal year. At each annual meeting of
stockholders, the successor or successors of the class of directors whose term
expires at that meeting shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at such meeting and entitled to
vote on the election of directors, and shall hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election. The directors elected to each class shall hold office until
their successors are duly elected and qualified or until their earlier
resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Second Amended and Restated Certificate of Incorporation, the
holders of any one or more series of Undesignated Preferred Stock shall have
the right, voting separately as a series or together with holders of other such
series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
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<PAGE> 17
directorships shall be governed by the terms of this Second Amended and Restated
Certificate of Incorporation and any certificates of designation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Section 3.
During any period when the holders of any series of Undesignated Preferred
Stock have the right to elect additional directors as provided for or fixed
pursuant to the provisions of Article IV hereof, then upon commencement and for
the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Company shall
automatically be increased by such specified number of directors, and the
holders of such Undesignated Preferred Stock shall be entitled to elect the
additional directors so provided for or fixed pursuant to said provisions, and
(b) each such additional director shall serve until such director's successor
shall have been duly elected and qualified, or until such director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such director's earlier death, disqualification, resignation
or removal. Except as otherwise provided by the Board in the resolution or
resolutions establishing such series, whenever the holders of any series of
Undesignated Preferred Stock having such right to elect additional directors are
divested of such right pursuant to the provisions of such stock, the terms of
office of all such additional directors elected by the holders of such stock, or
elected to fill any vacancies resulting from the death, resignation,
disqualification or removal of such additional directors, shall forthwith
terminate and the total and authorized number of directors of the Company shall
be reduced accordingly.
Section 4. Vacancies.
Subject to the rights, if any, of the holders of any series of Undesignated
Preferred Stock to elect directors and to fill vacancies in the Board of
Directors relating thereto and the rights of Vestar Equity Partners, L.P., Cabot
Corporation and the Management Investors to designate replacements for directors
removed pursuant to Sections 5(x), 5(y) and 5(z) of this Article VI,
respectively, any and all vacancies in the Board of Directors, however
occurring, including, without limitation, by reason of an increase in size of
the Board of Directors, or the death, resignation, disqualification or removal
of a director, shall be filled solely by the affirmative vote of a majority of
the remaining directors then in office, even if less than a quorum of the Board
of Directors. Any director appointed in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified or until his or
her earlier resignation or removal. Subject to the rights, if any, of the
holders of any series of Undesignated Preferred Stock to elect directors, when
the number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of
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<PAGE> 18
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled,
Section 5. Removal.
Subject to the rights, if any, of any series of Undesignated Preferred Stock
to elect directors and to remove any director whom the holders of any such stock
have the right to elect, any director (including persons elected by directors to
fill vacancies in the Board of Directors) may be removed from office (a) only
with cause and (b) only by the affirmative vote of the holders of two-thirds of
the shares then entitled to vote at an election of directors; provided, however,
that (x) so long as Vestar Equity Partners, L.P. has the right to designate
directors of the Company pursuant to Section 2.1(a)(i) and Section 2.1(a)(v) of
the Stockholders' Agreement, Vestar Equity Partners, L.P. shall have the
non-transferable right to remove, without cause, each director designated by
Vestar Equity Partners, L.P. pursuant to Section 2.1(a)(i) or Section 2.1(a)(v)
of the Stockholders' Agreement and, upon such a removal, to designate a
replacement to serve for the remainder of the unexpired term of such director,
(y) so long as Cabot Corporation has the right to designate directors of the
Company pursuant to Section 2.1(a)(ii) of the Stockholders' Agreement, Cabot
Corporation shall have the non-transferable right to remove, without cause, each
director designated by Cabot Corporation pursuant to Section 2.1(a)(ii) of the
Stockholders' Agreement and, upon such a removal, to designate a replacement to
serve for the remainder of the unexpired term of such director and (z) so long
as the Management Investors have the right to designate directors of the Company
pursuant to Section 2.1(a)(iv) of the Stockholders' Agreement, the Management
Investors shall have the non-transferable right to remove, without cause, each
director designated by the Management Investors pursuant to Section 2.1(a)(iv)
of the Stockholders' Agreement and, upon such a removal, to designate a
replacement to serve for the remainder of the unexpired term of such director -
At least 30 days prior to any meeting of stockholders at which it is proposed
that any director be removed from office, written notice of such proposed
removal shall be sent to the director whose removal will be considered at the
meeting. For purposes of this Second Amended and Restated Certificate of
Incorporation, "cause," with respect to the removal of any director shall mean
only (i) conviction of a felony, (ii) declaration of unsound mind by order of
court, (iii) gross dereliction of duty, (iv) commission of any action involving
moral turpitude, or (v) commission of an action which constitutes intentional
misconduct or a knowing violation of law if such action in either event results
both in an improper substantial personal benefit and a material injury to the
Company.
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ARTICLE VII
LIMITATION OF LIABILITY
A director of the Company shall not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (a) for any breach of the director's duty of
loyalty to the Company or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL or (d) for any transaction from which the
director derived an improper personal benefit. If the DGCL is amended after the
effective date of this Second Amended and Restated Certificate of Incorporation
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Company or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Section 1. Amendment by Directors
Except as otherwise provided by law, the By-laws of the Company may be
amended or repealed by the Board of Directors by the affirmative vote of a
majority of the directors then in office.
Section 2. Amendment by Stockholders
The By-laws of the Company may be amended or repealed at any annual meeting
of stockholders, or special meeting of stockholders called for such purpose, by
the affirmative vote of at least two-thirds of the shares present in person or
represented by proxy at such meeting and entitled to vote on such amendment or
repeal, voting together as a single class; provided, however, that if the Board
of Directors recommends that stockholders approve such amendment or repeal at
such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by
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<PAGE> 20
proxy at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Company reserves the right to amend or repeal this Second Amended and
Restated Certificate of Incorporation in the manner now or hereafter prescribed
by statute and this Second Amended and Restated Certificate of Incorporation,
and all rights conferred upon stockholders herein are granted subject to this
reservation. No amendment or repeal of this Second Amended and Restated
Certificate of Incorporation shall be made unless the same is first approved by
the Board of Directors pursuant to a resolution adopted by the Board of
Directors in accordance with Section 242 of the DGCL, and, except as otherwise
provided by law, thereafter approved by the stockholders. Whenever any vote of
the holders of voting stock is required to amend or repeal any provision of this
Second Amended and Restated Certificate of Incorporation, and in addition to any
other vote of the holders of voting stock that is required by this Second
Amended and Restated Certificate of Incorporation or by law, the affirmative
vote of a majority of the outstanding shares entitled to vote on such amendment
or repeal, and the affirmative vote of a majority of the outstanding shares of
each class entitled to vote thereon as a class, shall be required to amend or
repeal any provision of this Second Amended and Restated Certificate of
Incorporation; provided, however, that the affirmative vote of not less than
two-thirds of the outstanding shares entitled to vote on such amendment or
repeal, and the affirmative vote of not less than two-thirds of the outstanding
shares of each class entitled to vote thereon as a class, shall be required to
amend or repeal any of the provisions of Article V, Article VI, Article VII or
Article IX of this Second Amended and Restated Certificate of Incorporation.
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I, John D. Curtin, of the Company, for the purpose of amending and resulting
the Company's Amended and Restated Certificate of Incorporation 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 on behalf of the
Company this __ day of July, 1996.
----------------------------------------
[INSERT NAME AND TITLE]
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<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
AEARO CORPORATION
ARTICLE I
---------
Stockholders
------------
SECTION 1. ANNUAL MEETING. The annual meeting of stockholders shall be
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of stockholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these By-laws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these By-laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
SECTION 2. MATTERS TO BE CONSIDERED AT ANNUAL MEETINGS. At any annual
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Secretary of the Corporation and (ii) be present at such meeting, either in
<PAGE> 2
person or by a representative. For the first Annual Meeting following the
initial public offering of common stock of the Corporation, a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (x) the 75th day prior to the scheduled date of such
Annual Meeting or (y) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(1) the 75th day prior to the scheduled date of such Annual Meeting or (2) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (a)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (b) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (c) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Secretary shall set forth as to each matter
proposed to be brought before an Annual Meeting: (i) a brief description of the
business the stockholder desires to bring before such Annual Meeting and the
reasons for conducting such business at such Annual Meeting, (ii) the name and
address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines
that any stockholder proposal was not made in a timely fashion in accordance
with the provisions of this Section 2 or that the information provided in a
stockholder's notice does not satisfy the
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<PAGE> 3
information requirements of this Section 2 in any material respect, such
proposal shall not be presented for action at the Annual Meeting in question. If
neither the Board of Directors nor such committee makes a determination as to
the validity of any stockholder proposal in the manner set forth above, the
presiding officer of the Annual Meeting shall determine whether the stockholder
proposal was made in accordance with the terms of this Section 2. If the
presiding officer determines that any stockholder proposal was not made in a
timely fashion in accordance with the provisions of this Section 2 or that the
information provided in a stockholder's notice does not satisfy the information
requirements of this Section 2 in any material respect, such proposal shall not
be presented for action at the Annual Meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a stockholder proposal was made in accordance with the requirements of this
Section 2, the presiding officer shall so declare at the Annual Meeting and
ballots shall be provided for use at the meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2, and nothing
in this Section 2 shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
SECTION 3. SPECIAL MEETINGS. Except as otherwise required by law and
subject to the rights, if any, of the holders of any series of preferred stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the directors then in office.
SECTION 4. MATTERS TO BE CONSIDERED AT SPECIAL MEETINGS. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. NOTICE OF MEETINGS; ADJOURNMENTS. A written notice of each
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Second Amended and Restated Certificate of
Incorporation of the Corporation (as the same may hereafter be amended and/or
restated, the "Certificate") or under these By-laws, is entitled to such notice,
by delivering such notice to him or by mailing it, postage prepaid, addressed to
such stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
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<PAGE> 4
Notice of all special meetings of stockholders shall be given in the same
manner as provided for Annual Meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an Annual Meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any Annual Meeting or special meeting of stockholders need be
specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I or Section 3 of Article II hereof or otherwise. In no event shall the
public announcement of an adjournment, postponement or rescheduling of any
previously scheduled meeting of stockholders commence a new time period for the
giving of a stockholder's notice under Section 2 of Article I and Section 3 of
Article II of these By-laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Certificate or these By-laws, is entitled to such notice.
SECTION 6. QUORUM. A majority of the shares entitled to vote, present in
person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as
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originally noticed. The stockholders present at a duly constituted meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
SECTION 7. VOTING AND PROXIES. Stockholders shall have one vote for each
share of stock entitled to vote owned by them of record according to the books
of the Corporation, unless otherwise provided by law or by the Certificate.
Stockholders may vote either in person or by written proxy, but no proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. Proxies shall be filed with the Secretary of the
meeting before being voted. Except as otherwise limited therein or as otherwise
provided by law, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting, but they shall not be valid after final
adjournment of such meeting. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by or on behalf of any one of
them unless at or prior to the exercise of the proxy the Corporation receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a stockholder shall be deemed valid, and the
burden of proving invalidity shall rest on the challenger.
SECTION 8. ACTION AT MEETING. When a quorum is present, any matter before
any meeting of stockholders shall be decided by the affirmative vote of the
majority of shares present in person or represented by proxy at such meeting and
entitled to vote on such matter, except where a larger vote is required by law,
by the Certificate or by these By-laws. Any election by stockholders shall be
determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, except where a larger vote is required by law, by the Certificate or
by these By-laws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote shares
which it holds in a fiduciary capacity to the extent permitted by law.
SECTION 9. STOCKHOLDER LISTS. The Secretary or an Assistant Secretary (or
the Corporation's transfer agent or other person authorized by these By-laws or
by law) shall prepare and make, at least 10 days before every Annual Meeting or
special 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, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
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SECTION 10. PRESIDING OFFICER. The Chairman of the Board, if one is
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Sections 5 and 6 of this Article I. The order of
business and all other matters of procedure at any meeting of the stockholders
shall be determined by the presiding officer.
SECTION 11. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS. The Corporation
shall, in advance of any meeting of stockholders, appoint one or more inspectors
to act at the meeting and make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the presiding officer shall appoint one or more inspectors to act
at the meeting. Any inspector may, but need not, be an officer, employee or
agent of the Corporation. Each inspector, before entering upon the discharge of
his or her duties, shall take and sign an oath faithfully to execute the duties
of inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall perform such duties as are required by the General
Corporation Law of the State of Delaware, as amended from time to time (the
"DGCL"), including the counting of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors. The presiding officer may review
all determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he or
she shall not be bound by any determinations made by the inspectors. All
determinations by the inspectors and, if applicable, the presiding officer,
shall be subject to further review by any court of competent jurisdiction.
ARTICLE II
----------
Directors
---------
SECTION 1. POWERS. The business and affairs of the Corporation shall be
managed y or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
SECTION 2. NUMBER AND TERMS. The number of directors of the Corporation
shall be fixed by resolution duly adopted from time to time by the Board of
Directors. The directors shall hold office in the manner provided in the
Certificate.
SECTION 3. DIRECTOR NOMINATIONS. Nominations of candidates for election as
directors of the Corporation at any Annual Meeting may be made only (a) by, or
at the direction of, a majority of the Board of Directors or (b) by any holder
of record (both as of the
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time notice of such nomination is given by the stockholder as set forth below
and as of the record date for the Annual Meeting in question) of any shares of
the capital stock of the Corporation entitled to vote at such Annual Meeting who
complies with the timing, informational and other requirements set forth in this
Section 3. Any stockholder who has complied with the timing, informational and
other requirements set forth in this Section 3 and who seeks to make such a
nomination, or his, her or its representative, must be present in person at the
Annual Meeting. Only persons nominated in accordance with the procedures set
forth in this Section 3 shall be eligible for election as directors at an Annual
Meeting.
Nominations, other than those made by, or at the direction of, the Board
of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 3. For the first
Annual Meeting following the initial public offering of common stock of the
Corporation, a stockholder's notice shall be timely if delivered to, or mailed
to and received by, the Corporation at its principal executive office not later
than the close of business on the later of (i) the 75th day prior to the
scheduled date of such Annual Meeting or (ii) the 15th day following the day on
which public announcement of the date of such Annual Meeting is first made by
the Corporation. For all subsequent Annual Meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 75 days nor more than 120 days
prior to the Anniversary Date; provided, however, that in the event the Annual
Meeting is scheduled to be held on a date more than 30 days before the
Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (x) the 75th day prior to the scheduled date of such
Annual Meeting or (y) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
A stockholder's notice to the Secretary shall set forth as to each person
whom the stockholder proposes to nominate for election or re-election as a
director: (1) the name, age, business address and residence address of such
person, (2) the principal occupation or employment of such person, (3) the class
and number of shares of the Corporation's capital stock which are beneficially
owned by such person on the date of such stockholder notice, and (4) the consent
of each nominee to serve as a director if elected. A stockholder's notice to the
Secretary shall further set forth as to the stockholder giving such notice: (a)
the name and address, as they appear on the Corporation's stock transfer books,
of such stockholder and of the beneficial owners (if any) of the Corporation's
capital stock registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s),
(b) the class and number of shares of the Corporation's capital stock which are
held of record, beneficially owned or represented by proxy by such stockholder
and by any other stockholders known by such stockholder to be supporting such
nominee(s) on the record date for the Annual Meeting in question (if such date
shall then have been made publicly available) and on the date of such
stockholder's notice, and
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(c) a description of all arrangements or understandings between such stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof determines
that any stockholder nomination was not made in accordance with the terms of
this Section 3 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3 in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made in
accordance with the terms of this Section 3 or that the information provided in
a stockholder's notice does not satisfy the informational requirements of this
Section 3 in any material respect, then such nomination shall not be considered
at the Annual Meeting in question. If the Board of Directors, a designated
committee thereof or the presiding officer determines that a nomination was made
in accordance with the terms of this Section 3, the presiding officer shall so
declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second paragraph of this
Section 3, in the event that the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no public announcement
by the Corporation naming all of the nominees for director or specifying the
size of the increased Board of Directors at least 75 days prior to the
Anniversary Date, a stockholder's notice required by this Section 3 shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if such notice shall be delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which such public
announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of directors at an Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
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SECTION 4. QUALIFICATION. No director need be a stockholder of the
Corporation.
SECTION 5. VACANCIES. Subject to the rights, if any, of the holders of any
series of preferred stock to elect directors and to fill vacancies in the Board
of Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until his or her earlier resignation or removal. Subject to the
rights, if any, of the holders of any series of preferred stock to elect
directors, when the number of directors is increased or decreased, the Board of
Directors shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; provided, however, that no
decrease in the number of directors shall shorten the term of any incumbent
director. In the event of a vacancy in the Board of Directors, the remaining
directors, except as otherwise provided by law, may exercise the powers of the
full Board of Directors until the vacancy is filled.
SECTION 6. REMOVAL. Directors may be removed from office in the manner
provided in the Certificate.
SECTION 7. RESIGNATION. A director may resign at any time by giving written
notice to the Chairman of the Board, if one is elected, the President or the
Secretary. A resignation shall be effective upon receipt, unless the resignation
otherwise provides.
SECTION 8. REGULAR MEETINGS. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Section 8, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
SECTION 10. NOTICE OF MEETINGS. Notice of the hour, date and place of all
special meetings of the Board of Directors shall be given to each director by
the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by
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the Chairman of the Board, if one is elected, or the President or such other
officer designated by the Chairman of the Board, if one is elected, or the
President. Notice of any special meeting of the Board of Directors shall be
given to each director in person, by telephone, or by facsimile, telex,
telecopy, telegram, or other written form of electronic communication, sent to
his or her business or home address, at least 24 hours in advance of the
meeting, or by written notice mailed to his or her business or home address, at
least 48 hours in advance of the meeting. Such notice shall be deemed to be
delivered when hand delivered to such address, read to such director by
telephone, deposited in the mail so addressed, with postage thereon prepaid if
mailed, dispatched or transmitted if faxed, telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
A written waiver of notice signed before or after a meeting by a director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because such meeting is not lawfully called or
convened. Except as otherwise required by law, by the Certificate or by these
By-laws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 11. QUORUM. At any meeting of the Board of Directors, a majority of
the directors then in office shall constitute a quorum for the transaction of
business, but if less than a quorum is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 10 of
this Article II. Any business which might have been transacted at the meeting as
originally noticed may be transacted at such adjourned meeting at which a quorum
is present.
SECTION 12. ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-laws.
SECTION 13. 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 all
members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the
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records of the meetings of the Board of Directors and shall be treated for all
purposes as a vote at a meeting of the Board of Directors.
SECTION 14. MANNER OF PARTICIPATION. Directors may participate in meetings
of the Board of Directors 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 a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 15. COMMITTEES. The Board of Directors, by vote of a majority of
the directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, a Compensation Committee,
a Stock Option Committee and an Audit Committee, and may delegate thereto some
or all of its powers except those which by law, by the Certificate or by these
By-laws may not be delegated. Except as the Board of Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Board of Directors or in such rules, its
business shall be conducted so far as possible in the same manner as is provided
by these By-laws for the Board of Directors. All members of such committees
shall hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, to the extent
permitted by law, but no such rescission shall have retroactive effect.
SECTION 16. COMPENSATION OF DIRECTORS. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as directors of the
Corporation.
ARTICLE III
-----------
Officers
--------
SECTION 1. ENUMERATION. The officers of the Corporation shall consist of a
President, a Treasurer, a Secretary and such other officers, including, without
limitation, a Chairman of the Board of Directors, a Chief Executive Officer and
one or more Vice Presidents (including Executive Vice Presidents or Senior Vice
Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant
Secretaries, as the Board of Directors may determine.
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SECTION 2. ELECTION. At the regular annual meeting of the Board following
the Annual Meeting of stockholders, the Board of Directors shall elect the
President, the Treasurer and the Secretary. Other officers may be elected by the
Board of Directors at such regular annual meeting of the Board of Directors or
at any other regular or special meeting.
SECTION 3. QUALIFICATION. No officer need be a stockholder or a director.
Any person may occupy more than one office of the Corporation at any time. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his or her duties in such amount and with such sureties as the
Board of Directors may determine.
SECTION 4. TENURE. Except as otherwise provided by the Certificate or by
these Bylaws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next Annual
Meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
SECTION 5. RESIGNATION. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. REMOVAL. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
SECTION 7. ABSENCE OR DISABILITY. In the event of the absence or disability
of any officer, the Board of Directors may designate another officer to act
temporarily in place of such absent or disabled officer.
SECTION 8. VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 9. PRESIDENT. The President shall, subject to the direction of the
Board of Directors, have general supervision and control of the Corporation's
business. If there is no Chairman of the Board or if he or she is absent, the
President shall preside, when present, at all meetings of stockholders and of
the Board of Directors. The President shall have such other powers and perform
such other duties as the Board of Directors may from time to time designate.
SECTION 10. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
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SECTION 11. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if one is
elected, shall have such powers and shall perform such duties as the Board of
Directors may from time to time designate.
SECTION 12. VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. OTHER POWERS AND DUTIES. Subject to these By-laws and to such
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
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ARTICLE IV
----------
Capital Stock
-------------
SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate 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 he or she were such
officer, transfer agent or registrar at the time of its issue. Every certificate
for shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
SECTION 2. TRANSFERS. Subject to any restrictions on transfer and unless
otherwise provided by the Board of Directors, shares of stock may be transferred
only on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate theretofore properly endorsed or accompanied
by a written assignment or power of attorney properly executed, with transfer
stamps (if necessary) affixed, and with such proof of the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
SECTION 3. RECORD HOLDERS. Except as may otherwise be required by law, by
the Certificate or by these By-laws, the Corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment of dividends and the right to vote with
respect thereto, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of his
or her post office address and any changes thereto.
SECTION 4. RECORD DATE. In order that the Corporation may determine the
stockholders 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 allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
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determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than sixty nor less than
ten days before the date of such meeting and (b) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (i) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held and (ii) the record date for determining stockholders
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.
SECTION 5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
---------
Indemnification
---------------
SECTION 1. DEFINITIONS. For purposes of this Article:
(a) "Director" means any person who serves or has served the Corporation
as a director on the Board of Directors of the Corporation.
(b) "Officer" means any person who serves or has served the Corporation as
an officer appointed by the Board of Directors of the Corporation;
(c) "Non-Officer Employee" means any person who serves or has served as an
employee of the Corporation, but who is not or was not a Director or Officer;
(d) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry, investigation,
administrative hearing or other proceeding, whether civil, criminal,
administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection
15
<PAGE> 16
with prosecuting, defending, preparing to prosecute or defend, investigating,
being or preparing to be a witness in, settling or otherwise participating in, a
Proceeding;
(f) "Corporate Status" describes the status of a person who (i) in the
case of a Director, is or was a director of the Corporation and is or was acting
in such capacity, (ii) in the case of an Officer, is or was an officer, employee
or agent of the Corporation or is or was a director, officer, employee or agent
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such Officer is or was serving at the request of
the Corporation, and (iii) in the case of a Non-Officer Employee, is or was an
employee of the Corporation or is or was a director, officer, employee or agent
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such Non- Officer Employee is or was serving at
the request of the Corporation; and
(g) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding.
SECTION 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Subject to the
operation of Section 4 of this Article V, each Director and Officer shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director or
Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation.
SECTION 3. INDEMNIFICATION OF NON-OFFICER EMPLOYEES. Subject to the
operation of Section 4 of this Article V, each Non-Officer Employee may, in the
discretion of the Board of Directors of the Corporation, be indemnified by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended, against any or all
16
<PAGE> 17
Expenses, judgments, penalties, fines and amounts reasonably paid in settlement
that are incurred by such Non-Officer Employee or on such Non-Officer Employee's
behalf in connection with any threatened, pending or completed Proceeding, or
any claim, issue or matter therein, which such Non-Officer Employee is, or is
threatened to be made, a party to or participant in by reason of such
Non-Officer Employee's Corporate Status, if such Non-Officer Employee acted in
good faith and in a manner such Non-Officer Employee reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The rights of indemnification provided by this Section 3 shall
continue as to a Non-Officer Employee after he or she has ceased to be a
Non-Officer Employee and shall inure to the benefit of his or her heirs,
personal representatives, executors and administrators. Notwithstanding the
foregoing, the Corporation may indemnify any Non-Officer Employee seeking
indemnification in connection with a Proceeding initiated by such Non-Officer
Employee only if such Proceeding was authorized by the Board of Directors of the
Corporation.
SECTION 4. GOOD FAITH. Unless ordered by a court, no indemnification shall
be provided pursuant to this Article V to a Director, to an Officer or to a
Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) if there are no such Disinterested Directors, or if a majority
of Disinterested Directors so direct, by independent legal counsel in a written
opinion, or (c) by the stockholders of the Corporation.
SECTION 5. ADVANCEMENT OF EXPENSES TO DIRECTORS PRIOR TO FINAL DISPOSITION.
The Corporation shall advance all Expenses incurred by or on behalf of any
Director in connection with any Proceeding in which such Director is involved by
reason of such Director's Corporate Status within ten days after the receipt by
the Corporation of a written statement from such Director requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
SECTION 6. ADVANCEMENT OF EXPENSES TO OFFICERS AND NON-OFFICER EMPLOYEES
PRIOR TO FINAL DISPOSITION. The Corporation may, in the discretion of the Board
of Directors of the Corporation, advance any or all Expenses incurred by or on
behalf of any Officer or Non-Officer Employee in connection with any Proceeding
in which such Officer or Non-Officer
17
<PAGE> 18
Employee is involved by reason of such Officer or Non-Officer Employee's
Corporate Status upon the receipt by the Corporation of a statement or
statements from such Officer or Non-Officer Employee requesting such advance or
advances from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by such Officer or Non-Officer Employee and shall be preceded or
accompanied by an undertaking by or on behalf of such Officer or Non-Officer
Employee to repay any Expenses so advanced if it shall ultimately be determined
that such Officer or Non-Officer Employee is not entitled to be indemnified
against such Expenses.
SECTION 7. CONTRACTUAL NATURE OF RIGHTS. The foregoing provisions of this
Article V shall be deemed to be a contract between the Corporation and each
Director and Officer who serves in such capacity at any time while this Article
V is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any Proceeding theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for indemnification
or advancement of Expenses hereunder by a Director or Officer is not paid in
full by the Corporation within (a) 60 days after the Corporation's receipt of a
written claim for indemnification, or (b) in the case of a Director, 10 days
after the Corporation's receipt of documentation of Expenses and the required
undertaking, such Director or Officer may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, such Director or Officer shall also be entitled
to be paid the expenses of prosecuting such claim. The failure of the
Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
SECTION 8. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
or these By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
SECTION 9. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
18
<PAGE> 19
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. FISCAL YEAR. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall end on the last day of
September of each year.
SECTION 2. SEAL. The Board of Directors shall have power to adopt and alter
the seal of the Corporation.
SECTION 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
SECTION 4. VOTING OF SECURITIES. Unless the Board of Directors otherwise
provides, the Chairman of the Board, if one is elected, the President or the
Treasurer may waive notice of and act on behalf of this Corporation, or appoint
another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. RESIDENT AGENT. The Board of Directors may appoint a resident
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
SECTION 6. CORPORATE RECORDS. The original or attested copies of the
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 7. AMENDMENT OF BY-LAWS.
(a) AMENDMENT BY DIRECTORS. Except as provided otherwise by law, these
By-laws may be amended or repealed by the Board of Directors by the affirmative
vote of a majority of the directors then in office.
19
<PAGE> 20
(b) AMENDMENT BY STOCKHOLDERS. These By-laws may be amended or repealed at
any Annual Meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
Adopted ________ ___, 1996 and effective as of ________ ___, 1996.
279815.c4
20
<PAGE> 1
EXHIBIT 10.1
CREDIT AGREEMENT
among
AEARO CORPORATION,
CABOT SAFETY CORPORATION,
CERTAIN OF ITS SUBSIDIARIES,
VARIOUS BANKS
and
BANKERS TRUST COMPANY,
as ADMINISTRATIVE AGENT
-------------------------------------------
Dated as of July 11, 1995
and
Amended and Restated as of May 30, 1996
-------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. Amount and Terms of Credit................................. 2
1.01 The Commitments............................................ 2
1.02 Minimum Amount of Each Borrowing........................... 5
1.03 Notice of Borrowing........................................ 5
1.04 Disbursement of Funds...................................... 6
1.05 Notes...................................................... 7
1.06 Conversions................................................ 10
1.07 Pro Rata Borrowings........................................ 11
1.08 Interest................................................... 11
1.09 Interest Periods........................................... 13
1.10 Increased Costs, Illegality, etc........................... 14
1.11 Compensation............................................... 18
1.12 Change of Lending Office................................... 18
1.13 Replacement of Banks....................................... 19
1.14 Interest on Subsidiary A Canadian Dollar Term Loans........ 20
SECTION 2. Letters of Credit.......................................... 20
2.01 Letters of Credit.......................................... 20
2.02 Letter of Credit Requests.................................. 22
2.03 Letter of Credit Participations............................ 22
2.04 Agreement to Repay Letter of Credit Drawings............... 25
2.05 Increased Costs............................................ 26
2.06 Minimum Stated Amount...................................... 27
2.07 Existing Letters of Credit................................. 28
SECTION 3. Commitment Commission; Fees; Reductions of Commitment...... 28
3.01 Fees....................................................... 28
3.02 Voluntary Termination of Unutilized Commitments............ 29
3.03 Mandatory Reduction of Commitments......................... 29
SECTION 4. Prepayments; Payments; Taxes............................... 30
4.01 Voluntary Prepayments...................................... 30
4.02 Mandatory Repayments and Commitment Reductions............. 31
(i)
<PAGE> 3
4.03 Method and Place of Payment................................ 38
4.04 Net Payments; Taxes........................................ 38
SECTION 5. Conditions Precedent....................................... 41
5.01 Execution of Agreement; Notes.............................. 41
5.02 No Default; Representations and Warranties................. 41
5.03 Officer's Certificate...................................... 42
5.04 Opinions of Counsel........................................ 42
5.05 Corporate Documents; Proceedings; etc...................... 42
5.06 Plans; Existing Indebtedness Agreements; Shareholders'
Agreements; Management Agreements........................ 43
5.07 Consummation of the Acquisition; Capital Contribution;
Issuance of the Swedish Note............................. 43
5.08 Fees, etc.................................................. 44
5.09 Pledge Agreements.......................................... 44
5.10 Security Agreements........................................ 45
5.11 US Subsidiary Guaranty..................................... 46
5.12 Mortgage Amendments........................................ 46
5.13 Adverse Change; Approvals.................................. 46
5.14 Litigation................................................. 47
5.15 Solvency Opinion; Compliance Certificate................... 47
5.16 Pro Forma Balance Sheet.................................... 47
5.17 Pooled Assignment by Original Banks; Original Credit
Agreement; etc........................................... 47
5.18 Notice of Borrowing; Letter of Credit Request.............. 48
SECTION 6. Representations and Warranties............................. 49
6.01 Corporate Status........................................... 49
6.02 Corporate Power and Authority.............................. 49
6.03 No Violation............................................... 49
6.04 Governmental Approvals..................................... 50
6.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc............................ 50
6.06 Litigation................................................. 52
6.07 True and Complete Disclosure............................... 52
6.08 Use of Proceeds; Margin Regulations........................ 52
6.09 Tax Returns and Payments................................... 53
6.10 Compliance with ERISA...................................... 53
6.11 The Security Documents..................................... 54
(ii)
<PAGE> 4
6.12 Properties................................................. 55
6.13 Capitalization............................................. 56
6.14 Subsidiaries............................................... 56
6.15 Compliance with Statutes, etc.............................. 56
6.16 Investment Company Act..................................... 56
6.17 Public Utility Holding Company Act......................... 56
6.18 Environmental Matters...................................... 57
6.19 Labor Relations............................................ 57
6.20 Patents, Licenses, Franchises and Formulas................. 58
6.21 Indebtedness............................................... 58
6.22 Senior Subordinated Notes.................................. 58
6.23 Acquisition................................................ 59
6.24 Representations and Warranties in Documents................ 59
SECTION 7. Affirmative Covenants...................................... 59
7.01 Information Covenants...................................... 59
7.02 Books, Records and Inspections............................. 63
7.03 Maintenance of Property; Insurance......................... 63
7.04 Corporate Franchises....................................... 64
7.05 Compliance with Statutes, etc.............................. 64
7.06 Compliance with Environmental Laws......................... 65
7.07 ERISA...................................................... 66
7.08 End of Fiscal Years; Fiscal Quarters....................... 67
7.09 Performance of Obligations................................. 67
7.10 Payment of Taxes........................................... 67
7.11 Additional Mortgages; Further Assurances................... 67
7.12 Foreign Subsidiaries Security.............................. 69
7.13 Ownership of Subsidiaries.................................. 70
7.14 Permitted Acquisitions..................................... 70
SECTION 8. Negative Covenants......................................... 71
8.01 Liens...................................................... 71
8.02 Consolidation, Merger, Purchase or Sale of Assets, etc..... 73
8.03 Dividends.................................................. 76
8.04 Indebtedness............................................... 77
8.05 Advances, Investments and Loans............................ 79
8.06 Transactions with Affiliates............................... 81
8.07 Maximum Capital Expenditures............................... 82
8.08 Leverage Ratio............................................. 83
(iii)
<PAGE> 5
8.09 Interest Coverage Ratio.................................... 84
8.10 Fixed Charge Coverage Ratio................................ 85
8.11 Limitation on Payments of Certain Indebtedness; Modifica-
tions of Certain Indebtedness; Modifications of
Certificate of Incorporation, By-Laws and
Certain Agreements; etc.................................. 85
8.12 Limitation on Certain Restrictions on Subsidiaries......... 86
8.13 Limitation on Issuance of Capital Stock.................... 87
8.14 Business................................................... 87
8.15 Limitation on the Creation of Subsidiaries................. 88
8.16 Restrictions on Swedish Note............................... 89
SECTION 9. Events of Default.......................................... 89
9.01 Payments................................................... 89
9.02 Representations, etc....................................... 89
9.03 Covenants.................................................. 89
9.04 Default Under Other Agreements............................. 90
9.05 Bankruptcy, etc............................................ 90
9.06 ERISA...................................................... 91
9.07 Security Documents......................................... 91
9.08 Guaranties................................................. 92
9.09 Judgments.................................................. 92
SECTION 10. Definitions and Accounting Terms........................... 93
10.01 Defined Terms.............................................. 93
SECTION 11. The Administrative Agent...................................133
11.01 Appointment................................................133
11.02 Nature of Duties...........................................133
11.03 Lack of Reliance on the Administrative Agent...............134
11.04 Certain Rights of the Administrative Agent.................134
11.05 Reliance...................................................135
11.06 Indemnification............................................135
11.07 The Administrative Agent in its Individual Capacity........135
11.08 Holders....................................................135
11.09 Resignation by the Administrative Agent....................136
SECTION 12. Guaranties.................................................136
12.01 The Guaranties.............................................136
(iv)
<PAGE> 6
12.02 Bankruptcy.................................................137
12.03 Nature of Liability........................................137
12.04 Independent Obligation.....................................138
12.05 Authorization..............................................138
12.06 Reliance...................................................139
12.07 Subordination..............................................139
12.08 Waiver.....................................................140
12.09 Limitation on Liability....................................140
SECTION 13. Miscellaneous..............................................141
13.01 Payment of Expenses, etc...................................141
13.02 Right of Setoff............................................142
13.03 Notices....................................................142
13.04 Benefit of Agreement.......................................143
13.05 No Waiver; Remedies Cumulative.............................145
13.06 Payments Pro Rata; Special Sharing Provisions Regarding
U.S. Guaranties..........................................145
13.07 Calculations; Computations; Determination of Dollar
Equivalent and Fixed Rates...............................147
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION;
VENUE; WAIVER OF JURY TRIAL..............................148
13.09 Counterparts...............................................150
13.10 Effectiveness..............................................150
13.11 Headings Descriptive.......................................151
13.12 Amendment or Waiver; etc...................................151
13.13 Survival...................................................152
13.14 Domicile of Loans..........................................152
13.15 Confidentiality............................................153
13.16 Register...................................................154
13.17 Judgment Currency..........................................154
13.18 Post-Closing Matters.......................................155
13.19 Amendment and Restatement; Termination of Original
Credit Agreement.........................................156
(v)
<PAGE> 7
SCHEDULE I Commitments
SCHEDULE II Bank Addresses
SCHEDULE III Existing Letters of Credit
SCHEDULE IV Scheduled Repayments
SCHEDULE V Real Property
SCHEDULE VI Convertible Securities, Options or Rights
SCHEDULE VII Subsidiaries
SCHEDULE VIII Existing Indebtedness
SCHEDULE IX Insurance
SCHEDULE X Existing Liens
SCHEDULE XI Existing Investments
EXHIBIT A Form of Notice of Borrowing
EXHIBIT B-1 Form of Company A Dollar Term Note
EXHIBIT B-2 Form of Company A Deutsche Mark Term Note
EXHIBIT B-3 Form of Company A Sterling Term Note
EXHIBIT B-4 Form of Subsidiary A Canadian Dollar Term Note
EXHIBIT B-5 Form of Subsidiary A Sterling Term Note
EXHIBIT B-6 Form of B Term Note
EXHIBIT B-7 Form of Dollar Revolving Note
EXHIBIT B-8 Form of Sterling Revolving Note
EXHIBIT C Form of Letter of Credit Request
EXHIBIT D Form of Section 4.04(b)(ii) Certificate
EXHIBIT E-1 Form of Opinion of Goodwin, Procter & Hoar LLP
EXHIBIT E-2 Form of Opinion of Mark V.B. Tremallo
EXHIBIT E-3 Form of Opinion of Davies, Ward & Beck
EXHIBIT E-4 Form of Opinion of Linklaters & Paines
EXHIBIT E-5 Form of Opinion of White & Case
EXHIBIT F Form of Officers' Certificate
EXHIBIT G-1 Form of US Pledge Agreement
EXHIBIT G-2 Form of Foreign Pledge Agreement (Canada)
EXHIBIT H-1 Form of US Security Agreement
EXHIBIT H-2 Form of Canadian Security Agreement
EXHIBIT I Form of US Subsidiary Guaranty
EXHIBIT J Form of Assignment and Assumption Agreement
(vi)
<PAGE> 8
CREDIT AGREEMENT, dated as of July 11, 1995 and amended and restated as
of May 30, 1996, among AEARO CORPORATION (f/k/a CABOT SAFETY HOLDINGS
CORPORATION), a Delaware corporation ("Holdings"), CABOT SAFETY CORPORATION
(f/k/a CABOT SAFETY ACQUISITION CORPORATION), a Delaware corporation (the
"Company"), each Subsidiary Borrower (together with the Company, each a
"Borrower" and, collectively, the "Borrowers"), the Banks party hereto from time
to time, and BANKERS TRUST COMPANY, as Administrative Agent (the "Administrative
Agent") (all capitalized terms used herein and defined in Section 10 are used
herein as therein defined).
W I T N E S S E T H :
---------------------
WHEREAS, Holdings, the Company, the Subsidiary Borrowers, the Original
Banks, The First National Bank of Boston, as co-arranger, Chemical Bank, as
co-arranger, Fleet National Bank, as co-arranger and Bankers Trust Company, as
co-arranger and administrative agent, are party to a Credit Agreement, dated as
of July 11, 1995 (as the same has been amended, modified and or supplemented
through, but not including, the Restatement Effective Date, the "Original Credit
Agreement"); and
WHEREAS, as part of the Acquisition, (i) the Company is acquiring,
indirectly through a newly-formed Swedish Subsidiary ("Swedish Newco"), Peltor
Holding AB, Leif Anderzon Invest AB, and Leif Palmaer Invest AB, each a Swedish
corporation (collectively, "Peltor") and its Subsidiaries and (ii) either
Swedish Newco or Peltor is making a payment of $20,000,000 for a covenant not to
compete from Active i Malmo AB, a Swedish corporation (the "Non-Compete
Payment") pursuant to the Stock Purchase Agreement; and
WHEREAS, the parties hereto wish to amend and restate the Original Credit
Agreement in the form of this Agreement, to, INTER ALIA, permit the Transaction
and the financing therefor on the terms and subject to the conditions provided
herein and make available to the Borrowers the respective credit facilities
provided for herein;
NOW, THEREFORE, the parties hereto agree that the Original Credit Agreement
shall be and hereby is amended and restated in its entirety as follows:
-1-
<PAGE> 9
SECTION 1. AMOUNT AND TERMS OF CREDIT.
--------------------------
1.01 THE COMMITMENTS. (a) Subject to and upon the terms and conditions set
forth herein, each Bank with an A Term Loan Commitment severally agrees on the
Restatement Effective Date:
(i) (A) to maintain as Company A Dollar Term Loans (as hereinafter
defined), Original Dollar Term Loans made by such Bank pursuant to the
Original Credit Agreement and outstanding on the Restatement Effective Date
(immediately after giving effect to the assignments pursuant to the Pooled
Assignment Agreement) in an aggregate principal amount equal to
$11,564,910.39 and (B) to make a term loan (together with the Loans
maintained pursuant to clause (A) above, each a "Company A Dollar Term
Loan" and collectively, the "Company A Dollar Term Loans") to the Company,
which Company A Dollar Term Loans shall (x) at the option of the Company,
be Base Rate Loans or Eurodollar Loans, PROVIDED that except as
specifically provided in Section 1.10(b), all Company A Dollar Term Loans
comprising the same Borrowing shall at all times be of the same Type, (y)
be made and maintained in Dollars and (z) be made in an aggregate initial
principal amount equal to (when added to the principal amount of all
Original Dollar Term Loans maintained pursuant to clause (A) above)
$35,148,243.73;
(ii) (A) to maintain as Company A Deutsche Mark Term Loans (as
hereinafter defined), Original Dollar Term Loans made by such Bank pursuant
to the Original Credit Agreement and outstanding on the Restatement
Effective Date (immediately after giving effect to the assignments pursuant
to the Pooled Assignment Agreement) in an aggregate principal amount equal
to the Dollar Equivalent of 10,391,333.33 Deutsche Marks and (B) to make a
term loan (together with the Loans maintained pursuant to clause (A) above,
each a "Company A Deutsche Mark Term Loan" and collectively, the "Company A
Deutsche Mark Term Loans") to the Company, which Company A Deutsche Mark
Term Loans shall (x) be converted into (in the case of clause (A) above),
made in (in the case of clause (B) above) and maintained in Deutsche Marks
and (y) be made in an aggregate initial principal amount equal to (when
added to the principal amount of all Original Dollar Term Loans maintained
pursuant to clause (A) above and converted pursuant to clause (x) above)
30,958,000.00 Deutsche Marks;
(iii) (A) to maintain as Company A Sterling Term Loans (as hereinafter
defined), Original Dollar Term Loans made by such Bank pursuant to the
Original Credit Agreement and outstanding on the Restatement Effective Date
-2-
<PAGE> 10
(immediately after giving effect to the assignments pursuant to the Pooled
Assignment Agreement) in an aggregate principal amount equal to the Dollar
Equivalent of 4,401,602.19 Pounds Sterling and (B) to make a term loan
(together with the Loans maintained pursuant to clause (A) above, each a
"Company A Sterling Term Loan" and collectively, the "Company A Sterling
Term Loans") to the Company, which Company A Sterling Term Loans shall (x)
be converted into (in the case of clause (A) above), made in (in the case
of clause (B) above) and maintained in Pounds Sterling and (y) be made in
an aggregate initial principal amount equal to (when added to the principal
amount of all Original Dollar Term Loans maintained pursuant to clause (A)
above and converted pursuant to clause (x) above) 13,204,806.55 Pounds
Sterling;
(iv) to maintain as term loans (the "Subsidiary A Canadian Dollar Term
Loans") to the Canadian Borrower, Original Canadian Dollar Term Loans made
by such Bank pursuant to the Original Credit Agreement and outstanding on
the Restatement Effective Date (immediately after giving effect to the
assignments pursuant to the Pooled Assignment Agreement); and
(v) to maintain as term loans (the "Subsidiary A Sterling Term Loans")
to the U.K. Borrower, Original Sterling Term Loans made by such Bank
pursuant to the Original Credit Agreement and outstanding on the
Restatement Effective Date (immediately after giving effect to the
assignments pursuant to the Pooled Assignment Agreement).
Once repaid, A Term Loans incurred hereunder may not be reborrowed.
(b) Subject to and upon the terms and conditions set forth herein, each
Bank with a B Term Loan Commitment severally agrees on the Restatement Effective
Date:
(i) (A) to maintain as B Term Loans (as hereinafter defined), Original
Dollar Term Loans made by such Bank pursuant to the Original Credit
Agreement and outstanding on the Restatement Effective Date (immediately
after giving effect to the assignments pursuant to the Pooled Assignment
Agreement) in an aggregate principal amount equal to $1,500,000.00 and (B)
to make a term loan (together with the Loans maintained pursuant to clause
(A) above, each a "B Term Loan" and, collectively, the "B Term Loans") to
the Company, which B Term Loans shall (x) at the option of the Borrower, be
Base Rate Loans or Eurodollar Loans, PROVIDED that, except as specifically
provided in Section 1.10(b), all B Term Loans comprising the same Borrowing
shall at all times be of the same Type, (y) be made and maintained in
Dollars and (z) be made in an aggregate principal amount equal to (when
added to the principal amount of all
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<PAGE> 11
Original Dollar Term Loans maintained pursuant to clause (A) above)
$50,000,000.
Once repaid, B Term Loans incurred hereunder may not be reborrowed. The
aggregate principal amount of all Original Term Loans maintained outstanding on
the Restatement Effective Date as described in clauses (a) and (b) of this
Section 1.01 is $41,250,000.
(c) Subject to and upon the terms and conditions set forth herein, each
Bank with a Revolving Loan Commitment severally agrees:
(i) (A) to make at any time and from time to time on or after the
Restatement Effective Date and prior to the Revolving Loan Maturity Date, a
loan or loans (each a "Revolving Loan" and collectively the "Revolving
Loans") to one or more Borrowers which Revolving Loans (i) shall, in the
case of Revolving Loans made to the Company, be made and maintained in
Dollars (each a "Dollar Revolving Loan" and, collectively, the "Dollar
Revolving Loans") which Dollar Revolving Loans shall, at the option of the
Company, be either Base Rate Loans or Eurodollar Loans, PROVIDED that all
Dollar Revolving Loans made as part of the same Borrowing shall, unless
otherwise specifically provided in Section 1.10(b), be of the same Type,
(ii) shall, in the case of Revolving Loans made to the U.K. Borrower, be
made and maintained in Pounds Sterling (each a "Sterling Revolving Loan"
and, collectively, the "Sterling Revolving Loans"), (iii) may be repaid and
reborrowed in accordance with the provisions hereof and (iv) shall not
exceed for any Bank at the time of the making of any such Revolving Loans
that aggregate principal amount (or the Dollar Equivalent of each
outstanding Alternate Currency Revolving Loan) which, when added to the sum
of (I) the aggregate principal amount of all other Revolving Loans then
outstanding from such Bank (or the Dollar Equivalent of each Alternate
Currency Revolving Loan then outstanding) and (II) the product of (A) such
Bank's Revolving Percentage and (B) the aggregate amount of all Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
Dollar Revolving Loans) at such time, equals the Revolving Loan Commitment
of such Bank at such time; PROVIDED that no Alternate Currency Revolving
Loan shall be made if the Dollar Equivalent thereof, when added to the
Dollar Equivalent of all other outstanding Alternate Currency Revolving
Loans on the date such Loan is made, would exceed (x) $5,000,000 plus (y)
in the event a Permitted Acquisition is made by a Subsidiary Borrower or by
a Subsidiary Guarantor which is a Foreign Subsidiary, an amount not to
exceed the lesser of (i) $10,000,000 and (ii) 75% of the purchase price in
respect of each such Permitted Acquisition.
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<PAGE> 12
1.02 MINIMUM AMOUNT OF EACH BORROWING. (a) The aggregate principal amount
of each Borrowing of Dollar Term Loans shall not be less than $5,000,000 and the
aggregate principal amount of each Borrowing of each Type of Alternate Currency
Term Loan shall not be less than the lesser of (x) an amount in the respective
Alternate Currency having a Dollar Equivalent of $5,000,000 and (y) the unpaid
principal of such Type of Alternate Currency Term Loan.
(b) The aggregate principal amount of each Borrowing of Revolving Loans
shall be not less than $250,000 (and multiples of $50,000 in excess thereof) (or
an amount in the respective Alternate Currency having a Dollar Equivalent of
$250,000 (and multiples of $50,000 in excess thereof) in the case of a Borrowing
of Alternate Currency Revolving Loans).
(c) More than one Borrowing may occur on the same date, but at no time
shall there be outstanding more than (i) ten Borrowings of Eurodollar Loans
hereunder, (ii) three Borrowings of Alternate Currency Revolving Loans hereunder
and (iii) eight Borrowings of Alternate Currency Term Loans hereunder PROVIDED
that, prior to the Syndication Date, (A) all Fixed Rate Loans incurred on the
Restatement Effective Date of a specific Tranche and Type shall be maintained as
a single Borrowing with a one month Interest Period ending on the date one month
after the Restatement Effective Date (such one-month Interest Period, the
"Initial Interest Period"), (B) Fixed Rate Loans that are Revolving Loans
incurred after the Restatement Effective Date may only be incurred on the last
day of the Initial Interest Period and (C) any Dollar Revolving Loans not
incurred pursuant to the preceding clause (B) must be incurred and maintained as
Base Rate Loans until and unless converted pursuant to Section 1.06 into
Eurodollar Loans on the last day of the Initial Interest Period.
1.03 NOTICE OF BORROWING. (a) Whenever a Borrower desires to incur Loans
hereunder, it shall give the Administrative Agent at its Notice Office written
notice (or telephonic notice promptly confirmed in writing) on the date that
such Loan is to be made, of each Base Rate Loan, at least three Business Days'
prior written notice (or telephonic notice promptly confirmed in writing) of
each Eurodollar Loan and at least four Business Days' prior written notice (or
telephonic notice promptly confirmed in writing) of each Alternate Currency Loan
to be made hereunder, PROVIDED that any such notice shall be deemed to have been
given on a certain day only if given before 11:00 A.M. (New York time) (12:00
Noon (New York time) in the case of an incurrence of Base Rate Loans) on such
day. Each such written notice or written confirmation of telephonic notice (each
a "Notice of Borrowing"), shall be irrevocable and shall be given by the
respective Borrower in the form of Exhibit A, appropriately completed to specify
(i) the name of such Borrower, (ii) the date of such incurrence (which shall be
a Business Day), (iii) whether the Loans being made shall constitute A Term
Loans,
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<PAGE> 13
B Term Loans or Revolving Loans and the Applicable Currency for such A Term
Loans or Revolving Loans, (iv) the aggregate principal amount of the Loans to be
made (stated in the Applicable Currency), (v) in the case of Dollar Loans,
whether the Loans being made are to be initially maintained as Base Rate Loans
or Eurodollar Loans and (vi) in the case of Fixed Rate Loans, the initial
Interest Period to be applicable thereto. The Administrative Agent shall
promptly (and in any event within one Business Day after its receipt of a Notice
of Borrowing) give each Bank which is required to make Loans of the Tranche
specified in the respective Notice of Borrowing, notice of such proposed
incurrence, of such Bank's proportionate share thereof and of the other matters
required by the immediately preceding sentence to be specified in the Notice of
Borrowing.
(b) Without in any way limiting the obligation of any Borrower to
confirm in writing any telephonic notice of any incurrence of Loans, the
Administrative Agent may act without liability upon the basis of telephonic
notice of such incurrence, believed by the Administrative Agent in good faith to
be from an Authorized Officer of such Borrower prior to receipt of written
confirmation. In each such case, each Borrower hereby waives the right to
dispute the Administrative Agent's record of the terms of such telephonic notice
of such incurrence of Loans absent manifest error.
1.04 DISBURSEMENT OF FUNDS. No later than 12:00 Noon (local time in the
city in which the proceeds of such Loans are to be made available in accordance
with the terms hereof) on the date specified in each Notice of Borrowing, each
Bank with a Commitment of the respective Tranche will make available its PRO
RATA portion of each Borrowing of Loans requested to be made on such date, in
Dollars or in the relevant Alternate Currency, as the case may be, and in
immediately available funds at the appropriate Payment Office of the
Administrative Agent. All such amounts shall be made available in immediately
available funds at the appropriate Payment Office of the Administrative Agent,
and the Administrative Agent will make available to the relevant Borrower at
such Payment Office, in Dollars or the relevant Alternate Currency, as the case
may be, and in immediately available funds, the aggregate of the amounts so made
available by the Banks prior to 1:00 P.M. (local time in the city in which the
proceeds of such Loans are to be made available in accordance with the terms
hereof) on such day, to the extent of funds actually received by the
Administrative Agent. Unless the Administrative Agent shall have been notified
by any Bank prior to the date of Borrowing that such Bank does not intend to
make available to the Administrative Agent such Bank's portion of any Borrowing
to be made on such date, the Administrative Agent may assume that such Bank has
made such amount available to the Administrative Agent on such date of Borrowing
and the Administrative Agent may, in reliance upon such assumption, make
available to the relevant Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Administrative Agent
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<PAGE> 14
by such Bank, the Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Administrative Agent's demand therefor,
the Administrative Agent shall promptly notify the relevant Borrower and such
Borrower shall immediately pay such corresponding amount to the Administrative
Agent. The Administrative Agent shall also be entitled to recover on demand from
such Bank or such Borrower, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was made
available by the Administrative Agent to such Borrower until the date such
corresponding amount is recovered by the Administrative Agent, at a rate per
annum equal to (i) if recovered from such Bank, the overnight Federal Funds Rate
and (ii) if recovered from such Borrower, the rate of interest applicable to the
respective Borrowing, as determined pursuant to Section 1.08. Nothing in this
Section 1.04 shall be deemed to relieve any Bank from its obligation to make
Loans hereunder or to prejudice any rights which the relevant Borrower may have
against any Bank as a result of any failure by such Bank to make Loans
hereunder.
1.05 NOTES. (a) Each Borrower's obligation to pay the principal of, and
interest on, the Loans made by each Bank to such Borrower shall be evidenced (i)
if Company A Dollar Term Loans, by a promissory note duly executed and delivered
by the Company substantially in the form of Exhibit B-1 with blanks
appropriately completed in conformity herewith (each a "Company A Dollar Term
Note" and, collectively, the "Company A Dollar Term Notes"), (ii) if Company A
Deutsche Mark Term Loans, by a promissory note duly executed and delivered by
the Company substantially in the form of Exhibit B-2 with blanks appropriately
completed in conformity herewith (each a "Company A Deutsche Mark Term Note"
and, collectively, the "Company A Deutsche Mark Term Notes"), (iii) if Company A
Sterling Term Loans, by a promissory note duly executed and delivered by the
Company substantially in the form of Exhibit B-3 with blanks appropriately
completed in conformity herewith (each a "Company A Sterling Term Note" and,
collectively, the "Company A Sterling Term Notes"), (iv) if Subsidiary A
Canadian Dollar Term Loans, by a promissory note duly executed and delivered by
the Canadian Borrower substantially in the form of Exhibit B-4 with blanks
appropriately completed in conformity herewith (each a "Subsidiary A Canadian
Dollar Term Note" and, collectively, the "Subsidiary A Canadian Dollar Term
Notes"), (v) if Subsidiary A Sterling Term Loans, by a promissory note duly
executed and delivered by the U.K. Borrower substantially in the form of Exhibit
B-5 with blanks appropriately completed in conformity herewith (each a
"Subsidiary A Sterling Term Note" and, collectively, the "Subsidiary A Sterling
Term Notes"), (vi) if B Term Loans, by a promissory note duly executed and
delivered by the Company substantially in the form of Exhibit B-6 with blanks
appropriately completed in conformity herewith (each a "B Term Note" and,
collectively, the "B Term Notes"), (vii) if Dollar Revolving Loans, by a
promissory note duly executed and delivered by
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<PAGE> 15
the Company substantially in the form of Exhibit B-7 with blanks appropriately
completed in conformity herewith (each, a "Dollar Revolving Note" and,
collectively, the "Dollar Revolving Notes") and (viii) if Sterling Revolving
Loans, by a promissory note duly executed and delivered by the U.K. Borrower
substantially in the form of Exhibit B-8 with blanks appropriately completed in
conformity herewith (each a "Sterling Revolving Note" and, collectively, the
"Sterling Revolving Notes").
(b) The Company A Dollar Term Note issued by the Company to each Bank shall
(i) be executed by the Company, (ii) be payable to the order of such Bank and be
dated the Restatement Effective Date, (iii) be in a stated principal amount
equal to the Company A Dollar Term Loans made and/or maintained on the
Restatement Effective Date and be payable in Dollars and in the principal amount
of the outstanding Company A Dollar Term Loans evidenced thereby from time to
time, (iv) mature on the A Term Loan Maturity Date, (v) bear interest as
provided in the appropriate clause of Section 1.08 in respect of the Base Rate
Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be
subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled
to the benefits of this Agreement and the other Credit Documents.
(c) The Company A Deutsche Mark Term Note issued by the Company to each
Bank shall (i) be executed by the Company, (ii) be payable to the order of such
Bank and be dated the Restatement Effective Date, (iii) be in a stated principal
amount equal to the Company A Deutsche Mark Term Loans made and/or maintained on
the Restatement Effective Date and be payable in Deutsche Marks and in the
principal amount of the outstanding Company A Deutsche Mark Term Loans evidenced
thereby from time to time, (iv) mature on the A Term Loan Maturity Date, (v)
bear interest as provided in the appropriate clause of Section 1.08 in respect
of the Company A Deutsche Mark Term Loans evidenced thereby, (vi) be subject to
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(d) The Company A Sterling Term Note issued by the Company to each Bank
shall (i) be executed by the Company, (ii) be payable to the order of such Bank
and be dated the Restatement Effective Date, (iii) be in a stated principal
amount equal to the Company A Sterling Term Loans, made and/or maintained on the
Restatement Effective Date and be payable in Pounds Sterling and in the
principal amount of the outstanding Company A Sterling Term Loans evidenced
thereby from time to time, (iv) mature on the A Term Loan Maturity Date, (v)
bear interest as provided in the appropriate clause of Section 1.08 in respect
of the Company A Sterling Term Loans evidenced thereby, (vi) be subject to
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
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<PAGE> 16
(e) The Subsidiary A Canadian Dollar Term Note issued by the Canadian
Borrower to each Bank shall (i) be executed by the Canadian Borrower, (ii) be
payable to the order of such Bank and be dated the Restatement Effective Date,
(iii) be in a stated principal amount equal to the Subsidiary A Canadian Dollar
Term Loans maintained by such Bank on the Restatement Effective Date and be
payable in Canadian Dollars and in the principal amount of the outstanding
Subsidiary A Canadian Dollar Term Loans evidenced thereby from time to time,
(iv) mature on the A Term Loan Maturity Date, (v) bear interest as provided in
the appropriate clause of Section 1.08 in respect of the Subsidiary A Canadian
Dollar Term Loans evidenced thereby, (vi) be subject to mandatory repayment as
provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement
and the other Credit Documents.
(f) The Subsidiary A Sterling Term Note issued by the U.K. Borrower to each
Bank shall (i) be executed by the U.K. Borrower, (ii) be payable to the order of
such Bank and be dated the Restatement Effective Date, (iii) be in a stated
principal amount equal to the Subsidiary A Sterling Term Loans maintained by
such Bank on the Restatement Effective Date and be payable in Pounds Sterling
and in the principal amount of the outstanding Subsidiary A Sterling Term Loans
evidenced thereby from time to time, (iv) mature on the A Term Loan Maturity
Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Subsidiary A Sterling Term Loans evidenced thereby, (vi) be
subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled
to the benefits of this Agreement and the other Credit Documents.
(g) The B Term Note issued by the Company to each Bank shall (i) be
executed by the Company, (ii) be payable to the order of such Bank and be dated
the Restatement Effective Date, (iii) be in a stated principal amount equal to
the B Term Loans made and/or maintained on the Restatement Effective Date and be
payable in Dollars and in the principal amount of the outstanding B Term Loans
evidenced thereby from time to time, (iv) mature on the B Term Loan Maturity
Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Base Rate Loans and Eurodollar Loans, as the case may be,
evidenced thereby, (vi) be subject to mandatory repayment as provided in Section
4.02 and (vii) be entitled to the benefits of this Agreement and the other
Credit Documents.
(h) The Dollar Revolving Note issued by the Company to each Bank shall (i)
be executed by the Company, (ii) be payable to the order of such Bank and be
dated the Restatement Effective Date, (iii) be in a stated principal amount
equal to the Revolving Loan Commitment of such Bank and be payable in Dollars
and in the principal amount of the outstanding Dollar Revolving Loans evidenced
thereby from time to time, (iv) mature on the Revolving Loan Maturity Date, (v)
bear interest as provided
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<PAGE> 17
in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(i) The Sterling Revolving Note issued by the U.K. Borrower to each Bank
shall (i) be executed by the U.K. Borrower, (ii) be payable to the order of such
Bank and be dated the Restatement Effective Date, (iii) be payable in Pounds
Sterling and in the principal amount of the outstanding Sterling Revolving Loans
evidenced thereby from time to time, (iv) mature on the Revolving Loan Maturity
Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Sterling Revolving Loans evidenced thereby, (vi) be subject to
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(j) Each Bank will note on its internal records the amount of each Loan
made by it and each payment in respect thereof and will prior to any transfer of
any of its Notes endorse on the reverse side thereof the outstanding principal
amount of Loans evidenced thereby. Failure to make any such notation shall not
affect the respective Borrower's obligations in respect of such Loans.
(k) Each Bank shall have the right to request that one or more of the Notes
to be delivered to it be in registered form for U.S. Federal income tax
purposes, in which case such Notes shall be made payable to such Bank or its
registered assigns. Each Loan evidenced by a Note in registered form for U.S.
Federal income tax purposes shall thereafter be evidenced by a Note in
registered form.
1.06 CONVERSIONS. The Company shall have the option to convert on any
Business Day all or a portion equal to at least (x) in the case of a conversion
of Dollar Term Loans $5,000,000 and (y) in the case of a conversion of Dollar
Revolving Loans, $1,000,000 (and, if greater, in an integral multiple of
$500,000), of the outstanding principal amount of Dollar Loans made to the
Company pursuant to one or more Borrowings of one or more Types of Dollar Loans
into a Borrowing of another Type of Dollar Loan (so long as the Dollar Loans are
of the same Tranche), PROVIDED that (i) except as otherwise provided in Section
1.10(b), Eurodollar Loans may be converted into Base Rate Loans only on the last
day of an Interest Period applicable to the Eurodollar Loans being converted and
no such partial conversion of Eurodollar Loans shall reduce the outstanding
principal amount of such Eurodollar Loans made pursuant to a single Borrowing to
less than (x) in the case of Dollar Term Loans $5,000,000 and (y) in the case of
Dollar Revolving Loans, $1,000,000, (ii) Base Rate Loans may not be converted
into Eurodollar Loans if any Default under Section 9.01 or 9.05, or Event
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<PAGE> 18
of Default is in existence on the date of the conversion and the Administrative
Agent or the Required Banks have determined that such a conversion is not
appropriate, (iii) no conversion pursuant to this Section 1.06 shall result in a
greater number of Borrowings of Eurodollar Loans than is permitted under
Section 1.02(c) and (iv) prior to the Syndication Date, Dollar Loans which are
maintained as Base Rate Loans may only be converted into Eurodollar Loans on the
last day of the Initial Interest Period. Each such conversion (other than
automatic conversions pursuant to the last paragraph of Section 1.09) shall be
effected by the Company's giving the Administrative Agent at its Notice Office
prior to 12:00 Noon (New York time) at least three Business Days' prior written
notice (each a "Notice of Conversion") specifying the Dollar Loans to be so
converted, the Borrowing or Borrowings pursuant to which such Dollar Loans were
made, the date of such conversion (which shall be a Business Day) and, if to be
converted into Eurodollar Loans, the Interest Period to be initially applicable
thereto. The Administrative Agent shall give each Bank prompt notice of any such
proposed conversion affecting any of its Dollar Loans.
1.07 PRO RATA BORROWINGS. All Borrowings of A Term Loans (including Company
A Dollar Term Loans, Company A Deutsche Mark Term Loans, Company A Sterling Term
Loans, Subsidiary A Canadian Dollar Term Loans and Subsidiary A Sterling Term
Loans), B Term Loans and Revolving Loans under this Agreement shall be incurred
from the Banks PRO RATA on the basis of their A Term Loan Commitments (and after
the termination thereof, A Term Loans), B Term Loan Commitments (and after the
termination thereof, B Term Loans) or Revolving Loan Commitments, as the case
may be. It is understood that no Bank shall be responsible for any default by
any other Bank of its obligation to make Loans hereunder and that each Bank
shall be obligated to make the Loans provided to be made by it hereunder,
regardless of the failure of any other Bank to make its Loans hereunder.
1.08 INTEREST. (a) The Company agrees to pay interest in respect of the
unpaid principal amount of each Base Rate Loan from the date the proceeds
thereof are made available to the Company until the conversion or maturity
(whether by acceleration or otherwise) of such Base Rate Loan, at a rate per
annum which shall be equal to the sum of the Applicable Margin plus the Base
Rate in effect from time to time.
(b) The Company agrees to pay interest in respect of the unpaid principal
amount of each Eurodollar Loan from the date the proceeds thereof are made
available to the Company until the conversion or maturity (whether by
acceleration or otherwise) of such Eurodollar Loan, at a rate per annum which
shall, during each Interest Period applicable thereto, be equal to the sum of
the Applicable Margin plus the Eurodollar Rate for such Interest Period.
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<PAGE> 19
(c) The Company agrees to pay interest in respect of the unpaid principal
amount of each Company A Deutsche Mark Loan incurred by such Person from the
date the proceeds thereof are made available to the Company until the maturity
(whether by acceleration or otherwise) of such Company A Deutsche Mark Loan at a
rate per annum which shall, during each Interest Period applicable thereto, be
equal to the sum of the Applicable Margin plus the Deutsche Mark Euro Rate for
such Interest Period.
(d) Each of the Company and the U.K. Borrower severally agrees to pay
interest in respect of the unpaid principal amount of each Sterling Loan
incurred by such Person from the date the proceeds thereof are made available to
the Company or the U.K. Borrower, as the case may be, until the maturity
(whether by acceleration or otherwise) of such Sterling Loan at a rate per annum
which shall, during each Interest Period applicable thereto, be equal to the sum
of the Applicable Margin plus the Sterling Euro Rate for such Interest Period.
(e) The Canadian Borrower agrees to pay interest in respect of the unpaid
principal amount of each A Canadian Dollar Term Loan from the date the proceeds
thereof are made available to the Canadian Borrower until the maturity (whether
by acceleration or otherwise) of such A Canadian Dollar Term Loan at a rate per
annum which shall, during each Interest Period applicable thereto, be equal to
the sum of the Applicable Margin plus the Canadian Dollar Euro Rate for such
Interest Period.
(f) Overdue principal and, to the extent permitted by law, overdue interest
in respect of each Loan and any other overdue amount payable hereunder shall, in
each case, bear interest at a rate per annum equal to the rate which is 2% in
excess of the rate then borne by such Loans, in each case with such interest to
be payable on demand.
(g) Accrued (and theretofore unpaid) interest shall be payable (i) in
respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment
Date, (ii) in respect of each Fixed Rate Loan, on the last day of each Interest
Period applicable thereto and, in the case of an Interest Period in excess of
three months, on each date occurring at three month intervals after the first
day of such Interest Period and (iii) in respect of each Loan, on any repayment
or prepayment (on the amount repaid or pre-paid), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(h) Upon each Interest Determination Date, the Administrative Agent shall
determine the respective interest rate for each Interest Period applicable to
the Fixed Rate Loans for which such determination is being made and shall
promptly notify the
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<PAGE> 20
respective Borrower and the Banks thereof. Each such determination shall, absent
manifest error, be final and conclusive and binding on all parties hereto.
1.09 INTEREST PERIODS. At the time it gives any Notice of Borrowing in
respect of the making of any Loan, or any Notice of Conversion in respect of the
conversion of any Loan (in the case of the initial Interest Period applicable
thereto) or on the third Business Day (or the fourth Business Day in the case of
Alternate Currency Loans) prior to the expiration of an Interest Period
applicable to such Loan (in the case of any subsequent Interest Period), the
respective Borrower shall have the right to elect, by giving the Administrative
Agent notice thereof, the interest period (each an "Interest Period") applicable
to such Loan, which Interest Period shall, at the option of such Borrower, be a
one, three or six-month period, or if available to each Bank making such Loan, a
nine or twelve-month period, PROVIDED that:
(i) all Fixed Rate Loans comprising a Borrowing shall at all times
have the same Interest Period;
(ii) the initial Interest Period for any Borrowing of Fixed Rate Loans
shall commence on the date of such Borrowing (including, in the case of
Dollar Loans, the date of any conversion thereto from a Dollar Loan of a
different Type) and each Interest Period occurring thereafter in respect of
such Loans shall commence on the day on which the next preceding Interest
Period applicable thereto expires;
(iii) if any Interest Period relating to a Fixed Rate Loan begins on a
day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, such Interest Period shall end on
the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; PROVIDED, HOWEVER, that if any Interest Period
would otherwise expire on a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(v) except as provided below in this Section 1.09, no Interest Period
may be selected at any time when a Default under Section 9.01 or 9.05 or an
Event of Default is then in existence and the Administrative Agent or the
Required Banks have determined that such a selection is not appropriate;
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<PAGE> 21
(vi) Interest Periods of longer than one month for Term Loans and
Revolving Loans may only be selected on or after the Syndication Date and
in any event all Term Loans and Revolving Loans maintained as Fixed Rate
Loans shall be subject to the same one-month Interest Period for the period
prior to the Syndication Date;
(vii) no Interest Period in respect of any Borrowing of Fixed Rate
Loans shall be selected which extends beyond (x) the A Term Loan Maturity
Date in the case of A Term Loans, (y) the B Term Loan Maturity Date in the
case of B Term Loans or (z) the Revolving Loan Maturity Date in the case of
Revolving Loans; and
(viii) no Interest Period in respect of any Borrowing of A Term Loans
or B Term Loans shall be selected which extends beyond any date upon which
a Scheduled Repayment of A Term Loans or B Term Loans, as the case may be,
will be required to be made under Sections 4.02(b) or (c) if the aggregate
principal amount of A Term Loans (whether they be Dollar Loans or Alternate
Currency Term Loans) or B Term Loans, as the case may be, which have
Interest Periods which will expire after such date will be in excess of the
aggregate principal amount of such Tranche of Term Loans then outstanding
less the aggregate amount of such Scheduled Repayment.
If upon the expiration of any Interest Period applicable to a Borrowing of
Fixed Rate Loans, the relevant Borrower has failed to elect, or is not permitted
to elect, a new Interest Period to be applicable to such Fixed Rate Loans as
provided above, such Borrower shall be deemed to have elected (x) if Eurodollar
Loans, to convert such Eurodollar Loans into Base Rate Loans and (y) if
Alternate Currency Loans, to select a one-month Interest Period for such
Alternate Currency Loans, in either case effective as of the expiration date of
such current Interest Period.
1.10 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that any Bank shall
have determined (which determination shall, absent manifest error, be final and
conclusive and binding upon all parties hereto but, with respect to clauses (i)
and (iv) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of any changes
arising after the date of this Agreement affecting the London interbank
market, adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the definition of the
respective Fixed Rate; or
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(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Fixed Rate Loan which such Bank deems to be material because of (x) any
change since the date of this Agreement in any applicable law or
governmental rule, regulation, order, guideline or request (whether or not
having the force of law) or in the interpretation or administration thereof
and including the introduction of any new law or governmental rule,
regulation, order, guideline or request, such as, for example, but not
limited to: (A) a change in the basis of taxation of payment to any Bank of
the principal of or interest on such Fixed Rate Loan or any other amounts
payable hereunder (except for changes in the rate of tax on, or determined
by reference to, the net income or profits of such Bank, pursuant to the
laws of the jurisdiction in which such Bank is organized or in which such
Bank's principal office or applicable lending office is located or any
subdivision thereof or therein), or (B) a change in official reserve
requirements (except to the extent covered by Section 1.10(d) in respect of
Alternate Currency Loans or included in the computation of the respective
Fixed Rate) or any special deposit, assessment or similar requirement
against assets of, deposits with or for the account of, or credit extended
by, any Bank (or its applicable lending office) and/or (y) other
circumstances since the date of this Agreement affecting such Bank or the
London interbank market or the position of such Bank in such market; or
(iii) at any time, that the making or continuance of any Fixed Rate
Loan has been made (x) unlawful by any law or governmental rule, regulation
or order, (y) impossible by compliance by any Bank in good faith with any
governmental request (whether or not having force of law) or (z)
impracticable as a result of a contingency occurring after the date of this
Agreement which materially and adversely affects the London interbank
market; or
(iv) at any time that any Alternate Currency is not available in
sufficient amounts, as determined in good faith by the Administrative
Agent, to fund any Borrowing of Alternate Currency Revolving Loans;
then, and in any such event, such Bank (or the Administrative Agent, in the case
of clause (i) or (iv) above) shall promptly give notice (by telephone confirmed
in writing) to the Company, the respective Borrower (if other than the Company)
and, except in the case of clause (i) or (iv) above, to the Administrative Agent
of such determination (which notice the Administrative Agent shall promptly
transmit to each of the other Banks). Thereafter (w) in the case of clause (i)
above, (A) in the event that Eurodollar Loans are so affected, Eurodollar Loans
shall no longer be available until such time as the Administrative Agent
notifies the Company and the Banks that the circumstances
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giving rise to such notice by the Administrative Agent no longer exist, and any
Notice of Borrowing or Notice of Conversion given by the Company with respect to
Euro-dollar Loans which have not yet been incurred (including by way of
conversion) shall be deemed rescinded by the Company and (B) in the event that
any Alternate Currency Loan is so affected, the interest rate for such Alternate
Currency Loan shall be determined on the basis provided in the proviso to the
definition of the respective Fixed Rate applicable to such Alternate Currency
Loan, (x) in the case of clause (ii) above, the respective Borrower shall pay to
such Bank, upon written demand therefor, such additional amounts (in the form of
an increased rate of, or a different method of calculating, interest or
otherwise as such Bank in its reasonable discretion shall determine) as shall be
required to compensate such Bank for such increased costs or reductions in
amounts received or receivable hereunder (a written notice as to the additional
amounts owed to such Bank, showing the basis for the calculation thereof, based
on averaging and attribution methods among customers which are reasonable,
submitted to the respective Borrower by such Bank in good faith shall, absent
manifest error, be final and conclusive and binding on all the parties hereto),
(y) in the case of clause (iii) above, the respective Borrower shall take one of
the actions specified in Section 1.10(b) as promptly as possible and, in any
event, within the time period required by law and (z) in the case of clause (iv)
above, Alternate Currency Revolving Loans in the affected Alternate Currency
shall no longer be available until such time as the Administrative Agent
notifies the Company, the respective Subsidiary Borrower and the Banks that the
circumstances giving rise to such notice by the Administrative Agent no longer
exists, and any Notice of Borrowing given by such Subsidiary Borrower with
respect to such Alternate Currency Revolving Loans which have not yet been
incurred shall be deemed rescinded by such Subsidiary Borrower. Each of the
Administrative Agent and each Bank agrees that if it gives notice to the Company
or any Subsidiary Borrower of any of the events described in clause (i), (iii)
or (iv) above, it shall promptly notify the Company and such Subsidiary Borrower
and, in the case of any such Bank, the Administrative Agent, if such event
ceases to exist. If any such event described in clause (iii) above ceases to
exist as to a Bank, the obligations of such Bank to make Fixed Rate Loans and to
convert Base Rate Loans into Eurodollar Loans on the terms and conditions
contained herein shall be reinstated.
(b) At any time that any Fixed Rate Loan is affected by the circumstances
described in Section 1.10(a)(ii) or (iii), the respective Borrower may (and in
the case of a Fixed Rate Loan (other than an outstanding Canadian Dollar Term
Loan) affected by the circumstances described in Section 1.10(a)(iii) shall)
either (x) if the affected Fixed Rate Loan is then being made initially or
pursuant to a conversion, cancel the respective Borrowing by giving the
Administrative Agent telephonic notice (confirmed in writing) on the same date
that such Borrower was notified by the affected Bank or the Administrative Agent
pursuant to Section 1.10(a)(ii) or (iii) or (y) if the affected
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Fixed Rate Loan is then outstanding, upon at least three Business Days' written
notice to the Administrative Agent and the affected Bank, and subject to Section
4.02(j), (A) in the case of a Eurodollar Loan, require the affected Bank to
convert such Eurodollar Loan into a Base Rate Loan or repay such Eurodollar Loan
in full and (B) in the case of any Alternate Currency Loan, repay such Alternate
Currency Loan in full (other than an outstanding Canadian Dollar Term Loan). If
at any time the making or continuance of any Canadian Dollar Term Loan, or any
giving effect to the obligations of a Bank in respect thereof, has been made
unlawful by any law coming into force or by any change in any law or regulation
or in the interpretation or application thereof by any court or any statutory
board or commission, then the Canadian Borrower, upon at least three Business
Days' written notice to the Administrative Agent and the affected Bank, and
subject to Section 4.02(j), shall repay such Canadian Dollar Term Loan in full.
(c) If any Bank determines that after the Restatement Effective Date
the introduction of or any change in any applicable law or governmental rule,
regulation, order, guideline, directive or request (whether or not having the
force of law) concerning capital adequacy, or any change in interpretation or
administration thereof by any governmental authority, central bank or comparable
agency, will have the effect of increasing the amount of capital required to be
maintained by such Bank or any corporation controlling such Bank based on the
existence of such Bank's Commitments hereunder or its obligations hereunder,
then the Borrowers jointly and severally agree to pay to such Bank, upon its
written demand therefor, such additional amounts as shall be required to
compensate such Bank or such other corporation for the increased cost to such
Bank or such other corporation or the reduction in the rate of return to such
Bank or such other corporation as a result of such increase of capital. In
determining such additional amounts, each Bank will act reasonably and in good
faith and will use averaging and attribution methods among customers which are
reasonable, PROVIDED that such Bank's reasonable good faith determination of
compensation owing under this Section 1.10(c) shall, absent manifest error, be
final and conclusive and binding on all the parties hereto. Each Bank, upon
determining that any additional amounts will be payable pursuant to this Section
1.10(c), will give prompt written notice thereof to the Borrowers, which notice
shall show the basis for calculation of such additional amounts.
(d) In the event that any Bank shall determine (which determination shall,
absent manifest error, be final and conclusive and binding on all parties
hereto) at any time that, as a result of changes in laws, regulations or similar
requirements effective after the Restatement Effective Date, such Bank is
required to maintain reserves (including, without limitation, any marginal,
emergency, supplemental, special or other reserves required by applicable law)
which have been established by any Federal, state, local or foreign court or
governmental agency, authority, instrumentality or regulatory body with
jurisdiction over such Bank (including any branch, Affiliate or funding office
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thereof) in respect of any Alternate Currency Loans or any category of
liabilities which includes deposits by reference to which the interest rate on
any Alternate Currency Loan 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 non-United States residents, then, unless such reserves are included in
the calculation of the interest rate applicable to such Alternate Currency Loans
or in Section 1.10(a)(ii), such Bank shall promptly notify the Company in
writing specifying the additional amounts required to indemnify such Bank
against the cost of maintaining such reserves (such written notice to provide in
reasonable detail a computation of such additional amounts) and the respective
Borrower shall pay to such Bank such specified amounts as additional interest at
the time that the respective Borrower is otherwise required to pay interest in
respect of such Alternate Currency Loan or, if later, on written demand therefor
by such Bank.
1.11 COMPENSATION. Each Borrower shall compensate each Bank, upon its
written request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such Bank to
fund its Fixed Rate Loans but excluding any loss of anticipated profit) which
such Bank may sustain: (i) if for any reason (other than a default by such Bank
or the Administrative Agent) a Borrowing of, or conversion from or into, Fixed
Rate Loans does not occur on a date specified therefor in a Notice of Borrowing
or Notice of Conversion (whether or not withdrawn by the respective Borrower);
(ii) if any repayment (including any repayment made pursuant to Section 4.01 or
4.02 or a result of an acceleration of the Loans pursuant to Section 9) or
conversion of any of such Borrower's Fixed Rate Loans occurs on a date which is
not the last day of an Interest Period with respect thereto; (iii) if any
prepayment of any of such Borrower's Fixed Rate Loans is not made on any date
specified in a notice of prepayment given by such Borrower; or (iv) as a
consequence of (x) any other default by such Borrower to repay its Loans when
required by the terms of this Agreement or any Note held by such Bank or (y) any
election made pursuant to Section 1.10(b).
1.12 CHANGE OF LENDING OFFICE. Each Bank agrees that on the occurrence of
any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section
1.10(c), Section 1.10(d), Section 2.05 or Section 4.04 with respect to such
Bank, it will, if requested by the applicable Borrower, use reasonable efforts
(subject to overall policy considerations of such Bank) to designate another
lending office for any Loans or Letters of Credit affected by such event,
PROVIDED that such designation is made on such terms that such Bank and its
lending office suffer no economic, legal or regulatory disadvantage, with the
object of avoiding the consequence of the event giving rise to the operation of
such Section. Nothing in this Section 1.12 shall affect or postpone any
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of the obligations of any Borrower or the right of any Bank provided in Sections
1.10, 2.05 and 4.04.
1.13 REPLACEMENT OF BANKS. (a) (i) If any Bank becomes a Defaulting Bank or
otherwise defaults in its obligations to make Loans or fund Unpaid Drawings,
(ii) if any Bank refuses to consent to certain proposed changes, waivers,
discharges or terminations with respect to this Agreement which have been
approved by the Required Banks as provided in Section 13.12(b) or (iii) upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), Section 1.10(c), Section 1.10(d), Section 2.05 or Section 4.04 with
respect to any Bank which results in such Bank charging to any Borrower
increased costs in excess of those being generally charged by the other Banks,
the Company shall have the right, in accordance with the requirements of Section
13.04(b), if no Event of Default will exist after giving effect to such
replacement, to replace such Bank (the "Replaced Bank") with an Eligible
Transferee or Transferees, none of which shall constitute a Defaulting Bank at
the time of such replacement (collectively, the "Replacement Bank"), reasonably
acceptable to the Administrative Agent and the Issuing Banks, PROVIDED that (i)
at the time of any replacement pursuant to this Section 1.13, the Replacement
Bank shall enter into one or more Assignment and Assumption Agreements pursuant
to Section 13.04(b) (and with the assignment fee payable pursuant to said
Section 13.04(b) to be paid by the Replacement Bank) pursuant to which the
Replacement Bank shall acquire all of the Commitments and outstanding Loans of,
and in each case participations in Letters of Credit by, the Replaced Bank and,
in connection therewith, shall pay to (x) the Replaced Bank in respect thereof
an amount equal to the sum of (A) an amount equal to the principal of, and all
accrued interest on, all outstanding Loans of the Replaced Bank, (B) an amount
equal to all Unpaid Drawings that have been funded by (and not reimbursed to)
such Replaced Bank, together with all then unpaid interest with respect thereto
at such time and (C) an amount equal to all accrued, but theretofore unpaid,
Fees owing to the Replaced Bank pursuant to Section 3.01 and (y) the respective
Issuing Bank an amount equal to such Replaced Bank's Revolving Percentage of any
Unpaid Drawing (which at such time remains an Unpaid Drawing) to the extent such
amount was not theretofore funded by such Replaced Bank and (ii) all obligations
of the Borrowers owing to the Replaced Bank (other than those specifically
described in clause (i) above in respect of which the assignment purchase price
has been, or is concurrently being, paid) shall be paid in full to such Replaced
Bank concurrently with such replacement.
(b) Upon the execution of the respective Assignment and Assumption
Agreements, the payment of amounts referred to in clauses (i) and (ii) of
Section 1.13(a) and, if so requested by the Replacement Bank, delivery to the
Replacement Bank of the appropriate Note or Notes executed by the applicable
Borrower, the
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Replacement Bank shall become a Bank hereunder and the Replaced Bank shall cease
to constitute a Bank hereunder, except with respect to indemnification
provisions applicable to the Replaced Bank under this Agreement (including,
without limitation, Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06), which
shall survive as to such Replaced Bank, PROVIDED that no Replaced Bank may seek
to recover costs or indemnification under Sections 1.10, 1.11, 2.05 or 4.04
after the expiration of one year following the events giving rise to such
recovery.
1.14 INTEREST ON SUBSIDIARY A CANADIAN DOLLAR TERM LOANS. For purposes of
the Interest Act (Canada), whenever any interest in respect of any Subsidiary A
Canadian Dollar Term Loan is calculated using an annual rate based on a period
which is less than the actual number of days in a year (the "Lesser Period"),
such rate determined pursuant to such calculation, when expressed as an annual
rate, is equivalent to (i) the applicable rate based on such Lesser Period
multiplied by the actual number of days in the calendar year in which the period
for which such interest is payable ends, and (ii) divided by the number of days
in such Lesser Period. The rate of interest specified in this Agreement in
respect of the Subsidiary A Canadian Dollar Term Loans is a nominal rate and all
interest payment computations are to be made without allowance or deduction for
deemed reinvestment of interest.
SECTION 2. LETTERS OF CREDIT.
------------------
2.01 LETTERS OF CREDIT. (a) Subject to and upon the terms and conditions
set forth herein, the Company may request any Issuing Bank at any time and from
time to time on or after the Restatement Effective Date and prior to the
Revolving Loan Maturity Date, to issue, and subject to the terms and conditions
set forth herein, such Issuing Bank may issue (and BTCo (or its Lending
Affiliates) shall issue), (x) for the account of the Company and for the benefit
of any holder (or any trustee, agent or other similar representative for any
such holders) of L/C Supportable Obligations of the Company or any Subsidiaries,
an irrevocable standby letter of credit, in a form customarily used by the
respective Issuing Bank or in such other form as has been approved by such
Issuing Bank (each such standby letter of credit, a "Standby Letter of Credit")
in support of such L/C Supportable Obligations and (y) for the account of the
Company and for the benefit of sellers of goods to the Company or any of its
Subsidiaries, an irrevocable sight documentary letter of credit in a form
customarily used by the respective Issuing Bank or in such other form as has
been approved by such Issuing Bank (each such documentary letter of credit, a
"Trade Letter of Credit," and each such Trade Letter of Credit and Standby
Letter of Credit, a "Letter of Credit") in support of commercial transactions of
the Company or any such Subsidiary. Each Letter of Credit shall be subject to
the Uniform Customs and, to the extent not inconsistent therewith, the laws of
the State of New York.
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(b) Letters of Credit may be issued at the request of the Company in
Dollars or Pounds Sterling and in any other currencies acceptable to the
respective Issuing Bank.
(c) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued
if the Stated Amount of which, when added to all Letter of Credit Outstandings
at such time, would exceed $5,000,000 (or the Dollar Equivalent thereof), (ii)
no Letter of Credit shall be issued the Stated Amount of which, when added to
the sum of (I) all Letter of Credit Outstandings at such time and (II) the
aggregate outstanding principal amount of all Revolving Loans (or the Dollar
Equivalent thereof in the case of each Alternate Currency Revolving Loan then
outstanding), would exceed the Total Revolving Loan Commitment then in effect,
(iii) each Standby Letter of Credit shall by its terms terminate on or before
the earlier of (x) the date which occurs 12 months after the date of issuance
thereof (although any such Standby Letter of Credit may be extendable for
successive periods of up to 12 months (but not beyond the Revolving Loan
Maturity Date) on terms acceptable to the respective Issuing Bank) and (y) the
Revolving Loan Maturity Date and (iv) each Trade Letter of Credit shall by its
terms terminate on or before the earlier of (x) the date which occurs 12 months
after the date of issuance thereof and (y) the date which occurs 30 days prior
to the Revolving Loan Maturity Date.
(d) Notwithstanding the foregoing, no Issuing Bank shall be under any
obligation to issue any Letter of Credit if any of the applicable conditions
contained in Section 5 shall not be met at the time of such issuance or if at
the time of such issuance:
(i) any order, judgment or decree of any governmental authority or
arbitrator shall purport by its terms to enjoin or restrain such Issuing
Bank from issuing such Letter of Credit or any requirement of law
applicable to such Issuing Bank or any request or directive (whether or not
having the force of law) from any governmental authority with jurisdiction
over such Issuing Bank shall prohibit, or request that such Issuing Bank
refrain from, the issuance of letters of credit generally or such Letter of
Credit in particular or shall impose upon such Issuing Bank with respect to
such Letter of Credit any restriction or reserve or capital requirement
(for which such Issuing Bank is not otherwise compensated) not in effect on
the date hereof, or any unreimbursable loss, cost or expense which was not
applicable or in effect to such Issuing Bank as of such date and which such
Issuing Bank in good faith deems material to it;
(ii) such Issuing Bank shall have received notice from the Required
Banks of the type described in Section 2.02(b); or
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(iii) a Bank Default exists, unless the Company and such Issuing Bank
shall have entered into arrangements satisfactory to the Company and such
Issuing Bank to eliminate such Issuing Bank's risk with respect to the
respective Defaulting Bank's or Banks' Revolving Percentage of the Letter
of Credit Outstandings.
2.02 LETTER OF CREDIT REQUESTS. (a) Whenever the Company desires that a
Letter of Credit be issued for its account it shall have executed and delivered
to the respective Issuing Bank (with copies having been sent to the
Administrative Agent) at least three Business Days prior to the issuance thereof
(or such shorter period of time as is acceptable to such Issuing Bank), a Letter
of Credit Request in the form of Exhibit C (each a "Letter of Credit Request").
(b) The making of each Letter of Credit Request shall be deemed to be a
representation and warranty by the Company that (i) such Letter of Credit may be
issued in accordance with, and will not violate the requirements of, Section
2.01(c) and (ii) all of the applicable conditions set forth in Section 5 shall
be met at the time of such issuance. No Issuing Bank shall issue any Letter of
Credit after it has received written notice from the Company or the Required
Banks stating that a Default or an Event of Default exists until such time as
the respective Issuing Bank shall have received written notice of (i) rescission
of such notice from the party or parties originally delivering the same or (ii)
a waiver of such Default or Event of Default from the Required Banks. Upon its
issuance of any Letter of Credit, the respective Issuing Bank shall promptly
notify the Administrative Agent and each Bank of such issuance and deliver a
copy thereof to the Administrative Agent.
2.03 LETTER OF CREDIT PARTICIPATIONS. (a) Immediately upon the issuance by
any Issuing Bank of any Letter of Credit, such Issuing Bank shall be deemed to
have sold to each other RC Bank (each such other RC Bank, in its capacity under
this Section 2.03, a "Participant"), and each such Participant shall be deemed
irrevocably and unconditionally to have purchased and received from such Issuing
Bank, without recourse or warranty, an undivided interest and participation
(each a "Participation"), to the extent of such Participant's Revolving
Percentage in such Letter of Credit, each substitute letter of credit, each
drawing made thereunder and the obligations of the Company under this Agreement
with respect thereto, and any security therefor or guaranty pertaining thereto
(although Letter of Credit Fees will be paid directly to the Administrative
Agent for the ratable account of the Participants as provided in Section 3.01(b)
and the Participants shall have no right to receive any portion of any Facing
Fees). Upon any change in the Revolving Loan Commitments of the Banks pursuant
to Section 1.13 or 13.04, it is hereby agreed that, with respect to all
outstanding Letters of Credit, and Unpaid Drawings, there shall be an automatic
adjustment to the
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Participations pursuant to this Section 2.03 to reflect the new Revolving
Percentages of the assignor and assignee Bank.
(b) In determining whether to pay under any Letter of Credit, the
respective Issuing Bank shall have no obligation relative to the Participants
other than to confirm that any documents required to be delivered under such
Letter of Credit have been delivered and that they appear to substantially
comply on their face with the requirements of such Letter of Credit. Any action
taken or omitted to be taken by any Issuing Bank under or in connection with any
Letter of Credit, if taken or omitted in the absence of gross negligence or
willful misconduct, shall not create for such Issuing Bank any resulting
liability.
(c) In the event that any Issuing Bank makes any payment under any Letter
of Credit and the Company shall not have reimbursed such amount in full to such
Issuing Bank pursuant to Section 2.04(a), such Issuing Bank shall promptly
notify the Administrative Agent and after receipt of such notice, the
Administrative Agent will notify each Participant of such failure, and each
Participant shall promptly and unconditionally pay to the Administrative Agent,
for the account of such Issuing Bank, the amount of such Participant's Revolving
Percentage of such unreimbursed payment in Dollars (or, in the case of any
unreimbursed payment made in a currency other than Dollars, of the Dollar
Equivalent of such unreimbursed payment, as determined by such Issuing Bank on
the date on which such unreimbursed payment was made by such Issuing Bank) and
in same day funds. If the Administrative Agent so notifies, prior to 11:00 A.M.
(New York time) on any Business Day, any Participant required to fund a payment
under a Letter of Credit, such Participant shall make available to the
Administrative Agent for the account of the respective Issuing Bank such
Participant's Revolving Percentage of the amount of such payment on such
Business Day in Dollars (or, in the case of any unreimbursed payment made in a
currency other than Dollars, of the Dollar Equivalent thereof) and in same day
funds. If and to the extent such Participant shall not have so made its
Revolving Percentage of the amount of such payment available to the
Administrative Agent for the account of the respective Issuing Bank, such
Participant agrees to pay to the Administrative Agent for the account of such
Issuing Bank, forthwith on demand such amount, together with interest thereon,
for each day from such date until the date such amount is paid to the
Administrative Agent for the account of such Issuing Bank at the overnight
Federal Funds Rate. The failure of any Participant to make available to the
Administrative Agent for the account of the respective Issuing Bank its
Revolving Percentage of any payment under any Letter of Credit shall not relieve
any other Participant of its obligation hereunder to make available to the
Administrative Agent for the account of such Issuing Bank its Revolving
Percentage of any payment under any Letter of Credit on the date required, as
specified above, but no Participant shall be responsible for the failure of any
other
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Participant to make available to the Administrative Agent, such other
Participant's Revolving Percentage of any such payment.
(d) Whenever any Issuing Bank receives a payment of a reimbursement
obligation as to which the Administrative Agent has received for the account of
such Issuing Bank any payments from the Participants pursuant to clause (c)
above, such Issuing Bank shall pay to the Administrative Agent and the
Administrative Agent shall promptly pay to each Participant which has paid its
Revolving Percentage thereof, in Dollars (or, in the case of any payment
received in a currency other than Dollars, of the Dollar Equivalent thereof) and
in same day funds, an amount equal to such Participant's Revolving Percentage of
the principal amount of such reimbursement and of interest reimbursed thereon
accruing from and after the date of the purchase of the respective
Participations.
(e) As between the Company and the respective Issuing Bank, the Company
assumes all risks of the acts and omissions of, or misuse of the Letters of
Credit by, the respective beneficiaries or transferees of such Letters of
Credit. Further, and not in limitation of the foregoing, absent gross negligence
or willful misconduct on its part, no Issuing Bank shall be responsible for the
following:
(i) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any documents submitted by any party in connection with the
application for and issuance of or any drawing under such Letters of
Credit, even if it should in fact prove to be in any and all respects
invalid, insufficient, inaccurate, fraudulent or forged;
(ii) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any such Letter of Credit or
the rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason;
(iii) errors, omissions, interruptions or delays in the transmission
or delivery of any messages by mail, cable, telegraph, telecopier, telex or
otherwise, whether or not they be in cipher;
(iv) errors in interpretation of technical terms;
(v) any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under any such Letter of Credit or the
proceeds thereof;
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(vi) the misapplication by the beneficiary of any such Letter of
Credit or the proceeds of any drawing of any such Letter of Credit; and
(vii) any consequences arising from causes beyond the control of the
respective Issuing Bank, including without limitation any acts of
governments.
(f) The obligations of the Participants to make payments to the
Administrative Agent for the account of any Issuing Bank with respect to Letters
of Credit shall be irrevocable and not subject to counterclaim, set-off or any
other defense or any other qualification or exception whatsoever and shall be
made in accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following circumstances
(other than in the case of gross negligence or willful misconduct of such
Issuing Bank):
(i) any lack of validity or enforceability of this Agreement or any of
the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right which
the Company may have at any time against a beneficiary named in a Letter of
Credit, any transferee of any Letter of Credit (or any Person for whom any
such transferee may be acting), the Administrative Agent, any Issuing Bank,
any Bank, or any other Person, whether in connection with this Agreement,
any Letter of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the Company and
the beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or any other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Credit Documents; or
(v) the occurrence of any Default or Event of Default.
2.04 AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) The Company hereby
agrees to reimburse the respective Issuing Bank, by making payment to the
Administrative Agent for the account of such Issuing Bank, in Dollars (or, in
the case of any payment or disbursement made by such Issuing Bank in any
currency other than Dollars, of the Dollar Equivalent of such payment or
disbursement as determined by such Issuing Bank on the date of such payment or
disbursement) and in immediately
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<PAGE> 33
Available funds at the appropriate Payment Office of the Administrative Agent,
for any payment or disbursement made by such Issuing Bank under any Letter of
Credit (each such amount, or the Dollar Equivalent thereof as determined by such
Issuing Bank on the date of payment or disbursement, so paid or disbursed until
reimbursed, an "Unpaid Drawing") within one Business Day following receipt by
the Company of notice of such payment or disbursement, with interest on the
amount so paid or disbursed by such Issuing Bank, to the extent not reimbursed
prior to 2:00 P.M. (New York time) on the date of such payment, from and
including the date paid to but excluding the date reimbursement is made, at a
rate per annum which shall be the Applicable Margin for Revolving Loans (plus 2%
if not reimbursed by 2:00 P.M. (New York time) on the second Business Day
following receipt by the Company of notice of any such payment or disbursement)
plus the Base Rate in effect from time to time, such interest to be payable on
demand. The respective Issuing Bank shall notify the Company and the
Administrative Agent of its paying any payment under a Letter of Credit created
thereunder as soon as practical after such payment, PROVIDED, that the failure
to give any such notice shall in no way affect, impair or diminish the Company's
obligations hereunder.
(b) The Company's obligation under this Section 2.04 to reimburse each
Issuing Bank with respect to Unpaid Drawings (including, in each case, interest
thereon) shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the Company
may have or have had against any Participant, such Issuing Bank, the
Administrative Agent, any Bank or any other Person, including, without
limitation, any defense based upon the failure of any payment under a Letter of
Credit (each a "Drawing") to conform to the terms of the Letter of Credit or any
non-application or misapplication by the beneficiary of the proceeds of such
Drawing; PROVIDED, HOWEVER, that the Company shall not be obligated to reimburse
any Issuing Bank for any wrongful payment made by such Issuing Bank under a
Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of such Issuing Bank.
2.05 INCREASED COSTS. If any Issuing Bank or any Participant determines
that after the Restatement Effective Date the adoption or effectiveness of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Issuing Bank or any Participant with any request
or directive (whether or not having the force of law) by any such authority,
central bank or comparable agency shall either (i) impose, modify or make
applicable any reserve, deposit, capital adequacy or similar requirement against
Letters of Credit issued by such Issuing Bank or such Participant's
participation therein, or (ii) impose on such Issuing Bank or any Participant
any other conditions affecting this Agreement, any Letter of Credit, or such
Participant's partici-
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<PAGE> 34
pation therein, and the result of any of the foregoing is to increase the cost
to such Issuing Bank or such Participant of issuing, maintaining or
participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by such Issuing Bank or any Participant hereunder with
respect to Letters of Credit (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such Issuing Bank or
such Participant pursuant to the laws of the United States of America, the
jurisdiction in which it is organized or in which its principal office or
applicable lending office is located or any subdivision thereof or therein) in
an amount deemed by such Issuing Bank or such Participant to be material, then,
upon demand to the Company by such Issuing Bank or such Participant (a copy of
which notice shall be sent by such Issuing Bank or such Participant to the
Administrative Agent), the Company shall pay to such Issuing Bank or such
Participant, as the case may be, without duplication of any amounts due under
Section 1.10(c) hereof, such additional amount or amounts as will compensate
such Issuing Bank or such Participant, as the case may be, for such increased
cost or reduction. In determining such additional amounts, the respective
Issuing Bank and each Participant will act reasonably and in good faith and will
use averaging and attribution methods which are reasonable, PROVIDED that such
Issuing Bank's or such Participant's, as the case may be, determination of
compensation owing under this Section 2.05 shall, absent manifest error, be
final and conclusive and binding on all the parties hereto. The respective
Issuing Bank or any Participant, upon determining that any additional amounts
are payable to it pursuant to this Section 2.05, will give prompt written notice
thereof, setting forth the basis of the calculation of such amounts, although
the failure to give any such notice shall not release or diminish the Company's
obligations to pay additional amounts pursuant to this Section 2.05 upon receipt
of such certificate. The certificate submitted to the Company by the respective
Issuing Bank or such Participant, as the case may be (a copy of which
certificate shall be sent by such Issuing Bank or such Participant to the
Administrative Agent), shall set forth the basis for the determination of such
additional amount or amounts necessary to compensate such Issuing Bank or such
Participant as provided above in this Section 2.05.
2.06 MINIMUM STATED AMOUNT. The Stated Amount of each Trade Letter of
Credit shall be not less than $100,000 (or an amount in the respective Alternate
Currency or other foreign currency having a Dollar Equivalent of $100,000 in the
case of a Letter of Credit issued in a currency other than Dollars) or such
lesser amount as is acceptable to the respective Issuing Bank and the Stated
Amount of each Standby Letter of Credit shall be not less than $250,000 (or an
amount in the respective Alternate Currency or other foreign currency having a
Dollar Equivalent of $250,000 in the case of a Letter of Credit issued in a
currency other than Dollars) or such lesser amount as is acceptable to the
respective Issuing Bank.
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<PAGE> 35
2.07 EXISTING LETTERS OF CREDIT. Schedule III hereto contains a description
of all letters of credit outstanding on the Restatement Effective Date (each, an
"Existing Letter of Credit"), which such letters of credit shall constitute
"Letters of Credit" for all purposes of this Agreement, issued, for purposes of
Section 2.03(a), on the Restatement Effective Date. The Company, the
Administrative Agent and the Banks hereby agree that, from and after the
Restatement Effective Date, the terms of this Agreement shall apply to the
Existing Letters of Credit.
SECTION 3. Commitment Commission; Fees; Reductions of Commitment.
-----------------------------------------------------
3.01 FEES. (a) The Company agrees to pay to the Administrative Agent for
distribution to each RC Bank a commitment fee (the "Commitment Fee") for the
period from and including the Restatement Effective Date to but not including
the date the Total Revolving Loan Commitment has been terminated, computed at
the rate of 1/2 of 1% per annum (minus the Commitment Fee Reduction Discount, if
any) on the average daily Aggregate Unutilized Commitment of such Bank. Accrued
Commitment Fees shall be due and payable quarterly in arrears on each Quarterly
Payment Date and the date upon which the Total Revolving Loan Commitment is
terminated.
(b) The Company agrees to pay to the Administrative Agent for distribution
to each RC Bank (based on such RC Bank's Revolving Percentage) a fee in respect
of each Letter of Credit issued hereunder (the "Letter of Credit Fee"), for the
period from and including the date of issuance of such Letter of Credit to and
including the termination of such Letter of Credit (it being understood,
however, that if such Letter of Credit is drawn on in full or canceled by the
beneficiary thereof prior to the time at which such Letter of Credit expires in
accordance with its terms, the calculation of such fee shall not include the
date of such drawing being honored or cancellation), computed at a rate per
annum equal to the Eurodollar Spread as in effect from time to time on the daily
Stated Amount of such Letter of Credit. Accrued Letter of Credit Fees shall be
due and payable quarterly in arrears on each Quarterly Payment Date and upon the
first day on or after the termination of the Total Revolving Loan Commitment
upon which no Letters of Credit remain outstanding.
(c) The Company agrees to pay to the respective Issuing Bank, for its own
account, a facing fee in respect of each Letter of Credit issued by it hereunder
(the "Facing Fee") for the period from and including the date of issuance of
such Letter of Credit to and including the termination of such Letter of Credit
(it being understood, however, that if such Letter of Credit is drawn on in full
or canceled by the beneficiary thereof prior to the time at which such Letter of
Credit expires in accordance with its terms, the calculation of such fee shall
not include the date of such drawing being honored or cancellation), computed at
a rate equal to 1/4 of 1% per annum of the daily
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<PAGE> 36
Stated Amount of such Letter of Credit; PROVIDED that in no event shall the
annual Facing Fee with respect to each Letter of Credit be less than $500, it
being agreed that, on the date of issuance of any Letter of Credit and on each
anniversary thereof prior to the termination of such Letter of Credit, if $500
will exceed the amount of Facing Fees that will accrue with respect to such
Letter of Credit for the immediately succeeding 12-month period, the full $500
shall be payable on the date of issuance of such Letter of Credit and on each
such anniversary thereof prior to the termination of such Letter of Credit.
Except as provided in the immediately preceding sentence, accrued Facing Fees
shall be due and payable quarterly in arrears on each Quarterly Payment Date and
upon the first day on or after the termination of the Total Revolving Loan
Commitment upon which no Letters of Credit remain outstanding.
(d) The Company agrees to pay to the respective Issuing Bank, upon each
drawing under, issuance of, or amendment to, any Letter of Credit issued by it,
such amount as shall at the time of such event be the administrative charge
which such Issuing Bank is generally imposing in connection with such occurrence
with respect to letters of credit.
(e) The Company agrees to pay to the Administrative Agent, for its own
account, such other fees as have been agreed to in writing by the Company and
the Administrative Agent.
3.02 VOLUNTARY TERMINATION OF UNUTILIZED COMMITMENTS. Upon at least two
Business Days' prior notice to the Administrative Agent at its Notice Office
(which notice the Administrative Agent shall promptly transmit to each of the
Banks), the Company shall have the right, at any time or from time to time,
without premium or penalty, to permanently reduce the Total Unutilized Revolving
Commitment, in whole or in part, in integral multiples of $1,000,000 in the case
of partial reductions to the Total Unutilized Revolving Commitment, PROVIDED
that each such reduction shall apply proportionately to permanently reduce the
Revolving Loan Commitment of each RC Bank.
3.03 MANDATORY REDUCTION OF COMMITMENTS. (a) The Total A Term Loan
Commitment (and the A Term Loan Commitment of each Bank) shall be terminated on
the Restatement Effective Date, in each case after giving effect to the
maintenance and incurrence of A Term Loans on such date.
(b) The Total B Term Loan Commitment (and the B Term Loan Commitment of
each Bank) shall be terminated on the Restatement Effective Date, in each case
after giving effect to the maintenance and incurrence of B Term Loans on such
date.
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<PAGE> 37
(c) The Total Revolving Loan Commitment (and the Revolving Loan Commitment
of each RC Bank) shall terminate in its entirety on the Revolving Loan Maturity
Date.
(d) On each date after the Restatement Effective Date upon which a
mandatory repayment of Term Loans pursuant to any of Sections 4.02(d) through
(h), inclusive, is required (or would be required, but for the operation of the
proviso to the first sentence of Section 4.02(i) and the second sentence
thereof) (and exceeds in amount the aggregate principal amount of Term Loans
(other than A Canadian Dollar Term Loans remaining outstanding pursuant to the
proviso to the first sentence of Section 4.02(i) and the second sentence
thereof) then outstanding or would be required if such Term Loans were then
outstanding), the Total Revolving Loan Commitment shall be permanently reduced
by the amount, if any, by which the amount required to be applied pursuant to
said Sections (determined as if an unlimited amount of Term Loans were actually
outstanding) exceeds the aggregate principal amount of such Term Loans then
outstanding.
(e) On each date after the Restatement Effective Date upon which a Change
of Control occurs, the Total Revolving Loan Commitment shall be automatically
terminated fifteen days after such Change of Control occurs unless the Required
Banks have waived this Section 3.03(e) or such Change of Control has been cured.
(f) Each reduction to the Total A Term Loan Commitment, the Total B Term
Loan Commitment and the Total Revolving Loan Commitment pursuant to this Section
3.03 shall be applied proportionately to reduce the A Term Loan Commitment, B
Term Loan Commitment or the Revolving Loan Commitment, as the case may be, of
each Bank with such a Commitment.
SECTION 4. Prepayments; Payments; Taxes.
----------------------------
4.01 VOLUNTARY PREPAYMENTS. (a) Each Borrower shall have the right to
prepay the Loans made to such Borrower, without premium or penalty, in whole or
in part at any time and from time to time on the following terms and conditions:
(i) such Borrower shall give the Administrative Agent prior to 12:00 Noon (New
York time) at its Notice Office (x) if the Company, (1) at least one Business
Day's prior written notice (or telephonic notice promptly confirmed in writing)
of its intent to prepay Dollar Term Loans maintained as Base Rate Loans and (2)
on the date such prepayment is to be made, written notice (or telephonic notice
promptly confirmed in writing) of its intent to prepay Dollar Revolving Loans
maintained as Base Rate Loans and (y) if any Borrower, at least two Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of its intent to prepay Fixed Rate Loans, the Loans to be prepaid,
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<PAGE> 38
the amount of such prepayment and, in the case of Fixed Rate Loans, the specific
Borrowing or Borrowings pursuant to which made, which notice the Administrative
Agent shall promptly transmit to each of the Banks; (ii) each prepayment of (x)
Loans shall be in an aggregate principal amount of at least $250,000 (and
multiples of $50,000 in excess thereof) (or an amount in the respective
Alternate Currency having a Dollar Equivalent of $250,000 (and multiples of
$50,000 in excess thereof) in the case of Alternate Currency Loans), PROVIDED
that no partial prepayment of Fixed Rate Loans (other than Alternate Currency
Term Loans) made pursuant to any Borrowing shall reduce the outstanding Fixed
Rate Loans made pursuant to such Borrowing to an amount less than (1) in the
case of Dollar Term Loans $5,000,000, and (2) in the case of Revolving Loans,
$2,500,000 (or an amount in the respective Alternate Currency having a Dollar
Equivalent of $2,500,000 in the case of Alternate Currency Revolving Loans);
(iii) prepayments of Fixed Rate Loans made pursuant to this Section 4.01 on a
day other than the last day of the Interest Period applicable thereto shall be
subject to Section 1.11; and (iv) each prepayment in respect of any Loans made
pursuant to a Borrowing shall be applied PRO RATA among such Loans, PROVIDED
that at the respective Borrower's election in connection with any prepayment of
Revolving Loans pursuant to this Section 4.01, such prepayment shall not be
applied to any Revolving Loan of a Defaulting Bank at any time when the
aggregate amount of Revolving Loans of any Non-Defaulting Bank exceeds such
Non-Defaulting Bank's Revolving Percentage of all Revolving Loans then
outstanding.
(b) Each prepayment of principal of Term Loans pursuant to this Section
4.01 (i) shall be applied to reduce the principal amount of A Term Loans and B
Term Loans PRO RATA based on the A Tranche Percentage and the B Tranche
Percentage, respectively, and based on the outstanding principal amounts thereof
and after giving effect to all prior reductions thereto and (ii) shall be
applied to reduce the then remaining Scheduled Repayments of each respective
Tranche of Term Loans PRO RATA based on the amount of such Scheduled Repayments
then outstanding, after giving effect to all prior reductions thereto; PROVIDED
that prepayments made pursuant to this Section 4.01 shall not be applied to
repay the Subsidiary A Canadian Dollar Term Loans until the earlier of (x) the
date which is five years after the Restatement Effective Date and (y) the date
on which all other Term Loans have been repaid in full.
4.02 MANDATORY REPAYMENTS AND COMMITMENT REDUCTIONS. (a) If, on any day the
sum of (I) the aggregate outstanding principal amount of Revolving Loans
(including the Dollar Equivalent thereof in the case of outstanding Alternate
Currency Revolving Loans) and (II) the aggregate amount of Letter of Credit
Outstandings exceeds the Total Modified Revolving Loan Commitment as then in
effect, the Company shall repay, within three Business Days after receiving
written notice from the Administrative Agent of such excess, Revolving Loans
(allocated among Dollar Revolving Loans and
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<PAGE> 39
Alternate Currency Revolving Loans as the Company may elect) in an amount equal
to such excess. If, after giving effect to the repayment of all outstanding
Revolving Loans, the aggregate amount of Letter of Credit Outstandings exceeds
the Total Modified Revolving Loan Commitment as then in effect, the Company
shall pay to the Administrative Agent at the appropriate Payment Office within
such three Business Day period an amount of cash or Cash Equivalents equal to
the amount of such excess, such cash or Cash Equivalents to be held as security
for all obligations of the Borrowers hereunder in a cash collateral account to
be established by, and satisfactory to, the Administrative Agent and the
Company. In the event any Sterling Revolving Loans exceed the amount permitted
to remain outstanding pursuant to the second proviso in Section 1.01(c), the
Company shall repay an amount equal to such excess in accordance with this
Section 4.02(a).
(b) On each date set forth on Part A of Schedule IV (each such date, an "A
Term Loan Scheduled Repayment Date"), there shall be repaid the principal amount
of A Term Loans of the respective Tranche set forth therein in an amount in
Dollars or in an amount in the relevant Alternate Currency as is set forth
opposite such A Term Loan Scheduled Repayment Date on Schedule IV (each such
repayment, an "A Term Loan Scheduled Repayment"), it being understood and agreed
that each such Scheduled Repayment shall be applied to the Original Term Loans
and the New Term Loans of the respective Tranche as described on such Schedule
IV.
(c) On each date set forth on Part B of Schedule IV (each such date, a "B
Term Loan Scheduled Repayment Date"), there shall be repaid the principal amount
of B Term Loans set forth opposite such B Term Loan Scheduled Repayment Date on
Schedule IV (each such repayment, a "B Term Loan Scheduled Repayment"), it being
understood and agreed that each such Scheduled Repayment shall be applied to the
Original Term Loans and the New Term Loans of the respective Tranche as
described on such Schedule IV.
(d) On each date on and after the Restatement Effective Date upon which
Holdings receives any proceeds from any issuance of equity (excluding (x)
proceeds received from the sale or issuance of equity which are used to effect
Permitted Acquisitions pursuant to Section 7.14 or (y) so long as no Default or
Event of Default then exists, proceeds received from the issuance by Holdings of
its common stock pursuant to a registered initial public offering (a "Holdings
IPO") to the extent such proceeds are received on or prior to December 31, 1996
and such proceeds are used as provided in Section 8.03(viii) and clause (z) of
the proviso to Section 8.11(i)) an amount equal to 100% of the cash proceeds
therefrom (net of underwriting discounts or placement discounts and commissions
and other reasonable fees and costs associated therewith) shall be applied as a
mandatory repayment of principal of outstanding Term
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Loans in accordance with the requirements of Section 4.02(i) (subject to
modification of such application as set forth in Section 4.02(l)).
(e) On each date on and after the Restatement Effective Date upon which
Holdings, the Borrowers or any of their Subsidiaries receives any proceeds from
any incurrence by Holdings, the Borrowers or any of their Subsidiaries of
Indebtedness for borrowed money (including Permitted Refinancing Subordinated
Indebtedness incurred by the Company, but excluding any Indebtedness for
borrowed money permitted to be incurred pursuant to Section 8.04 as in effect on
the Restatement Effective Date), an amount equal to 100% of the cash proceeds
therefrom (net of underwriting discounts or placement discounts and commissions
and other reasonable fees and costs associated therewith) shall be applied as a
mandatory repayment of principal of outstanding Term Loans in accordance with
the requirements of Section 4.02(i) (subject to modification of such application
as set forth in Section 4.02(l)), PROVIDED, HOWEVER, so long as no Default or
Event of Default then exists or would result therefrom, the Company may use the
proceeds from the issuance of Permitted Refinancing Subordinated Indebtedness to
concurrently repurchase, redeem or otherwise retire outstanding Senior
Subordinated Notes.
(f) On each date on and after the Restatement Effective Date upon which
Holdings, the Borrowers or any of their Subsidiaries receive Cash Proceeds from
any Asset Sale, an amount equal to 100% of the Net Cash Proceeds therefrom shall
be applied as a mandatory repayment of principal of outstanding Term Loans in
accordance with the requirements of Section 4.02(i) (subject to modification of
such application as set forth in Section 4.02(l), PROVIDED that with respect to
no more than $500,000 in the aggregate of such Net Cash Proceeds in any fiscal
year of the Company, such Net Cash Proceeds shall not be required to be so
applied on such date if no Default under Section 9.01 or 9.05 or Event of
Default then exists and the Company delivers a certificate to the Administrative
Agent on or prior to such date stating that such Net Cash Proceeds shall be used
to purchase assets used in the ordinary course of business in compliance with
this Agreement within 180 days following the date of such Asset Sale (which
certificate shall set forth the estimates of the proceeds to be so expended),
and PROVIDED FURTHER, that if all or any portion of such Net Cash Proceeds not
so applied to the repayment of Term Loans are not so used within such 180 day
period, such remaining portion shall be applied on the last day of such period
as a mandatory repayment of principal of outstanding Term Loans as provided
above in this Section 4.02(f).
(g) On each Excess Cash Payment Date, an amount equal to 75% of the Excess
Cash Flow (or 50% if no Default or Event of Default exists on the respective
Excess Cash Flow Payment Date and if the Leverage Ratio as of the end of the
relevant Excess
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<PAGE> 41
Cash Payment Period is less than 4.0:1.0) for the relevant Excess Cash Payment
Period shall be applied as a mandatory repayment of principal of outstanding
Term Loans in accordance with the requirements of Section 4.02(i) (subject to
modification of such application as set forth in Section 4.02(l)).
(h) Within 10 days following each date after the Restatement Effective Date
on which Holdings, any Borrower or any of their respective Subsidiaries receives
any proceeds from any Recovery Event, an amount equal to 100% of the proceeds of
such Recovery Event (net of reasonable costs including, without limitation,
legal costs and expenses and taxes incurred in connection with such Recovery
Event) shall be applied as a mandatory repayment of principal of outstanding
Term Loans in accordance with the requirements of Section 4.02(i) (subject to
modification of such application as set forth in Section 4.02(l)); PROVIDED that
(x) so long as no Default under Section 9.01 or 9.05 or Event of Default then
exists and to the extent such proceeds do not exceed $2,500,000, such proceeds
shall not be required to be so applied on such date to the extent that the
Company has delivered a certificate to the Administrative Agent on or prior to
such date stating that such proceeds shall be used to repair, replace or restore
any properties or assets in respect of which such proceeds were paid within 180
days following the date of such Recovery Event (which certificate shall set
forth the estimates of the proceeds to be so expended) and (y) so long as no
Default under Section 9.01 or 9.05 or Event of Default then exists and to the
extent that (a) the amount of such proceeds exceeds $2,500,000, (b) the Company
has delivered to the Administrative Agent a certificate on or prior to the date
the certificate would otherwise be required pursuant to this Section 4.02(h) in
the form described in clause (x) above and certifying the sufficiency of
business interruption insurance as required by succeeding clause (c), and (c)
the Company has delivered to the Administrative Agent such evidence as the
Administrative Agent may reasonably request, in form and substance reasonably
satisfactory to the Administrative Agent, establishing that the Company has
sufficient business interruption insurance and that the Company will be
receiving regular payments thereunder in such amounts and at such times as are
necessary to satisfy all obligations and expenses of the Company and its
Subsidiaries (including, without limitation, all debt service requirements,
including pursuant to this Agreement) without any delay or extension thereof,
for the period from the date of the respective casualty, condemnation or other
event giving rise to the Recovery Event and continuing through the completion of
the repair, replacement or restoration of respective properties or assets, then
the entire amount and not just the portion in excess of $2,500,000 shall be
deposited with the Administrative Agent pursuant to a cash collateral
arrangement satisfactory to the Administrative Agent and the Company whereby
such proceeds shall be disbursed to the Company from time to time as needed to
pay actual costs incurred by it in connection with the repair, replacement or
restoration of the respective properties or assets (pursuant to such
certification requirements as may be established
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by the Administrative Agent), PROVIDED FURTHER, that at any time while an Event
of Default has occurred and is continuing (other than an Event of Default
existing solely as a result of the violation of any or all of Sections 8.08,
8.09 and 8.10, but in each case only if, and to the extent, that the violation
of said covenant has occurred as a result of the underlying event giving rise to
the Recovery Event), the Required Banks may direct the Administrative Agent (in
which case, the Administrative Agent shall, and is hereby authorized by the
Company to, follow said directions) to apply any or all proceeds then on deposit
in such collateral account to the repayment of the Obligations hereunder in the
same manner as proceeds would be applied pursuant to the Security Agreement, and
PROVIDED FURTHER, that if all or any portion of such proceeds not required to be
applied to the repayment of Term Loans pursuant to the second preceding proviso
(whether pursuant to clause (x) or (y) thereof) are either (A) not so used
within 180 days after the date of receipt of proceeds from the respective
Recovery Event or (B) if committed to be used within 190 days after the date of
receipt of proceeds from the respective Recovery Event and not so used within
360 days after the date of receipt of proceeds from the respective Recovery
Event, then, in either case, such remaining portion not used or committed to be
used in the case of the preceding clause (A) and not used in the case of
preceding clause (B), shall be applied on the date which is 190 days following
the date of receipt of proceeds from the respective Recovery Event in the case
of clause (A) above, or the date which is 370 days after the date of receipt of
proceeds from the respective Recovery Event in the case of clause (B) above, as
a mandatory repayment of principal of outstanding Term Loans in accordance with
the requirements of Section 4.02(i).
(i) The amount of each principal repayment of Term Loans made as required
by Sections 4.02(d), (e), (f), (g) and (h) shall be applied to reduce the
principal amount of A Term Loans and B Term Loans PRO RATA based on the A
Tranche Percentage and the B Tranche Percentage, respectively, and based on the
outstanding principal amounts thereof and to reduce the then remaining Scheduled
Repayments of each respective Tranche of Term Loans on a PRO RATA basis based on
the amount of such Scheduled Repayments after giving effect to all prior
reductions thereto; PROVIDED FURTHER, that prepayments made pursuant to this
Section 4.02(i) shall not be applied to repay the Subsidiary A Canadian Dollar
Term Loans until the earlier of (x) the date that is five years after the
Restatement Effective Date and (y) the date on which all other Term Loans have
been repaid in full and thereafter (except as herein provided) shall be applied
to repay the Subsidiary A Canadian Dollar Term Loans. Notwithstanding any other
provision contained in this Agreement or in any agreement or document ancillary
hereto, any amount otherwise required by Section 4.02 to be applied to repay
Subsidiary A Canadian Dollar Term Loans shall at any time on or prior to the
date that is five years after the Restatement Effective Date, unless an Event of
Default has occurred and is continuing, not exceed the amount equal to the
positive difference, if
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any, between (a) 25% of the original principal amount of the Subsidiary A
Canadian Dollar Term Loans outstanding on the Restatement Effective Date and (b)
the aggregate amount of repayments of principal theretofore made in respect of
the Subsidiary A Canadian Dollar Term Loans. Any amount that is otherwise
required to be deposited with the Administrative Agent pursuant to a cash
collateral arrangement described in Section 4.02(h) that is derived directly or
indirectly from proceeds received or receivable by the Canadian Borrower shall
be deemed, for the purposes only of applying the immediately preceding sentence,
to be otherwise required by Section 4.02 to be applied to repay the Subsidiary A
Canadian Dollar Term Loans PRO RATA in proportion to their respective principal
amounts.
(j) With respect to each repayment of Loans required by this Section
4.02, the respective Borrower may designate the Types of Loans which are to be
repaid and, in the case of Fixed Rate Loans, the specific Borrowing or
Borrowings of the respective Tranche pursuant to which such Loans were made,
PROVIDED that: (i) if any repayment of Eurodollar Loans made pursuant to a
single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to
such Borrowing to an amount less than (x) in the case of Term Loans, $5,000,000
and (y) in the case of Revolving Loans, $2,500,000, such Borrowing shall be
converted at the end of the then current Interest Period into a Borrowing of
Base Rate Loans; and (ii) each repayment of any Loans made pursuant to a
Borrowing shall be applied PRO RATA among such Loans; PROVIDED that no repayment
pursuant to Section 4.02(a) shall be applied to any Revolving Loans of a
Defaulting Bank at any time when the aggregate amount of the Revolving Loans of
any Non-Defaulting Bank exceeds such Non-Defaulting Bank's Revolving Percentage
of Revolving Loans then outstanding. In the absence of a designation by the
respective Borrower as described in the preceding sentence, the Administrative
Agent shall, subject to the above, make such designation in its sole discretion.
Notwithstanding the foregoing provisions of this Section 4.02, if any time the
mandatory prepayment of Term Loans pursuant to Sections 4.02(d) through (h)
above, or repayments of Eurodollar Loans pursuant to Section 1.10(b) would
result, after giving effect to the procedures set forth above, in the Borrowers
incurring breakage costs under Section 1.11 as a result of Eurodollar Loans
being prepaid other than on the last day of an Interest Period applicable
thereto (the "Affected Eurodollar Loans"), then the Borrowers may in their sole
discretion initially deposit a portion (up to 100%) of the amounts that
otherwise would have been paid in respect of the Affected Eurodollar Loans with
the Administrative Agent (which deposit must be equal in amount to the amount of
Affected Eurodollar Loans not immediately prepaid) to be held as security for
the obligations of the Borrowers hereunder pursuant to a cash collateral
arrangement to be agreed upon in form and substance satisfactory to the
Administrative Agent and the Company, with such cash collateral to be directly
applied upon the first occurrence (or occurrences) thereafter of the last day of
an Interest Period applicable to the relevant Term Loans
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that are Eurodollar Loans (or such earlier date or dates as shall be requested
by the Borrowers), to repay an aggregate principal amount of such Term Loans
equal to the Affected Eurodollar Loans not initially repaid pursuant to this
sentence. Notwithstanding anything to the contrary contained in the immediately
preceding sentence, all amounts deposited as cash collateral pursuant to the
immediately preceding sentence shall be held for the sole benefit of the Banks
whose Term Loans would otherwise have been immediately repaid with the amounts
deposited and upon the taking of any action by the Administrative Agent or the
Banks pursuant to the remedial provisions of Section 9, any amounts held as cash
collateral pursuant to this Section 4.02(j) shall, subject to the requirements
of applicable law, be immediately applied to the Term Loans.
(k) All outstanding A Term Loans shall be repaid in full on the A Term Loan
Maturity Date. All outstanding B Term Loans shall be repaid in full on the B
Term Loan Maturity Date. All outstanding Revolving Loans shall be repaid on the
Revolving Loan Maturity Date.
(l) Notwithstanding anything to the contrary contained in this Section 4.02
or elsewhere in this Agreement (including, without limitation, in Section
13.12), the Company shall have the option, in its sole discretion, to give the
Banks with outstanding B Terms Loans (the "B Banks") the option to waive a
mandatory repayment of such Loans pursuant to Sections 4.02(d), (e), (f), (g)
and/or (h) (each such repayment, a "Waivable Mandatory Repayment") upon the
terms and provisions set forth in this Section 4.02(l). If the Company elects to
exercise the option referred to in the preceding sentence, the Company shall
give to the Administrative Agent written notice of its intention to give the B
Banks the right to waive a Waivable Mandatory Repayment at least five Business
Days prior to such repayment, which notice the Administrative Agent shall
promptly forward to all B Banks (indicating in such notice the amount of such
repayment to be applied to each such Bank's outstanding B Term Loans). The
Company's offer to permit such Banks to waive any such Waivable Mandatory
Repayment may apply to all or part of such repayment, PROVIDED that any offer to
waive part of such repayment must be made ratably to such Banks on the basis of
their outstanding B Term Loans. In the event any such B Bank desires to waive
such Bank's right to receive any such Waivable Mandatory Repayment in whole or
in part, such Bank shall so advise the Administrative Agent no later than the
close of business two Business Days after the date of such notice from the
Administrative Agent, which notice shall also include the amount such Bank
desires to receive in respect of such repayment. If any Bank does not reply to
the Administrative Agent within the two Business Days, it will be deemed not to
have waived any part of such repayment. If any Bank does not specify an amount
it wishes to receive, it will be deemed to have accepted 100% of the total
payment. In the event that any such Bank waives all or part of such right to
receive any such Waivable Mandatory Repayment, the Administrative
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Agent shall apply 100% of the amount so waived by such Bank to the A Term Loans
in accordance with Section 4.02(i).
4.03 METHOD AND PLACE OF PAYMENT. Except as otherwise specifically provided
herein, all payments under this Agreement or any Note shall be made to the
Administrative Agent for the account of the Bank or Banks entitled thereto no
later than 12:00 Noon (local time in the city in which such payments are to be
made) on the date when due and shall be made in (i) Dollars in immediately
available funds at the appropriate Payment Office of the Administrative Agent in
respect of Dollar Loans and Letters of Credit denominated in Dollars if such
payment is made in respect of any obligation of the Borrowers under this
Agreement except as otherwise provided in the immediately following clause (ii)
and (ii) the appropriate Alternate Currency in immediately available funds at
the appropriate Payment Office of the Administrative Agent if such payment is
made in respect of principal of or interest on any Alternate Currency Loan or
Letters of Credit not denominated in Dollars. The principal of, and interest on,
each Alternate Currency Loan shall be paid only in the applicable Alternate
Currency. Whenever any payment to be made hereunder or under any Note shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable at the applicable rate during
such extension.
4.04 NET PAYMENTS; TAXES. (a) All payments made by each Borrower hereunder
or under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 4.04(b), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein with respect to such payments (but
excluding, except as provided in the second succeeding sentence, any tax imposed
on or measured by the net income or profits of a Bank pursuant to the laws of
the jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of such Bank is located or any
subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect to such non-excluded taxes, levies, imposts, duties,
fees or other charges (all such non-excluded taxes, levies, imposts, duties,
fees, assessments or other charges being referred to collectively as "Taxes").
If any Taxes are so levied or imposed, such Borrower agrees to pay the full
amount of such Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due under this Agreement or under any Note, after
withholding or deduction for or on account of any Taxes, will not be less than
the amount provided for herein or in such Note. If any amounts are payable in
respect of Taxes pursuant to the preceding sentence, such Borrower agrees to
reimburse each Bank, upon the written request of such Bank, for taxes
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imposed on or measured by the net income or profits of such Bank pursuant to the
laws of the jurisdiction in which such Bank is organized or in which the
principal office or applicable lending office of such Bank is located or under
the laws of any political subdivision or taxing authority of any such
jurisdiction in which such Bank is organized or in which the principal office or
applicable lending office of such Bank is located as such Bank shall determine
are payable by, or withheld from, such Bank in respect of such amounts so paid
to or on behalf of such Bank pursuant to the preceding sentence and in respect
of any amounts paid to or on behalf of such Bank pursuant to this sentence. Each
Borrower will furnish to the Administrative Agent within 45 days after the date
the payment of any Taxes is due pursuant to applicable law certified copies of
tax receipts evidencing such payment by such Borrower. Each Borrower agrees to
indemnify and hold harmless each Bank, and reimburse such Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is defined
in Section 7701(a)(30) of the Code) agrees to deliver to the Company and the
Administrative Agent on or prior to the Restatement Effective Date, or in the
case of a Bank that is an assignee or transferee of an interest under this
Agreement pursuant to Section 1.13 or 13.04 (unless the respective Bank was
already a Bank hereunder immediately prior to such assignment or transfer), on
the date of such assignment or transfer to such Bank, (i) two accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001
(or successor forms) certifying to such Bank's entitlement to a complete
exemption from United States withholding tax with respect to payments to be made
under this Agreement and under any Note with respect to Dollar Loans, or (ii) if
the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code
and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to
clause (i) above, (x) a certificate substantially in the form of Exhibit D (any
such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8 (or
successor form) certifying to such Bank's entitlement to a complete exemption
from United States withholding tax with respect to payments of interest to be
made under this Agreement and under any Note with respect to Dollar Loans. In
addition, each Bank agrees that from time to time after the Restatement
Effective Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, it will
deliver to the Company and the Administrative Agent two new accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001,
or Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such
other forms as may be required in order to confirm or establish the entitlement
of such Bank to a continued exemption from or reduction in United States
withholding tax with respect to payments under this Agreement and any Note, in
each case with respect to Dollar Loans, or it shall immediately notify the
Company and the Administrative Agent of its inability to
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deliver any such Form or Certificate. Notwithstanding anything to the contrary
contained in Section 4.04(a), but subject to Section 13.04(b) and the
immediately succeeding sentence, (x) the Company shall be entitled, to the
extent it is required to do so by law, to deduct or withhold income or similar
taxes imposed by the United States (or any political subdivision or taxing
authority thereof or therein) from interest, Fees or other amounts payable
hereunder for the account of any Bank which is not a United States person (as
such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income
tax purposes to the extent that such Bank has not provided to the Company U.S.
Internal Revenue Service Forms that establish a complete exemption from such
deduction or withholding and (y) the Company shall not be obligated pursuant to
Section 4.04(a) to gross-up payments to be made to a Bank in respect of income
or similar taxes imposed by the United States if (I) such Bank has not provided
to the Company the Internal Revenue Service Forms required to be provided to the
Company pursuant to this Section 4.04(b) or (II) in the case of a payment, other
than interest, to a Bank described in clause (ii) above, to the extent that such
Forms do not establish a complete exemption from withholding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 4.04 and except as set forth in Section 13.04(b), the
Company agrees to pay additional amounts and to indemnify each Bank in the
manner set forth in Section 4.04(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any Taxes
deducted or withheld by it as described in the immediately preceding sentence as
a result of any changes after the Restatement Effective Date in any applicable
law, treaty, governmental rule, regulation, guideline or order, or in the
interpretation thereof, relating to the deducting or withholding of such Taxes.
(c) Each Bank further agrees to use reasonable efforts to deliver to any
Subsidiary Borrower, promptly upon any request therefor from time to time by
such Subsidiary Borrower, such forms, documents and information as may be
required by applicable law, regulation or treaty from time to time and to file
all appropriate forms to obtain a certificate or other appropriate documents
from the appropriate governmental authorities to establish that payments made in
respect of any Alternate Currency Loan or any Note in respect thereof by such
Subsidiary Borrower can be made without withholding of Taxes, PROVIDED, HOWEVER,
that if such Bank is or becomes unable, by virtue of any applicable law,
regulation or treaty, to establish such exemption, the Subsidiary Borrower shall
nonetheless remain obligated under this Section 4.04 to pay the amounts
described herein, and PROVIDED FURTHER, that no Bank shall be required to take
any action hereunder which, in the reasonable discretion of such Bank, would
cause such Bank or its applicable lending office to suffer a material economic,
legal or regulatory disadvantage.
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(d) If a Borrower determines in good faith that a reasonable basis exists
for contesting a Tax, the relevant Bank, or the Administrative Agent, as
applicable, shall cooperate with such Borrower in challenging such Tax at such
Borrower's expense and if requested by such Borrower in writing; PROVIDED,
HOWEVER, that no Bank shall be required to take any action hereunder which, in
the reasonable discretion of such Bank, would cause such Bank or its applicable
lending office to suffer a material economic, legal or regulatory disadvantage.
If any taxes imposed on any Bank are paid or indemnified against by any Borrower
under this Section 4.04, and such Bank (i) receives a refund of any amount of
taxes paid or reimbursed by such Borrower or (ii) after the payment of or
indemnification for such taxes realized a tax benefit (whether by means of a
credit, deduction or otherwise) by reason of the payment of such taxes which
results in a reduction in the taxes due and payable by such Bank, such Bank
shall pay to such Borrower, as the case may be, an amount equal to the reduction
in taxes due and payable by such Bank attributable to such tax benefit or the
amount of such refund; provided, however, that (x) no Bank is under any
obligation to seek a refund of such taxes and (y) determinations as to whether a
Bank has realized a tax benefit (including whether a tax benefit has been
realized as a result of an offset of other taxes due and payable by such Bank)
shall be in the sole discretion of such Bank.
(e) Each Bank, upon determining that any amounts will be payable to such
Bank pursuant to this Section 4.04 (including any amounts payable pursuant to
the third and fourth sentences of Section 4.04(a)), will give prompt written
notice thereof to the Borrowers, which notice shall set forth in reasonable
detail the basis for calculation of such amounts.
SECTION 5. CONDITIONS PRECEDENT. The obligation of each Bank to make Loans,
and the obligation of each Issuing Bank to issue Letters of Credit hereunder is
subject, at the time of the making of each such Credit Event, to the
satisfaction of the following conditions:
5.01 EXECUTION OF AGREEMENT; NOTES. On or prior to the Restatement
Effective Date (i) this Agreement shall have been executed and delivered as
provided in Section 13.10 and (ii) there shall have been delivered to the
Administrative Agent for the account of each of the Banks the appropriate Term
Notes and/or Revolving Notes executed by the appropriate Borrower, in each case
in the amount, maturity and as otherwise provided herein.
5.02 NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of each such
Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect
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as though such representations and warranties had been made on the date of the
making of such Credit Event (it being understood and agreed that any
representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct in all material respects only as of
such specified date).
5.03 OFFICER'S CERTIFICATE. On the Restatement Effective Date, the
Administrative Agent shall have received a certificate dated such date signed by
the President or any Vice President of the Company stating that all of the
applicable conditions set forth in Section 5.02, 5.07, 5.13 and 5.14 have been
met.
5.04 OPINIONS OF COUNSEL. On the Restatement Effective Date, the
Administrative Agent shall have received (i) from Goodwin, Procter & Hoar LLP,
counsel to Holdings, the Borrowers and the Subsidiary Guarantors, an opinion
addressed to the Administrative Agent and each of the Banks and dated the
Restatement Effective Date covering the matters set forth in Exhibit E-1 and
such other matters incident to the transactions contemplated herein as the
Administrative Agent may reasonably request, (ii) from Mark V. B. Tremallo,
General Counsel to the Company, an opinion addressed to the Administrative Agent
and each of the Banks and dated the Restatement Effective Date covering the
matters set forth in Exhibit E-2 and such other matters incident to transactions
contemplated herein as the Administrative Agent may reasonably request, (iii)
from Davies, Ward & Beck, special Ontario counsel to the Canadian Borrower, an
opinion addressed to the Administrative Agent and each of the Banks and dated
the Restatement Effective Date covering the matters set forth in Exhibit E-3 and
such other matters incident to the transactions contemplated herein as the
Administrative Agent may reasonably request, (iv) from Linklaters & Paines,
special United Kingdom counsel to the U.K. Borrower, an opinion dated the
Restatement Effective Date covering the matters set forth in Exhibit E-4 and
such other matters incident to the transactions contemplated herein as the
Administrative Agent may reasonably request, (v) from White & Case, counsel to
Administrative Agent and the Banks, an opinion addressed to the Administrative
Agent and each of the Banks and dated the Restatement Effective Date covering
the matters set forth in Exhibit E-5 and such other matters incident to the
transactions contemplated herein as the Administrative Agent may reasonably
request and (vi) from such other local and foreign counsel (with a limit of one
such opinion for each such jurisdiction) satisfactory to the Administrative
Agent, opinions each of which shall be in form and substance satisfactory to the
Administrative Agent and shall cover the perfection of the security interests
granted pursuant to the respective Security Documents and such other matters
incident to the transactions contemplated herein as the Administrative Agent may
reasonably request.
5.05 CORPORATE DOCUMENTS; PROCEEDINGS; ETC. (a) On the Restatement
Effective Date, the Administrative Agent shall have received a certificate from
each
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Credit Party, dated the Restatement Effective Date, signed by an Authorized
Officer of such Credit Party, and attested to by a separate Authorized Officer
of such Credit Party, in the form of Exhibit F with appropriate insertions,
together with copies of the certificate of incorporation and by-laws or other
organizational documents of such Credit Party and the resolutions of such Credit
Party referred to in such certificate, and the foregoing shall be reasonably
acceptable to the Administrative Agent.
(b) On the Restatement Effective Date, all corporate and legal proceedings
and all instruments and agreements in connection with the transactions
contemplated by this Agreement and the other Credit Documents shall be
reasonably satisfactory in form and substance to the Administrative Agent and
the Required Banks, and the Administrative Agent shall have received all
information and copies of all documents and papers, including records of
corporate proceedings, governmental approvals, good standing certificates,
certificates of status and bring-down telegrams, if any, which the
Administrative Agent reasonably may have requested in connection therewith, such
documents and papers where appropriate to be certified by proper corporate or
governmental authorities.
5.06 PLANS; EXISTING INDEBTEDNESS AGREEMENTS; SHAREHOLDERS' AGREEMENTS;
MANAGEMENT AGREEMENTS. On or prior to the Restatement Effective Date, the
Administrative Agent shall have received (i) a certification from an Authorized
Officer of the Company and its Subsidiaries that all Plans, Existing
Indebtedness Agreements, Shareholders' Agreements and Management Agreements
referenced in Section 5.06 of the Original Credit Agreement, previously
delivered to the Administrative Agent by each Credit Party, remain in full force
and effect (or specifying which of such agreements and plans do not remain in
full force and effect) and (ii) any amendments thereto or additional such
agreements.
5.07 CONSUMMATION OF THE ACQUISITION; CAPITAL CONTRIBUTION; ISSUANCE OF THE
SWEDISH NOTE. (a) On the Restatement Effective Date and concurrently with the
making of the Term Loans and the initial Revolving Loans (i) the Company,
indirectly through Swedish Newco, shall have acquired 100% of the capital stock
of Peltor and its Subsidiaries (except for Minority Peltor Partnership
Interests), and Swedish Newco or Peltor shall have made the Non-Compete Payment,
all pursuant to the Stock Purchase Agreement and (ii) the Banks shall have
received true and correct copies of the Acquisition Documents, and all terms of
the Stock Purchase Agreement and in the other Acquisition Documents shall be
reasonably satisfactory in form and substance to the Administrative Agent. The
Stock Purchase Agreement and all other Acquisition Documents shall have been
duly executed and delivered by the Company, and, to the best of their knowledge,
the other parties thereto, and shall be in full force and effect. Each of the
conditions precedent to the consummation of the Acquisition set forth in the
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Acquisition Documents shall have been satisfied or waived, all to the reasonable
satisfaction of the Administrative Agent, and concurrently with the making of
the Term Loans on the Restatement Effective Date, the Acquisition shall have
been consummated in accordance with the Acquisition Documents and all applicable
laws, rules and regulations.
(b) On the Restatement Effective Date and concurrently with the
consummation of the Acquisition and the making of the Term Loans and the initial
Revolving Loans, Cabot Intermediate shall have received as a capital
contribution cash proceeds from the Company (the "Capital Contribution") in an
amount equal to the principal amount of the New Term Loans made on such date
less amounts used to repay the Original Revolving Loans and costs of the
Transaction, so long as any capital stock issued to the Company as a result
thereof shall be pledged by the Company pursuant to a Pledge Agreement, all on
terms and conditions satisfactory to the Administrative Agent.
(c) On the Restatement Effective Date and concurrently with the
consummation of the Acquisition and the making of the Term Loans and the initial
Revolving Loans, Cabot Intermediate shall have made an intercompany loan (the
"Swedish Loan") to Swedish Newco in an aggregate principal amount equal to the
capital contribution received by Cabot Intermediate described in Section
5.07(b).
(d) On the Restatement Effective Date and concurrently with the
consummation of the Acquisition and the making of the Term Loans and the initial
Revolving Loans, all existing Indebtedness of Peltor and its Subsidiaries shall
have been repaid in full (other than the Existing Mortgage Debt), and all
security interests and Liens on the capital stock of, and assets owned by,
Peltor and its Subsidiaries shall have been terminated and released, other than
Liens securing the Existing Mortgage Debt (the "Refinancing"), and the
Administrative Agent shall have received evidence in form, scope and substance
satisfactory to it that the matters set forth in this clause (d) have been
satisfied on such date.
5.08 FEES, ETC. On the Restatement Effective Date, the Borrowers shall
have paid to the Administrative Agent and the Banks all costs, fees and expenses
(including, without limitation, reasonable legal fees and expenses) payable to
the Administrative Agent and the Banks to the extent then due.
5.09 PLEDGE AGREEMENTS. (a) On the Restatement Effective Date, Holdings,
the Company and each Domestic Subsidiary of the Company which is a Subsidiary
Guarantor shall have (i) duly authorized, executed and delivered an Amended and
Restated Pledge Agreement in the form of Exhibit G-1, with such changes thereto
as counsel may reasonably suggest, and any other Pledge Agreements as the
Administra-
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tive Agent reasonably deems advisable in connection with the Pledged Securities
issued by any Subsidiary of the Company (such Amended and Restated Pledge
Agreements, as modified, supplemented or amended from time to time,
collectively, the "US Pledge Agreement") and (ii) delivered to the Collateral
Agent, as Pledgee, all the certificated Pledged Securities, if any, referred to
therein then owned by such Credit Party, together with executed and undated
stock powers in the case of capital stock constituting Pledged Securities.
(b) On the Restatement Effective Date, each Foreign Subsidiary of the
Company (other than the U.K. Borrower) which is a Borrower or a Subsidiary
Guarantor shall have (i) duly authorized, executed and delivered an Amended and
Restated Pledge Agreement in the form of Exhibit G-2, with such changes thereto
as foreign counsel may reasonably suggest, and any other Pledge Agreements as
the Administrative Agent reasonably deems advisable in connection with the
Pledged Securities issued by any Foreign Subsidiary of the Company (such Amended
and Restated Pledge Agreements, as modified, supplemented or amended from time
to time, collectively, the "Foreign Pledge Agreement"), and (ii) delivered to
the Collateral Agent, as Pledgee, all of the certificated Pledged Securities, if
any, referred to therein then owned by such Credit Party, together with executed
and undated stock powers in the case of capital stock constituting Pledged
Securities.
(c) On the Restatement Effective Date, the English Pledge Agreement,
substantially in the form of Exhibit G-3 and executed and delivered in
connection with the Original Credit Agreement, shall remain in full force and
effect.
5.10 SECURITY AGREEMENTS. On the Restatement Effective Date (i) Holdings,
the Company and each Domestic Subsidiary of the Company which is a Subsidiary
Guarantor shall have duly authorized, executed and delivered an Amended and
Restated Security Agreement in the form of Exhibit H-1 (as modified,
supplemented or amended from time to time, the "US Security Agreement") covering
all of such Credit Party's present and future Security Agreement Collateral,
(ii) the Canadian Borrower and any Canadian Subsidiary of the Company which is a
Subsidiary Guarantor shall have duly authorized, executed and delivered an
Amended and Restated Security Agreement in the form of Exhibit H-2 (as modified,
supplemented or amended from time to time, collectively, the "Canadian Security
Agreement") covering all of such Credit Party's present and future Security
Agreement Collateral, (iii) the English Security Agreement, substantially in the
form of Exhibit H-3 and executed and delivered in connection with the Original
Credit Agreement, remains in full force and effect and (iv) the Collateral Agent
shall have received evidence that all actions necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect (or maintain the
perfection of) and
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protect the security interests purported to be created (or maintained) by the
Security Agreements have been taken.
5.11 US SUBSIDIARY GUARANTY. On the Restatement Effective Date, each
Domestic Subsidiary of the Company (other than Peltor, Inc.) shall have duly
authorized, executed and delivered an Amended and Restated Guaranty in the form
of Exhibit I (as modified, supplemented or amended from time to time, the "US
Subsidiary Guaranty"), and the US Subsidiary Guaranty shall be in full force and
effect.
5.12 MORTGAGE AMENDMENTS. On the Restatement Effective Date, the Collateral
Agent shall have received fully executed counterparts of amendments (the
"Mortgage Amendments") in form and substance satisfactory to the Administrative
Agent, to each of the Mortgages, which are necessary or, in the reasonable
opinion of the Collateral Agent, desirable to effectively maintain a valid and
enforceable first priority mortgage lien on each Mortgaged Property (subject to
Permitted Encumbrances) in favor of the Collateral Agent (or such other trustee
as may be required or desired under local law) for the benefit of the Secured
Creditors and arrangements satisfactory to the Collateral Agent shall be in
place to provide that counterparts of each Mortgage Amendment shall be recorded
on the Restatement Effective Date or within two Business Days thereafter.
5.13 ADVERSE CHANGE; APPROVALS. (a) From December 31, 1995 to the
Restatement Effective Date, nothing shall have occurred (and the Administrative
Agent and Banks shall have become aware of no facts, conditions or other
information concerning the Borrowers or the Transaction not previously known)
which the Administrative Agent or the Required Banks believe could reasonably be
expected to have a material adverse effect (i) on the rights or remedies of the
Administrative Agent or the Banks, or on the ability of any Credit Party to
perform their respective obligations to the Administrative Agent and the Banks
or (ii) on the business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of Holdings and its Subsidiaries taken as
a whole.
(b) On or prior to the Restatement Effective Date, all material
governmental (domestic and foreign) and third party approvals necessary in
connection with the making of the Loans and the issuance of the Letters of
Credit, and the transactions contemplated by the Documents and otherwise
referred to herein or therein shall have been obtained and remain in effect, and
all applicable waiting periods shall have expired without any action being taken
by any competent authority which restrains, prevents or imposes materially
adverse conditions upon the consummation of the making of the Loans and the
issuance of the Letters of Credit, and the transactions contemplated by the
Documents. Additionally, there shall not exist any judgment, order, injunction
or other restraint issued or filed or a hearing seeking injunctive relief or
other restraint
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pending or notified prohibiting or imposing materially adverse conditions upon
the consummation of the making of the Loans and the issuance of the Letters of
Credit, or the transactions contemplated by the Documents.
5.14 LITIGATION. On the Restatement Effective Date, no litigation by any
entity (private or governmental) shall be pending or, to the knowledge of the
Company, threatened with respect to (i) the Transaction, the making of the Loans
or the issuance of the Letters of Credit or the Documents or any documentation
executed in connection therewith or (ii) which the Administrative Agent or the
Required Banks believe could reasonably be expected to have a materially adverse
effect on the business, operations, property, assets, liabilities and condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole.
5.15 SOLVENCY OPINION; COMPLIANCE CERTIFICATE. On or prior to the
Restatement Effective Date, there shall have been delivered to the
Administrative Agent:
(i) a solvency opinion with respect to Holdings and its Subsidiaries
from Marshall & Stevens Incorporated, addressed to the Administrative Agent
and the Banks and dated the Restatement Effective Date and in form and
substance reasonably satisfactory to the Administrative Agent; and
(ii) the Banks shall have received such calculations and PRO FORMA
financial data (including a certificate from the chief financial officer of
the Company) as shall be reasonably required by the Agent in order for them
to determine that the incurrence of debt contemplated hereunder complies in
all respects with the terms of the Senior Subordinated Note Indenture, all
of which shall be in form and substance satisfactory to the Administrative
Agent and the Required Banks.
5.16 PRO FORMA BALANCE SHEET. On or prior to the Restatement Effective
Date, the Administrative Agent shall have received an unaudited PRO FORMA
consolidated balance sheet of Holdings and its Subsidiaries (including Peltor
and its Subsidiaries) taken as a whole prepared on a basis consistent with the
financial statements referred to in Section 6.05(a) and Projections of Holdings
and its Subsidiaries taken as a whole, after giving effect to the Transaction,
the related financing thereof and the other transactions contemplated hereby and
thereby, which consolidated balance sheet and projections shall be in form and
substance reasonably satisfactory to the Administrative Agent.
5.17 POOLED ASSIGNMENT BY ORIGINAL BANKS; ORIGINAL CREDIT AGREEMENT; ETC.
(a) On or prior to the Restatement Effective Date, the Original Banks shall have
duly authorized, executed and delivered a Pooled Assignment Agreement, in form
and sub-
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stance satisfactory to the Banks (the "Pooled Assignment Agreement"), evidencing
the assignment by such Original Banks to the Banks hereunder of all of such
Original Banks' outstanding rights and obligations under the Original Credit
Agreement.
(b) On the Restatement Effective Date, (i) each Bank shall have maintained
its Original Term Loans as contemplated by Sections 1.01(a) and (b), (ii) all
Original Dollar Term Loans maintained as described in preceding clause (i) which
were outstanding as Eurodollar Loans shall, at such time, be converted into Base
Rate Loans or borrowed as Eurodollar Loans in accordance with the provisions of
this Agreement and the Borrowers shall pay breakage costs, to the extent the
Banks are required to pay such breakage costs to the Original Banks under the
Pooled Assignment Agreement, in accordance with the provisions of Section 1.11
of the Original Credit Agreement in connection therewith, (iii) the respective
Borrower shall repay its Original Revolving Loans with the proceeds of the
Loans, (iv) with respect to the repayment of Revolving Loans as described in
clause (iii) above, the Borrowers shall pay breakage costs, to the extent the
Banks are required to pay such breakage costs to the Original Banks under the
Pooled Assignment Agreement, in accordance with the provisions of Section 1.11
of the Original Credit Agreement in connection therewith, (v) the Borrowers
shall have paid all accrued and unpaid interest and fees owing under the
Original Credit Agreement through the Restatement Effective Date and (vi) the
Administrative Agent shall have received evidence in form, scope and substance
satisfactory to it that the matters set forth in this Section 5.17 have been
satisfied on such date.
5.18 NOTICE OF BORROWING; LETTER OF CREDIT REQUEST. (a) Prior to the making
of each Loan, the Administrative Agent shall have received a Notice of Borrowing
required by Section 1.03(a).
(b) Prior to the issuance of each Letter of Credit, the Administrative
Agent and the respective Issuing Bank shall have received a Letter of Credit
Request meeting the requirements of Section 2.02.
The acceptance of the proceeds of each Credit Event shall constitute a
representation and warranty by Holdings, the Company and each other Borrower to
the Administrative Agent and each of the Banks that all the conditions specified
in this Section 5 and applicable to such Credit Event exist as of that time. All
of the Notes, certificates, legal opinions and other documents and papers
referred to in this Section 5, unless otherwise specified, shall be delivered to
the Administrative Agent at the Notice Office for the account of each of the
Banks and, except for the Notes, in sufficient counterparts or copies for each
of the Banks.
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SECTION 6. REPRESENTATIONS AND WARRANTIES. In order to induce the Banks to
enter into this Agreement and to make the Loans, and issue (or participate in)
the Letters of Credit as provided herein, each of Holdings, the Company and the
other Borrowers make the following representations and warranties, on behalf of
itself and its Subsidiaries, in each case after giving effect to the Transaction
consummated on the Restatement Effective Date, with the occurrence of each
Credit Event on or after the Restatement Effective Date being deemed to
constitute a representation and warranty that the matters specified in this
Section 6 are true and correct in all material respects on and as of the
Restatement Effective Date and on the date of each such Credit Event (it being
understood and agreed that any representation or warranty which by its terms is
made as of a specified date shall be required to be true and correct in all
material respects only as of such specified date):
6.01 CORPORATE STATUS. Each of Holdings, each Borrower and each of their
Subsidiaries (i) is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction of its incorporation, except where
the failure to be in good standing could not reasonably be expected to have a
material adverse effect on the business, operations, property, assets,
liabilities and condition (financial or otherwise) of Holdings and its
Subsidiaries taken as a whole, (ii) has the corporate power and authority to own
its property and assets and to transact the business in which it is engaged and
presently proposes to engage and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where the conduct of its
business requires such qualifications except for failures to be so qualified
which, individually or in the aggregate, could not reasonably be expected to
have a material adverse effect on the business, operations, property, assets,
liabilities and condition (financial or otherwise) of Holdings and its
Subsidiaries taken as a whole.
6.02 CORPORATE POWER AND AUTHORITY. Each Credit Party has the corporate
power and authority to execute, deliver and perform the terms and provisions of
each of the Documents to which it is party and has taken all necessary corporate
action to authorize the execution, delivery and performance by it of each such
Document. Each Credit Party has duly executed and delivered each of the
Documents to which it is party, and each such Document constitutes the legal,
valid and binding obligation of such Credit Party enforceable in accordance with
its terms, subject to the effects of bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (regardless of whether enforcement is
sought in equity or at law) and an implied covenant of good faith and fair
dealing.
6.03 NO VIOLATION. Neither the execution, delivery or performance by any
Credit Party of the Documents to which it is a party, nor compliance by it with
the
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terms and provisions thereof, (i) will contravene any provision of any
applicable law, statute, rule or regulation or any applicable order, writ,
injunction or decree of any court or governmental instrumentality, (ii) will
conflict with, or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(except pursuant to the Security Documents) upon any of the properties or assets
of Holdings or any of its Subsidiaries pursuant to the terms of any indenture,
mortgage, deed of trust, credit agreement or loan agreement, or any other
material agreement, contract or instrument, to which Holdings, the Borrowers or
any of their Subsidiaries is a party or by which it or any of its property or
assets is bound or to which it may be subject or (iii) will violate any
provision of the certificate of incorporation or by-laws or other organizational
documents, as applicable, of Holdings, the Borrowers or any of their
Subsidiaries.
6.04 GOVERNMENTAL APPROVALS. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with, (i) the
execution, delivery and performance of any Document by any Credit Party or (ii)
the legality, validity, binding effect or enforceability of any such Document
with respect to any Credit Party, except those (A) which have been obtained or
made prior to the Restatement Effective Date, (B) the absence of which, either
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on either (x) the business, operations, property,
assets, liabilities and condition (financial or otherwise) of Holdings and its
Subsidiaries taken as a whole or (y) the rights or remedies of the Banks or the
Administrative Agent or on the ability of Holdings, the Borrowers or any of
their Subsidiaries to perform their respective obligations hereunder and under
the other Documents to which they are, or will be, a party or (C) required by
laws affecting the offer and sale of securities generally in connection with the
exercise by the Collateral Agent of certain of its remedies under the Pledge
Agreements.
6.05 FINANCIAL STATEMENTS; FINANCIAL CONDITION; UNDISCLOSED LIABILITIES;
PROJECTIONS; ETC. (a) The consolidated statements of financial condition of
Holdings and its Subsidiaries (other than Peltor and its Subsidiaries) at
September 30, 1995 and March 31, 1996 and the related consolidated statements of
income and cash flows of Holdings and its Subsidiaries (other than Peltor and
its Subsidiaries) for the fiscal year and six-month period ended on such date,
as the case may be, and furnished to the Banks prior to the Restatement
Effective Date, present fairly the consolidated financial condition of Holdings
and its Subsidiaries (other than Peltor and its Subsidiaries) at the date of
such consolidated statements of financial condition and the consolidated results
of the operations of Holdings and its Subsidiaries (other than Peltor and its
Subsidiaries)
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for the respective fiscal year or six-month period, as the case may be. The
consolidated statements of financial condition of Peltor and its Subsidiaries at
December 31, 1995 and March 31, 1996 and the related consolidated statements of
income and cash flows of Peltor and its Subsidiaries for the fiscal year and
three-month period ended on such date, as the case may be, and furnished to the
Banks prior to the Restatement Effective Date, present fairly the combined
financial condition of Peltor and its Subsidiaries at the date of such
consolidated statements of financial condition and the combined results of the
operations of Peltor and its Subsidiaries for the respective fiscal year or
three-month period, as the case may be. All such combined financial statements
have been prepared in accordance with generally accepted accounting principles
and practices consistently applied, subject to normal year-end audit adjustments
in the case of the March 31, 1996 financial statements. Since March 31, 1996,
there has been no material adverse change in the business, operations, property,
assets, liabilities and condition (financial or otherwise) of Holdings or of its
Subsidiaries taken as a whole.
(b) On and as of the Restatement Effective Date, after giving effect to the
Transaction occurring on such date and to all Indebtedness (including the Loans)
being incurred or assumed on such date and Liens created by the Credit Parties
in connection therewith, (x) the sum of the assets, at a fair valuation, of
Holdings and its Subsidiaries (on a consolidated basis) and of the Company (on a
stand-alone basis) will exceed their respective debts, (y) each of Holdings and
its Subsidiaries (on a consolidated basis) and the Company (on a stand-alone
basis) have not incurred and do not intend to incur, and do not believe that
they will incur, debts beyond their ability to pay such debts as such debts
mature and (z) each of Holdings and its Subsidiaries (on a consolidated basis)
and the Company (on a stand-alone basis) have sufficient capital with which to
conduct its business. For purposes of this Section 6.05(b) "debt" means any
liability on a claim, and "claim" means (i) right to payment whether or not such
a right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
or (ii) right to an equitable remedy for breach of performance if such breach
gives rise to a payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
(c) Except as fully disclosed in the financial statements delivered
pursuant to Section 6.05(a), there were as of the Restatement Effective Date no
liabilities or obligations with respect to Holdings, the Borrowers or any of
their Subsidiaries of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether or not due) which, either individually or in
aggregate, could reasonably be expected to be material to Holdings and its
Subsidiaries taken as a whole. As of the Restatement Effective Date, neither
Holdings nor any Borrower knows of any basis for the assertion against
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it or any of its Subsidiaries of any liability or obligation of any nature
whatsoever that is not fully disclosed in the financial statements delivered
pursuant to Section 6.05(a) which, either individually or in the aggregate,
could reasonably be expected to be material to Holdings and its Subsidiaries
taken as a whole.
(d) On and as of the Restatement Effective Date, there are no statements or
conclusions in any of the financial projections (the "Projections") previously
delivered to the Administrative Agent and the Banks, dated May 24, 1996 which
are based upon or include information known to Holdings or any Borrower to be
misleading in any material respect or which fail to take into account material
information regarding the matters reported therein.
6.06 LITIGATION. There are no actions, suits or proceedings pending or, to
the best knowledge of Holdings or any Borrower, threatened (i) with respect to
any Document or (ii) that could reasonably be expected to materially and
adversely affect the business, operations, property, assets, liabilities and
condition (financial or otherwise) of Holdings and its Subsidiaries taken as a
whole.
6.07 TRUE AND COMPLETE DISCLOSURE. Except to the extent set forth in the
immediately succeeding sentence, all factual information (taken as a whole)
furnished by or on behalf of Holdings, the Borrowers or any of their
Subsidiaries (including Peltor) in writing to the Administrative Agent or any
Bank (including, without limitation, all information contained in the Credit
Documents) for purposes of or in connection with this Agreement, the other
Credit Documents or any transaction contemplated herein or therein is true and
accurate in all material respects on the date as of which such information is
dated or certified and not incomplete by omitting to state any fact necessary to
make such information (taken as a whole) not misleading in any material respect
at such time in light of the circumstances under which such information was
provided. The Projections and other pro forma financial information contained
therein are based on good faith estimates and assumptions believed by such
Persons to be reasonable at the time made, it being recognized by the
Administrative Agent and the Banks that projections as to future events are not
to be viewed as facts and that actual results during the period or periods
covered thereby may differ from the projected results.
6.08 USE OF PROCEEDS; MARGIN REGULATIONS. (a) All proceeds of the A Term
Loans shall be used by the Borrowers (i) to effect the Transaction and (ii) to
pay fees and expenses related to the Transaction.
(b) All proceeds of the B Term Loans shall be used by the Borrowers (i) to
effect the Transaction and (ii) to pay fees and expenses related to the
Transaction.
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(c) All proceeds of Revolving Loans may be used for (i) the refinancing of
a portion of the Original Loans on the Restatement Effective Date and (ii) the
Company's and its Subsidiaries' working capital and general corporate purposes
(including using up to $15 million of such Revolving Loans for Permitted
Acquisitions in accordance with Section 7.14 and all other provisions of this
Agreement).
(d) No part of the proceeds of any Loan will be used to purchase or carry
any Margin Stock or to extend credit for the purpose of purchasing or carrying
any Margin Stock. Neither the making of any Loan nor the use of the proceeds
thereof nor the occurrence of any other Credit Event will violate or be
inconsistent with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
6.09 TAX RETURNS AND PAYMENTS. Each of Holdings, the Borrowers and each of
their Subsidiaries has timely filed or caused to be timely filed, on the due
dates thereof or within applicable grace periods, with the appropriate taxing
authority, all Federal, state, provincial and material local, foreign and other
returns, statements, forms and reports for taxes (the "Returns") required to be
filed by or with respect to the income, properties or operations of each of
Holdings, the Borrowers and their Subsidiaries, as the case may be. The Returns
accurately reflect in all material respects all liability for taxes of Holdings,
the Borrowers and their Subsidiaries for the periods covered thereby. Each of
Holdings, the Borrowers and their Subsidiaries has paid all material taxes
payable by them other than taxes which are not delinquent and those that are
being contested in good faith and for which adequate reserves have been
established to the extent required by generally accepted accounting principles.
There is no material action, suit, proceeding, investigation, audit, or claim
now pending or, to the best knowledge of Holdings or any Borrower, threatened by
any authority regarding any taxes relating to Holdings, the Borrowers or any of
their Subsidiaries. As of the Restatement Effective Date, none of Holdings, the
Borrowers and any of their Subsidiaries has entered into an agreement or waiver
or been requested to enter into an agreement or waiver extending any statute of
limitations relating to the payment or collection of taxes of Holdings, the
Borrowers or any of their Subsidiaries, or is aware of any circumstances that
would cause the taxable years or other taxable periods of Holdings, the
Borrowers or any of their Subsidiaries not to be subject to the normally
applicable statute of limitations. As of the Restatement Effective Date, none of
Holdings, the Borrowers and any of their Subsidiaries has provided, with respect
to it or property held by it, any consent under Section 341 of the Code.
6.10 COMPLIANCE WITH ERISA. (a) Each Plan is in compliance with ERISA and
the Code; no Reportable Event has occurred with respect to a Plan; no Plan which
is a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA (a
"Multiemployer Plan")) is insolvent or in reorganization (within the meaning of
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Sections 4245 and 4241 of ERISA, respectively); no Plan other than a
Multiemployer Plan has an Unfunded Current Liability; no Plan has an accumulated
or waived funding deficiency or has applied for an extension of any amortization
period within the meaning of Section 412 of the Code; all contributions required
to be made with respect to a Plan and a Foreign Pension Plan have been timely
made; no Credit Party nor any ERISA Affiliate has incurred any liability to or
on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or
4980 of the Code or reasonably expects to incur any liability (including any
indirect, contingent, or secondary liability) under any of the foregoing
Sections with respect to any Plan; no proceedings have been instituted to
terminate or appoint a trustee to administer any Plan; no condition exists which
presents a material risk to any Credit Party or any ERISA Affiliate of incurring
a liability to or on account of a Plan pursuant to the foregoing provisions of
ERISA and the Code; no lien imposed under the Code or ERISA on the assets of any
Credit Party or any ERISA Affiliate exists or is reasonably likely to arise on
account of any Plan; and each Credit Party may cease contributions to or
terminate any employee benefit plan maintained by it without incurring any
liability.
(b) Each Foreign Pension Plan has been maintained in compliance with its
terms and with the requirements of any and all applicable laws, statutes, rules,
regulations and orders. No Credit Party has incurred any obligation in
connection with the termination of or withdrawal from any Foreign Pension Plan.
The present value of the accrued benefit liabilities (whether or not vested)
under each Foreign Pension Plan required to be funded, determined as of the end
of the applicable Credit Party's most recently ended fiscal year on the basis of
actuarial assumptions, each of which is reasonable, did not exceed the current
value of the assets of such Foreign Pension Plan allocable to such benefit
liabilities.
(c) It is understood and agreed that neither Holdings nor any Borrower will
be in breach of any of the foregoing representations and warranties in this
Section 6.10 unless the occurrence of any such event or the existence of any
such condition, either individually or when aggregated with all such other
events or conditions, could reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities or condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole. It
is further understood that the foregoing representations and warranties with
respect to any Multiemployer Plan are made to the best knowledge of Holdings and
the Borrowers.
6.11 THE SECURITY DOCUMENTS. (a) The provisions of the Security Agreements
are effective to create in favor of the Collateral Agent for the benefit of the
Secured Creditors a legal, valid and enforceable security interest in, and/or
Lien on, all right,
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title and interest of each Credit Party in the Security Agreement Collateral
described therein, and each Security Agreement (upon satisfaction of any filing
or other requirements set forth therein) creates a fully perfected first Lien
on, and/or security interest in, all right, title and interest of such Credit
Party in all of the Security Agreement Collateral described therein, subject to
no other Liens other than Permitted Liens. The recordation of the Assignment of
Security Interest in U.S. Patents and Trademarks in the form attached to the
U.S. Security Agreement in the United States Patent and Trademark Office
together with filings on Form UCC-1 made pursuant to the U.S. Security Agreement
will be effective, under applicable law, to perfect the security interest
granted to the Collateral Agent in the trademarks and patents covered by the
U.S. Security Agreement.
(b) The security interests created in favor of the Collateral Agent, as
Pledgee, for the benefit of the Secured Creditors under each Pledge Agreement
constitute (upon satisfaction of any filing or other requirements in respect of
the Pledged Stock issued by any Foreign Subsidiary) first priority perfected
security interests in the Pledged Securities (assuming, in respect of
certificated Pledged Stock, the Collateral Agent's continuous possession
thereof) described in such Pledge Agreement, subject to no security interests of
any other Person (other than Liens permitted under Section 9.01(i)). Except as
provided in the immediately preceding sentence, no filings or recordings are
required in order to perfect (or maintain the perfection or priority of) the
security interests created in the Pledged Securities and the proceeds thereof
under each Pledge Agreement (other than filings of proper UCC-1 Financing
Statements in respect of Pledged Securities constituting promissory notes, which
filings have been made).
(c) The Mortgages (together with the Mortgage Amendments) create, as
security for the obligations purported to be secured thereby, a valid and
enforceable (upon satisfaction of any filing or other requirements set forth
therein) and perfected security interest in and mortgage lien on all of the
Mortgaged Properties in favor of the Collateral Agent (or such other trustee as
may be required or desired under local law) for the benefit of the Secured
Creditors, superior to and prior to the rights of all third Persons and subject
to no other Liens (except, in each case, the security interest and mortgage lien
created in the Mortgaged Properties may be subject to Permitted Liens). Schedule
V contains a true and complete list of each parcel of Real Property located in
the United States, Canada, the United Kingdom and Sweden which is owned or
leased by the Company and its Subsidiaries on the Restatement Effective Date,
and sets forth the type of interest therein held by the Company or such
Subsidiary.
6.12 PROPERTIES. Each of Holdings, the Company and each of its Subsidiaries
has good and marketable title to all material properties owned by them,
including all material property reflected in the consolidated balance sheets of
Holdings referred to
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in Section 6.05(a) (except as sold or otherwise disposed of since the date of
such balance sheets as permitted by this Agreement or the Acquisition Documents
clear of all Liens, other than (i) as referred to in the balance sheet or in the
notes thereto or in the pro forma balance sheet or (ii) Permitted Liens.
6.13 CAPITALIZATION. On the Restatement Effective Date, the authorized
capital stock of (i) Holdings shall consist of (x) 100,000 shares of common
stock, $.01 par value per share, all of which shall be issued and outstanding
and (y) 45,000 shares of preferred stock, $.01 par value per share, all of which
shall be issued and outstanding and (ii) the Company shall consist of 100 shares
of common stock, $.01 par value per share, all of which shall be issued and
outstanding and owned by Holdings. All such outstanding shares of capital stock
have been duly and validly issued, are fully paid and nonassessable and are free
of preemptive rights. Except as set forth on Schedule VI, neither Holdings nor
any of its Subsidiaries has outstanding any securities convertible into or
exchangeable for its capital stock or outstanding any rights to subscribe for or
to purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to, its capital stock.
6.14 SUBSIDIARIES. Schedule VII lists each Subsidiary of Holdings and the
Company, and the direct and indirect ownership interest of Holdings and the
Company therein, in each case as of the Restatement Effective Date and after
giving effect to the Transaction.
6.15 COMPLIANCE WITH STATUTES, ETC. Each of Holdings, the Borrowers and
each of their Subsidiaries is in compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, except such noncompliance as could
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the business, operations, property, assets, liabilities and
condition (financial or otherwise) of Holdings and its Subsidiaries taken as a
whole.
6.16 INVESTMENT COMPANY ACT. Neither Holdings, the Borrowers nor any of
their Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
6.17 PUBLIC UTILITY HOLDING COMPANY ACT. None of Holdings, the Borrowers
and any of their Subsidiaries is a "holding company," or a "subsidiary company"
of a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary com-
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pany" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
6.18 ENVIRONMENTAL MATTERS. (a) Each of Holdings, the Borrowers and each of
their Subsidiaries has complied with all applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws. There are no
pending or, to the best knowledge of Holdings or any Borrower, threatened
Environmental Claims against Holdings, the Borrowers or any of their
Subsidiaries or any Real Property owned or operated by Holdings, the Borrowers
or any of their Subsidiaries. There are no facts, circumstances, conditions or
occurrences on any Real Property at any time owned or operated by Holdings, the
Borrowers or any of their Subsidiaries or, to the best knowledge of Holdings or
any Borrower, on any property adjoining or in the vicinity of any such Real
Property that could reasonably be expected (i) to form the basis of an
Environmental Claim against Holdings, the Borrowers or any of their Subsidiaries
or any such Real Property or (ii) to cause any such currently owned or operated
Real Property to be subject to any restrictions on the ownership, occupancy, use
or transferability of such Real Property by Holdings, the Borrowers or any of
their Subsidiaries under any applicable Environmental Law.
(b) Hazardous Materials have not at any time been generated, used, treated
or stored on, or transported to or from, or Released on or from, any Real
Property owned or operated by Holdings, the Borrowers or any of their
Subsidiaries except in compliance with all Environmental Laws and reasonably
required in connection with the operation, use and maintenance of any such Real
Property by Holdings' or such Subsidiary's business. There are not now any
underground storage tanks located on any Real Property owned or operated by
Holdings, the Borrowers or any of their Subsidiaries.
(c) Notwithstanding anything to the contrary in this Section 6.18, the
representations made in this Section 6.18 shall only be untrue if the effect of
the failures, noncompliance and other circumstances of the types described
above, either individually or in the aggregate, could reasonably be expected to
have a material adverse effect on the business, operations, property, assets,
liabilities and condition (financial or otherwise) of Holdings and its
Subsidiaries taken as a whole.
6.19 LABOR RELATIONS. None of Holdings, the Borrowers and any of their
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities and condition (financial or otherwise) of Holdings
and its Subsidiaries taken as a whole. There is (i) no unfair labor practice
complaint pending against Holdings, the Borrowers or any of their Subsidiaries
or, to the best knowledge of Holdings or any Borrower,
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threatened against any of them, before the National Labor Relations Board, and
no significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against Holdings, the
Borrowers or any of their Subsidiaries or, to the best knowledge of Holdings or
any Borrower, threatened against any of them, (ii) no strike, labor dispute,
slowdown or stoppage pending against Holdings, the Borrowers or any of their
Subsidiaries or, to the best knowledge of Holdings or any Borrower, threatened
against Holdings, the Borrowers or any of their Subsidiaries and (iii) no union
representation question exists with respect to the employees of Holdings, the
Borrowers or any of their Subsidiaries, except (with respect to any matter
specified in clause (i), (ii) or (iii) above, either individually or in the
aggregate) such as could not reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities and condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole.
6.20 PATENTS, LICENSES, FRANCHISES AND FORMULAS. Each of Holdings, the
Borrowers and each of their Subsidiaries owns all patents, trademarks, permits,
service marks, trade names, copyrights, licenses, franchises and formulas, or
rights with respect to the foregoing, and has obtained assignments of all
licenses and other rights of whatever nature, necessary for the present conduct
of its business, without any known conflict with the rights of others except,
with respect to any matter specified in this Section 6.20, as could not
reasonably be expected to result in a material adverse effect on the business,
operations, property, assets, liabilities and condition (financial or otherwise)
of Holdings and its Subsidiaries taken as a whole.
6.21 INDEBTEDNESS. Schedule VIII sets forth a true and complete list of all
Indebtedness of Holdings and its Subsidiaries as of the Restatement Effective
Date and which is to remain outstanding after giving effect thereto (excluding
the Loans, the Letters of Credit, all such non-excluded Indebtedness, the
"Existing Indebtedness"), in each case showing the aggregate principal amount
thereof and the name of the respective borrower and any other entity which
directly or indirectly guaranteed such debt.
6.22 SENIOR SUBORDINATED NOTES. The subordination provisions contained in
the Senior Subordinated Notes are enforceable against the holders thereof
subject to the effects of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (regardless of whether enforcement is sought in equity or
at law) and an implied covenant of good faith and fair dealing. As of the
Restatement Effective Date and after giving effect to the Transaction, all
Obligations of the Borrowers are within the definition of "Senior Debt" (as
defined in the Senior Subordinated Note Documents).
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6.23 ACQUISITION. As of the Restatement Effective Date, the Acquisition has
been consummated in accordance with applicable law and the Acquisition
Documents.
6.24 REPRESENTATIONS AND WARRANTIES IN DOCUMENTS. All representations and
warranties of each Credit Party set forth in the Documents were true and correct
in all material respects as of the time such representations and warranties were
made and shall be true and correct in all material respects as of the
Restatement Effective Date as if such representations and warranties were made
on and as of such date, unless stated to relate to a specific earlier date, in
which case such representations and warranties shall be true and correct in all
material respects as of such earlier date.
SECTION 7. AFFIRMATIVE COVENANTS. Holdings and each of the Borrowers hereby
covenant and agree that on and after the Restatement Effective Date and until
the Total Commitment and all Letters of Credit have terminated and the Loans,
Notes and Unpaid Drawings, together with interest, Fees and all other
Obligations, are paid in full:
7.01 INFORMATION COVENANTS. The Company will furnish to each Bank:
(a) MONTHLY REPORTS. As soon as practicable, and in any event within
30 days, after the end of each monthly accounting period of each fiscal
year (other than the last monthly accounting period in any fiscal quarter
and fiscal year) of Holdings and the Company, commencing with the period
ending July 31, 1996, the consolidated balance sheet of Holdings, each
Borrower and each of their Subsidiaries as at the end of such monthly
accounting period and the related consolidated statements of income for
such monthly accounting period and for the elapsed portion of the fiscal
year ended with the last day of such monthly accounting period, in each
case setting forth comparative figures for the corresponding monthly
accounting period in the prior fiscal year.
(b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days after the close of
the first three quarterly accounting periods in each fiscal year of
Holdings and the Company and within 90 days after the close of the fourth
quarterly accounting period in each fiscal year of Holdings and the
Company, the consolidated and consolidating balance sheets of Holdings,
each Borrower and their Subsidiaries as at the end of each such quarterly
accounting period and the related consolidated and consolidating statements
of income and the related consolidated statements of cash flows for each
such quarterly accounting period and for the elapsed portion of the fiscal
year ended with the last day of each such quarterly accounting period
(other than the fourth quarterly accounting period), setting forth in the
case of each set of consolidated financial statements compara-
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tive figures for the related periods in the prior fiscal year, all of which
shall be in reasonable detail and certified by the chief financial officer
or treasurer of the Company that they fairly present in all material
respects the financial condition of Holdings, each Borrower and their
Subsidiaries as of the dates indicated and the results of their operations
and changes in their cash flows for the periods indicated, subject to
normal year-end audit adjustments.
(c) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the close of
each fiscal year of Holdings and the Company, the consolidated and
consolidating balance sheets of Holdings, each Borrower and their
Subsidiaries as at the end of such fiscal year and the related consolidated
and consolidating statements of income and the related consolidated
statements of cash flows for such fiscal year setting forth comparative
figures for the preceding fiscal year and certified (i) in the case of the
consolidated financial statements, by Arthur Andersen & Co., any other "Big
Six" independent certified public accountants or such other independent
certified public accountants of recognized national standing reasonably
acceptable to the Administrative Agent, together with a report of such
accounting firm stating that in the course of its regular audit of the
financial statements of Holdings, each Borrower and each of their
Subsidiaries, which audit was conducted in accordance with generally
accepted auditing standards, such accounting firm obtained no knowledge of
any Event of Default which has occurred and is continuing under Sections
8.07 through 8.10, inclusive, or, if in the opinion of such accounting firm
such an Event of Default has occurred and is continuing, a statement as to
the nature thereof and (ii) in the case of the consolidating financial
statements, by the chief financial officer or treasurer of the Company that
they fairly present the financial condition of Holdings, each Borrower and
their Subsidiaries as of the dates indicated and the results of their
operations and changes in their cash flows for the periods indicated.
(d) BUDGETS. No later than 30 days after the first day of each fiscal
year of Holdings, a budget in form reasonably satisfactory to the
Administrative Agent (including budgeted statements of income and cash
flows and balance sheets) prepared by each Borrower for (x) each monthly
accounting period in such fiscal year prepared in detail and (y) such
fiscal year prepared in summary form, in each case, of Holdings and its
Subsidiaries, accompanied by the statement of the chief financial officer
or treasurer of each Borrower to the effect that, to the best of such
officer's knowledge, the budget is a reasonable estimate of the period
covered thereby. Additionally, within 45 days after the consummation of a
Permitted Acquisition, a revised budget in the form described above taking
into account the effects of such Permitted Acquisition on the budget for
the remainder of the fiscal year covered by the original budget.
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(e) OFFICERS' CERTIFICATES. At the time of the delivery of the
financial statements provided for in Section 7.01(b) and (c), a certificate
of the chief financial officer or treasurer of the Company to the effect
that, to the best of such officer's knowledge, no Default or Event of
Default has occurred and is continuing or, if any Default or Event of
Default has occurred and is continuing, specifying the nature and extent
thereof, which certificate shall (x) set forth the calculations required to
establish whether Holdings, each Borrower and their Subsidiaries were in
compliance with the provisions of Sections 4.02(f) and (g) (but with
respect to Section 4.02(g) only to the extent delivered with the financial
statements required by Section 7.01(c)), 8.03, 8.04, 8.05 and 8.07 through
8.10, inclusive, at the end of such fiscal quarter or year, as the case may
be and (y) if delivered with the financial statements required by Section
7.01(c), set forth the amount of (and the calculations required to
establish) Excess Cash Flow for the respective Excess Cash Payment Period.
(f) MANAGEMENT LETTERS. Promptly after Holdings', each Borrower's or
any of their Subsidiaries' receipt thereof, a copy of any "management
letter" received by Holdings, each Borrower or such Subsidiary from its
certified public accountants and the management's responses thereto.
(g) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event within
five Business Days after an officer of Holdings or any Borrower obtains
knowledge thereof, notice of (i) the occurrence of any event which
constitutes a Default or an Event of Default (provided such Default or
Event of Default is continuing) and (ii) any litigation or governmental
investigation or proceeding pending or threatened (x) against Holdings, any
Borrower or any of their Subsidiaries which could reasonably be expected to
materially and adversely affect the business, operations, property, assets,
liabilities and condition (financial or otherwise) of Holdings and its
Subsidiaries taken as a whole or (y) with respect to any Credit Document.
(h) OTHER REPORTS AND FILINGS. Promptly, copies of all financial
information, proxy materials and other information and reports, if any,
which Holdings, each Borrower or any of their Subsidiaries shall file with
the Securities and Exchange Commission or any successor thereto (the "SEC")
or deliver to holders of its Indebtedness for borrowed money having an
outstanding principal amount (or upon the utilization of any unused
commitments may have an outstanding principal amount) in excess of
$10,000,000 pursuant to the terms of the documentation governing such
Indebtedness (or any trustee, agent or other representative therefor) and
not otherwise required to be delivered hereunder.
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(i) ENVIRONMENTAL MATTERS. Promptly upon, and in any event within
fifteen Business Days after, an officer of Holdings or any Borrower obtains
knowledge thereof, notice of one or more of the following environmental
matters, unless such environmental matters could not, individually or when
aggregated with all other such environmental matters, be reasonably
expected to materially and adversely affect the business, operations,
property, assets, liabilities and condition (financial or otherwise) of
Holdings and its Subsidiaries taken as a whole, PROVIDED that in any event
Holdings, each Borrower and their Subsidiaries shall deliver to the Banks
all material notices received by Holdings, any Borrower or any of their
Subsidiaries from any government or governmental agency under, or pursuant
to, CERCLA:
(i) any pending or threatened (in writing) Environmental Claim
against Holdings, any Borrower or any of their Subsidiaries or any
Real Property owned or operated by Holdings, any Borrower or any of
their Subsidiaries;
(ii) any condition or occurrence on, or arising from, any Real
Property owned or operated by Holdings, any Borrower or any of their
Subsidiaries that (a) results in noncompliance by Holdings, any
Borrower or any of their Subsidiaries with any applicable
Environmental Law or (b) could reasonably be expected to form the
basis of an Environmental Claim against Holdings, any Borrower or any
of their Subsidiaries or any such Real Property;
(iii) any condition or occurrence on any Real Property owned or
operated by Holdings, any Borrower or any of their Subsidiaries that
could reasonably be expected to cause such Real Property to be subject
to any restrictions on the ownership, occupancy, use or
transferability by Holdings, any Borrower or any of their Subsidiaries
of such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response to
the actual or alleged presence of any Hazardous Material on any Real
Property owned or operated by Holdings, any Borrower or any of their
Subsidiaries as required by any Environmental Law or any governmental
or other administrative agency.
All such notices shall describe in reasonable detail the nature of the claim,
investigation, condition, occurrence or removal or remedial action and
Holdings', such Borrower's or such Subsidiary's response thereto.
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(j) ANNUAL MEETINGS WITH BANKS. At the request of the Administrative Agent,
the Company shall, once during each fiscal year of the Company, hold a meeting
(at a mutually agreeable location and time) with all of the Banks at which
meeting the financial results of the previous fiscal year and the financial
condition of the Company and the budgets presented for the current fiscal year
shall be reviewed.
(k) OTHER INFORMATION. From time to time, such other information or
documents (financial or otherwise) with respect to Holdings, each Borrower or
any of their Subsidiaries as the Administrative Agent or any Bank may reasonably
request in writing.
7.02 BOOKS, RECORDS AND INSPECTIONS. Holdings and each Borrower will, and
will cause each of their Subsidiaries to, keep proper books of record and
account in which full, true and correct entries in conformity with generally
accepted accounting principles (or the comparable foreign equivalent thereof)
and all requirements of law shall be made of all material dealings and
transactions in relation to its business and activities. Holdings and each
Borrower will, and will cause each of their Subsidiaries to, permit officers and
designated representatives of the Administrative Agent or any Bank to visit and
inspect, during regular business hours and under guidance of officers of
Holdings, such Borrower or such Subsidiary, any of the properties of Holdings,
any Borrower or any of their Subsidiaries, and to examine the books of account
of Holdings, any Borrower and any of their Subsidiaries and discuss the affairs,
finances and accounts of Holdings, any Borrower and any of their Subsidiaries
with, and be advised as to the same by, its and their officers and independent
accountants, all at such reasonable times and intervals, upon such reasonable
notice and to such reasonable extent as the Administrative Agent or such Bank
may request.
7.03 MAINTENANCE OF PROPERTY; INSURANCE. (a) Schedule IX sets forth a true
and complete listing of all insurance maintained by Holdings, each Borrower and
their Subsidiaries as of the Restatement Effective Date. Holdings and each
Borrower will, and will cause each of their Subsidiaries to, (i) keep all
material property necessary and useful in its business in good working order and
condition, (ii) maintain insurance on its property with reputable and solvent
insurance companies in at least such amounts and against at least such risks as
is consistent and in accordance with industry practice and (iii) furnish to each
Bank, upon written request, full information as to the insurance carried.
(b) Holdings and each Borrower will, and will cause each of their
Subsidiaries to, at all times keep their respective property in which a Lien has
been granted to the Collateral Agent insured in favor of the Collateral Agent,
and all policies (including the Mortgage Policies) or certificates (or certified
copies thereof) with respect to such
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insurance (and any other insurance maintained by Holdings, any such Borrower or
any such Subsidiary) (i) shall be endorsed to the Collateral Agent's
satisfaction for the benefit of the Collateral Agent (including, without
limitation, by naming the Collateral Agent as loss payee (with respect to
Collateral) or, to the extent permitted by applicable law, as an additional
insured), (ii) shall state that such insurance policies shall not be cancelled
without 30 days' prior written notice thereof (or 10 days' prior written notice
in the case of cancellation for the non-payment of premiums) by the respective
insurer to the Collateral Agent and (iii) shall be deposited with the Collateral
Agent.
(c) If Holdings, any Borrower or any of their Subsidiaries shall fail to
maintain all insurance in accordance with this Section 7.03, or if Holdings, any
Borrower or any of their Subsidiaries shall fail to so endorse and deposit all
policies or certificates with respect thereto, the Administrative Agent and/or
the Collateral Agent shall have the right (but shall be under no obligation),
upon notice to the Company, to procure such insurance, and Holdings and each of
the Borrowers agree to reimburse the Administrative Agent or the Collateral
Agent, as the case may be, for all costs and expenses of procuring such
insurance.
(d) So long as no Default under Section 9.01 or 9.05 or Event of Default
exists, except as provided in Section 4.02(h) with respect to Recovery Events
applicable to any Mortgaged Property, the proceeds of any insurance shall be
disbursed to the Borrowers to replace or provide substitute property.
7.04 CORPORATE FRANCHISES. Holdings and each Borrower will, and will cause
each of their Subsidiaries to, do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and its material
rights, franchises, licenses, trademarks, copyrights and patents; PROVIDED,
HOWEVER, that nothing in this Section 7.04 shall prevent (i) transactions
permitted by Section 8.02 or (ii) the withdrawal by Holdings, any Borrower or
any of their Subsidiaries of qualification as a foreign corporation in any
jurisdiction where such withdrawal could not reasonably be expected to have a
material adverse effect on the business, operations, property, assets,
liabilities and condition (financial or otherwise) of Holdings and its
Subsidiaries taken as a whole.
7.05 COMPLIANCE WITH STATUTES, ETC. Holdings and each Borrower will, and
will cause each of their Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, except such noncompliance as could
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the business, operations, property, assets, liabilities and
condition (financial or otherwise) of Holdings and its Subsidiaries taken as a
whole.
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7.06 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) (i) Holdings and each Borrower
will comply, and will use their best efforts to cause each of their Subsidiaries
to comply, with all Environmental Laws applicable to the ownership or use of its
Real Property now or hereafter owned or operated by Holdings, each Borrower or
any of their Subsidiaries, will promptly pay or cause to be paid all costs and
expenses incurred in connection with such compliance, and will keep or cause to
be kept all such Real Property free and clear of any Liens imposed pursuant to
such Environmental Laws and (ii) neither Holdings, any Borrower nor any of their
Subsidiaries will generate, use, treat, store, release or dispose of, or permit
the generation, use, treatment, storage, release or disposal of Hazardous
Materials on any Real Property now or hereafter owned or operated by Holdings,
any Borrower or any of their Subsidiaries, or transport or permit the
transportation of Hazardous Materials to or from any such Real Property, except
to the extent that the failure to comply with the requirements specified in
clause (i) or (ii) above, either individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, liabilities, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole. If required to do
so under any applicable directive or order of any governmental agency, Holdings
and each Borrower agrees to undertake, and cause each of their Subsidiaries to
undertake, any clean up, removal, remedial or other action necessary to remove
and clean up any Hazardous Materials from any Real Property owned or operated by
Holdings, each Borrower or any of their Subsidiaries in accordance with the
requirements of all applicable Environmental Laws and in accordance with such
orders and directives of all governmental authorities, except to the extent that
Holdings, such Borrower or such Subsidiary is contesting such order or directive
in good faith and by appropriate proceedings and for which adequate reserves
have been established to the extent required by generally accepted accounting
principles.
(b) At the reasonable written request of the Administrative Agent or the
Required Banks, which request shall specify in reasonable detail the basis
therefor, at any time and from time to time as is reasonable after (i) the
Obligations have been declared due and payable pursuant to Section 9 or (ii) the
Banks receive notice under Section 7.01(i) for any event for which notice is
required to be delivered for any Real Property, the Company will provide, at its
sole cost and expense, an environmental site assessment report concerning any
such Real Property now or hereafter owned or operated by Holdings, each Borrower
or any of their Subsidiaries, prepared by an environmental consulting firm
approved by the Administrative Agent, indicating the presence or absence of
Hazardous Materials and the potential cost of any removal or remedial action in
connection with any Hazardous Materials on such Real Property. If the Company
fails to provide the same within 90 days after such request was made, the
Administrative Agent may order the same, and the Company shall grant and hereby
grants, to the Administrative Agent and the Banks and their agents, access to
such Real
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Property and specifically grants the Administrative Agent and the Banks an
irrevocable non-exclusive license, subject to the rights of tenants, to
undertake such an assessment, all at the Company's expense.
7.07 ERISA. As soon as possible and, in any event, within 20 days after any
Credit Party or any ERISA Affiliate knows or has reason to know of the
occurrence of any of the following which, individually or in the aggregate,
could reasonably be expected to result in a liability to one or more of the
Credit Parties and/or ERISA Affiliates of $500,000 or more, the Company will
deliver to the Administrative Agent a certificate of the chief financial officer
of the Company setting forth details as to such occurrence and the action, if
any, that such Credit Party or such ERISA Affiliate is required or proposes to
take, together with any notices required or proposed to be given to or filed
with or by such Credit Party, such ERISA Affiliate, or, if in the possession of
such Credit Party or ERISA Affiliate, the PBGC, a Plan participant or the Plan
administrator with respect thereto: that a Reportable Event has occurred; that
an accumulated funding deficiency has been incurred or an application may be or
has been made to the Secretary of the Treasury for a waiver or modification of
the minimum funding standard (including any required installment payments) or an
extension of any amortization period under Section 412 of the Code with respect
to a Plan; that a contribution required to be made to a Plan has not been timely
made or a material contribution to a Foreign Pension Plan has not been timely
made; that a Plan has been or is reasonably expected to be terminated in a
distress termination or by the PBGC, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability
giving rise to a lien under ERISA or the Code; that proceedings are reasonably
expected to be or have been instituted to terminate or appoint a trustee to
administer a Plan; that a proceeding has been instituted pursuant to Section 515
of ERISA to collect a delinquent contribution to a Plan; that any Credit Party
or any ERISA Affiliate will or is reasonably likely to incur any liability
(including any indirect, contingent, or secondary liability) to or on account of
the termination of or withdrawal from a Plan under Section 4062, 4063, 4064,
4069, 4201, 4204 or 4212(c) of ERISA or with respect to a Plan under Section
401(a)(29), 4971 or 4975 of the Code or Section 409 or 502(i) or 502(l) of
ERISA; or that any Credit Party will or is reasonably likely to incur any
material liability (other than contributions, premium payments and plan expenses
in each case paid in the ordinary course of business) pursuant to any employee
welfare benefit plan (as defined in Section 3(1) of ERISA) that provides
benefits to retired employees or other former employees (other than as required
by Section 601 of ERISA) or any employee pension benefit plan (as defined in
Section 3(2) of ERISA). At the request of the Administrative Agent, the Company
will deliver thereto a complete copy of the annual report (Form 5500) of each
Plan (other than a Multiemployer Plan) required to be filed with the Internal
Revenue Service. In addition to any certificates or notices delivered to the
Administrative Agent
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pursuant to the first sentence hereof, a copy of any material notice received by
any Credit Party or any ERISA Affiliate with respect to any Plan or Foreign
Pension Plan where the subject of such notice, individually or together with the
subjects of all other such notices, could reasonably be expected to result in
liability to one or more Credit Parties and/or ERISA Affiliates of $500,000 or
more, shall be delivered to the Administrative Agent no later than 20 days after
the date such notice has been received by such Credit Party or such ERISA
Affiliate, as applicable.
7.08 END OF FISCAL YEARS; FISCAL QUARTERS. The Company will cause (i) each
of its fiscal years to end on September 30 and (ii) each of its fiscal quarters
to end on December 31, March 31, June 30 and September 30 of each year.
7.09 PERFORMANCE OF OBLIGATIONS. Holdings and each Borrower will, and will
cause each of their Subsidiaries to, perform all of its obligations under the
terms of each mortgage, deed of trust, indenture, loan agreement or credit
agreement and each other material agreement, contract or instrument by which it
is bound, except such non-performances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities and condition (financial or
otherwise) of Holdings and its Subsidiaries taken as a whole.
7.10 PAYMENT OF TAXES. Holdings and each Borrower will, and will cause each
of their Subsidiaries to, pay and discharge all material taxes, assessments and
governmental charges or levies imposed upon Holdings, any Borrower or their
Subsidiaries or upon the income or profits of Holdings, any Borrower or their
Subsidiaries, or upon any properties belonging to it, prior to the date on which
any penalties attach thereto, and all lawful claims for sums that have become
due and payable which, if unpaid, might become a lien or charge not otherwise
permitted under Section 8.01(i) upon any properties of Holdings, any Borrower or
any such Subsidiary; provided that none of Holdings, any Borrower, and any such
Subsidiary shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings if
Holdings, any such Borrower or any such Subsidiary has maintained adequate
reserves with respect thereto to the extent required by generally accepted
accounting principles.
7.11 ADDITIONAL MORTGAGES; FURTHER ASSURANCES. (a) At the request of the
Administrative Agent or the Required Banks from time to time, Holdings and the
Borrowers will, and will cause each of the Company's Subsidiaries to, grant to
the Collateral Agent security interests and mortgages (an "Additional Mortgage")
in such Real Property of Holdings, each Borrower or any of such Subsidiaries of
each Borrower as are not covered by the original Mortgages and which are located
in the United States, Canada, or the United Kingdom, and which individually have
a fair market value of at
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least $1,000,000 (each such Real Property, an "Additional Mortgaged Property").
All such Additional Mortgages shall be granted pursuant to documentation
reasonably satisfactory in form and substance to the Administrative Agent and
shall constitute valid and enforceable perfected Liens superior to and prior to
the rights of all third Persons and subject to no other Liens, in either case
except Permitted Liens. The Additional Mortgages or instruments related thereto
shall have been duly recorded or filed in such manner and in such places as are
required by law to establish, perfect, preserve and protect the Liens in favor
of the Collateral Agent required to be granted pursuant to the Additional
Mortgages and all taxes, fees and other charges payable in connection therewith
shall have been paid in full. Notwithstanding anything to the contrary contained
above in this Section 7.11(a), in connection with any (x) Leasehold that has
been designated as an Additional Mortgaged Property, none of Holdings, any
Borrower, or any such Subsidiaries shall be required to grant an Additional
Mortgage therein to the extent that such a grant is prohibited by the applicable
lease (and the lessor thereunder or its mortgagees has not consented thereto)
and (y) Real Property that has been designated as an Additional Mortgaged
Property, none of Holdings, any Borrower, or any such Subsidiaries shall be
required to grant an Additional Mortgage therein to the extent that such a grant
is prohibited by the terms of any document evidencing a prior Lien thereon to
the extent permitted under Section 8.01(vii), (viii), (xiv) or (xv) (and the
senior lienholder has not consented thereto).
(b) Holdings and each Borrower will, and will cause each of their
Subsidiaries to, at the expense of Holdings, the Borrowers and such
Subsidiaries, make, execute, endorse, acknowledge, file and/or deliver to the
Collateral Agent from time to time such conveyances, financing statements,
transfer endorsements, powers of attorney, certificates, and other assurances or
instruments and take such further steps relating to the Collateral covered by
any of the Security Documents as the Collateral Agent may reasonably require.
Furthermore, Holdings and each of the Borrowers shall cause to be delivered to
the Collateral Agent such opinions of counsel, title insurance, appraisals,
surveys and other related documents as may be reasonably requested by the
Collateral Agent to assure itself that this Section 7.11 has been complied with.
(c) In the event the Administrative Agent or the Required Banks reasonably
determine some are required or advisable under applicable law or regulation, the
Company shall obtain real estate appraisals with respect to each Mortgaged
Property, which real estate appraisal shall follow the valuation procedures set
forth in 12 CFR, Part 34 - Subpart C, and shall otherwise be in form and
substance reasonably satisfactory to the Administrative Agent.
(d) Holdings and each of the Borrowers agree that each action required
above by this Section 7.11 shall be completed as soon as possible, but in no
event later than
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90 days after such action is requested in writing to be taken by the
Administrative Agent or the Required Banks.
7.12 FOREIGN SUBSIDIARIES SECURITY. If following a change in the relevant
sections of the Code or the regulations, rules, rulings, notices or other
official pronouncements issued or promulgated thereunder, counsel for the
Company acceptable to the Administrative Agent does not within 30 days after a
request from the Administrative Agent or the Required Banks deliver evidence
mutually satisfactory to the Company and the Administrative Agent that, with
respect to any Foreign Subsidiary of the Company which has not already had all
of its stock pledged pursuant to a Pledge Agreement, (i) a pledge of 66-2/3% or
more of the total combined voting power of all classes of capital stock of such
Foreign Subsidiary entitled to vote and (ii) the entering into by such Foreign
Subsidiary of a guaranty in substantially the form of the US Subsidiary
Guaranty, with such changes as are required to comply with local law (the
"Foreign Subsidiary Guaranty"), in any such case, would cause the undistributed
earnings of such Foreign Subsidiary as determined for Federal income tax
purposes to be treated as a deemed dividend to such Foreign Subsidiary's United
States parent for Federal income tax purposes in each case as a result of such
Foreign Subsidiary pledging its assets (directly or indirectly) to secure the
Obligations of the Company and each Subsidiary Borrower under the Credit
Documents and the obligations of the Company under any Interest Rate Protection
Agreement or Other Hedging Agreement, then in the case of a failure to deliver
the evidence described in clause (i) above, that portion of such Foreign
Subsidiary's outstanding capital stock not theretofore pledged pursuant to a
Pledge Agreement shall be pledged to the Collateral Agent pursuant to a Pledge
Agreement (or another pledge agreement in substantially similar form, if
needed), and in the case of a failure to deliver the evidence described in
clause (ii) above, such Foreign Subsidiary shall execute and deliver the Foreign
Subsidiary Guaranty (or another guaranty in substantially similar form, if
needed), guaranteeing the Obligations of the Company and each Subsidiary
Borrower under the Credit Documents and the obligations of the Company under any
Interest Rate Protection Agreement or Other Hedging Agreement and, in the case
of the Canadian Borrower and the U.K. Borrower, the Security Documents entered
into by such Subsidiary Borrowers shall be amended to include as a secured
obligation thereunder the obligation of such Subsidiary Borrower under the
Foreign Subsidiary Guaranty, in each case to the extent that the entering into
of the Foreign Subsidiary Guaranty, the pledge of the additional shares of
capital stock and the amendment to such Security Documents is permitted by the
laws of the respective foreign jurisdiction and would not, in the reasonable
opinion of the Company and the Administrative Agent, result in any material
adverse tax consequences to the Company or their Subsidiaries, and with all
documents delivered pursuant to this Section 7.12 to be in form and substance
reasonably satisfactory to the Administrative Agent and the Required Banks.
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7.13 OWNERSHIP OF SUBSIDIARIES. The Company will at all times insure that
each of its Subsidiaries remains as a Wholly-Owned Subsidiary of the Company (a)
except to the extent that any such Subsidiary is merged, consolidated or
liquidated in a transaction permitted by Section 8.02(vii) or (viii) and (b)
except to the extent of the Minority Peltor Partnership Interests. The Company
will at all times own (directly or indirectly) at least a majority of the voting
and economic interests of each non-Wholly-Owned Subsidiary created or acquired
after the Restatement Effective Date as permitted under Section 8.15, except to
the extent any such Subsidiary is merged, consolidated or liquidated in a
transaction permitted by Section 8.02(vii) or (viii).
7.14 PERMITTED ACQUISITIONS. Subject to the provisions of this Section
7.14, Section 8.02(xiv) and the requirements contained in the definition of
Permitted Acquisition, the Company and each other Credit Party (to the extent
such other Credit Party is able to, and does, grant a Lien on and security
interest in assets acquired thereby in connection with such Permitted
Acquisition) may from time to time after the Restatement Effective Date effect
Permitted Acquisitions, so long as (i) the Company shall have given the
Administrative Agent and the Banks at least 10 Business Days' prior written
notice of any Permitted Acquisition with a description of the then Available
Equity Issuance Amount and/or the then Available Retained ECF Amount to be used
in connection with the consummation of the Permitted Acquisition to be used in
connection therewith, (ii) based on calculations made by the Company on a PRO
FORMA Basis after giving effect to the respective Permitted Acquisition, no
Default under Section 9.01 or 9.05 or Event of Default will exist under, or
would have existed during the periods covered by, the financial covenants
contained in Sections 8.08 through 8.10, inclusive, of this Agreement, (iii)
based on good faith projections prepared by the Company for the period from the
date of the consummation of the Permitted Acquisition to the date which is one
year thereafter, the level of financial performance measured by the covenants
set forth in Sections 8.08 through 8.10, inclusive, shall be better than or
equal to such level as would be required to provide that no Default under
Section 9.01 or 9.05 or Event of Default would exist under the financial
covenants contained in Sections 8.08 through 8.10, inclusive, of this Agreement
as compliance with such covenants would be required through the date which is
one year from the date of the consummation of the respective Permitted
Acquisition, (iv) the Administrative Agent shall have been satisfied in its
reasonable discretion that the proposed Permitted Acquisition could not
reasonably be expected to result in materially increased tax, ERISA or
environmental liabilities with respect to Holdings and its Subsidiaries taken as
a whole and (v) the Company shall have delivered to the Administrative Agent, an
officer's certificate executed by an Authorized Officer of the Company,
certifying to the best of his knowledge, compliance with the requirements of
preceding clauses (i), (ii) and (iii) and containing the calculations required
by preceding clauses (ii) and (iii).
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SECTION 8. NEGATIVE COVENANTS. Holdings and the Borrowers hereby covenant
and agree that on and after the Restatement Effective Date and until the Total
Commitment and all Letters of Credit have terminated and the Loans, Notes and
Unpaid Drawings, together with interest, Fees and all other Obligations, are
paid in full:
8.01 LIENS. Holdings and each Borrower will not, and will not permit any of
their Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any property or assets (real or personal, tangible or
intangible) of Holdings, each Borrower or any of their Subsidiaries, whether now
owned or hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable with recourse to Holdings, the
Borrowers or any of their Subsidiaries), or assign any right to receive income,
provided that the provisions of this Section 8.01 shall not prevent the
creation, incurrence, assumption or existence of the following (Liens described
below are herein referred to as "Permitted Liens"):
(i) Liens for taxes, assessments or governmental charges or levies not
yet due and payable or Liens for taxes, assessments or governmental charges
or levies being contested in good faith and by appropriate proceedings for
which adequate reserves have been established to the extent required by
generally accepted accounting principles;
(ii) Liens in respect of property or assets of Holdings, the Company
or any of their Subsidiaries imposed by law, which were incurred in the
ordinary course of business and do not secure Indebtedness for borrowed
money, such as carriers', warehousemen's, materialmen's and mechanics'
liens and other similar Liens arising in the ordinary course of business,
and (x) which do not in the aggregate materially detract from the value of
the Company's or such Subsidiary's property or assets or materially impair
the use thereof in the operation of the business of the Company or such
Subsidiary or (y) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture
or sale of the property or assets subject to any such Lien;
(iii) Liens in existence on the Restatement Effective Date which are
listed, and the property subject thereto described, in Schedule X, but no
renewals or extensions of such Liens shall be permitted except to the
extent specifically permitted to be so renewed or extended as set forth on
such Schedule X, PROVIDED that (x) the aggregate principal amount of the
Indebtedness, if any, secured by such Liens does not increase from that
amount
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outstanding at the time of any such renewal or extension and (y) any such
renewal or extension does not encumber any additional assets or properties
of the Company or any of its Subsidiaries;
(iv) Permitted Encumbrances;
(v) Liens created pursuant to the Security Documents;
(vi) leases or subleases granted to other Persons in the ordinary
course of business not materially interfering with the conduct of the
business of Holdings, the Borrowers or any of their Subsidiaries;
(vii) Liens upon assets subject to Capitalized Lease Obligations to
the extent permitted by Section 8.04(iv), provided that (x) such Liens only
serve to secure the payment of Indebtedness arising under such Capitalized
Lease Obligation and (y) the Lien encumbering the asset giving rise to the
Capitalized Lease Obligation does not encumber any other asset of Holdings,
the Borrowers or any of their Subsidiaries;
(viii) Liens placed upon assets used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of
acquisition thereof by the Company or any such Subsidiary or within 60 days
thereafter to secure Indebtedness incurred to pay all or a portion of the
purchase price thereof, provided that (x) the aggregate outstanding
principal amount of all Indebtedness secured by Liens permitted by this
clause (viii) shall not at any time exceed the amount permitted under
Section 8.04(iv) and (y) in all events, the Lien encumbering the assets so
acquired does not encumber any other asset of Holdings, the Borrowers or
any of their Subsidiaries;
(ix) easements, rights-of-way, restrictions, encroachments and other
similar charges or encumbrances, and minor title deficiencies, in each case
not materially interfering with the conduct of the business of Holdings,
the Borrowers or any of their Subsidiaries;
(x) Liens arising from precautionary UCC financing statement filings
or similar filings regarding operating leases;
(xi) statutory and common law landlords' liens under leases to which
Holdings, the Borrowers or any of their Subsidiaries is a party;
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(xii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, surety bonds (other than appeal bonds),
bids, government contracts, performance and return-of-money bonds and other
similar obligations incurred in the ordinary course of business (exclusive
of obligations in respect of the payment for borrowed money);
(xiii) judgment Liens and Liens securing appeal bonds relating to
judgments not giving rise to an Event of Default under Section 9.09 and
encumbering assets with a fair market value not in excess of $3,000,000;
(xiv) Liens relating to taxes being contested in good faith, the
aggregate obligations relating to which do not exceed $100,000; and
(xv) Liens not otherwise permitted pursuant to this Section 8.01 which
secure obligations permitted under this Agreement not exceeding $2,500,000
in the aggregate at any one time outstanding.
8.02 CONSOLIDATION, MERGER, PURCHASE OR SALE OF ASSETS, ETC. Holdings and
each Borrower will not, and will not permit any of their Subsidiaries to, wind
up, liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets, or enter into any sale-leaseback transactions, or purchase or otherwise
acquire (in one or a series of related transactions) any part of the property or
assets (other than purchases or other acquisitions of inventory, materials and
equipment (and, to the extent consistent with the Company's prior practices,
other tangible and intangible assets) in the ordinary course of business) of any
Person, except that:
(i) Capital Expenditures by the Company and its Subsidiaries shall be
permitted to the extent not in violation of Section 8.07;
(ii) in addition to the sales of assets permitted under clauses (iii),
(iv), (ix), (x), (xi) and (xv) of this Section 8.02, the Company and its
Subsidiaries may make sales of inventory, including sales to the Company
and other Subsidiaries, in the ordinary course of business;
(iii) in addition to the sales of assets permitted under clauses (ii),
(iv), (ix), (x), (xi) and (xv) of this Section 8.02, the Company and its
Subsidiaries may make sales of assets (other than any (x) Mortgaged
Properties, (y) Pledged
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Securities of any Wholly-Owned Subsidiaries or (z) capital stock of any
Subsidiary Borrower or Swedish Newco or any of its Subsidiaries), PROVIDED
that (x) the aggregate sale proceeds from all assets subject to such sales
shall not exceed $7,500,000 in any fiscal year of the Company (PROVIDED
that no more than $2,500,000 of such sale proceeds from such asset sales
may be generated by Swedish Newco and its Subsidiaries) and (y) the Net
Cash Proceeds therefrom are either applied as provided in Section 4.02(f)
or reinvested in assets to the extent permitted by Section 4.02(f), and
PROVIDED FURTHER, that notwithstanding any other provision of this clause
(iii), Swedish Newco may sell or otherwise transfer the capital stock of
its Subsidiaries to Cabot Intermediate without such sales or other
transfers being subject to the provisions of the preceding proviso;
(iv) in addition to the sales of assets permitted under clauses (ii),
(iii), (ix), (x), (xi) and (xv) of this Section 8.02, the Company and its
Subsidiaries may (a) sell the Peltor, Inc. plant and related equipment
located in East Providence, Rhode Island and (b) make sales of assets
(other than any (x) Mortgaged Properties, (y) Pledged Securities or (z)
capital stock of any Subsidiary Borrower or Swedish Newco or any of its
Subsidiaries) in the ordinary course of business, PROVIDED that (x) no
single sale (or series of related sales) generate proceeds in excess of
$5,000,000 and (y) the Net Cash Proceeds therefrom are either applied as
provided in Section 4.02(f) or reinvested in assets to the extent permitted
by Section 4.02(f);
(v) investments may be made to the extent permitted by Section 8.05;
(vi) the Company and its Subsidiaries may lease (as lessee) real or
personal property in the ordinary course of business (so long as any such
lease does not create a Capitalized Lease Obligation except to the extent
permitted by Section 8.04(iv));
(vii) any Foreign Subsidiary of the Company may be merged with and
into, or be dissolved or liquidated, or sell or otherwise transfer any of
its assets to (x) the Company or (y) any Wholly-Owned Subsidiary of the
Company (other than Swedish Newco or any of its Subsidiaries), PROVIDED
that, notwithstanding the foregoing, (i) Peltor and any of its Subsidiaries
may merge with and into Swedish Newco, with Swedish Newco being the
surviving corporation of such merger, Peltor may merge with and into any of
its Subsidiaries, and any Subsidiary of Peltor may merge with and into
Peltor and (ii) no Subsidiary Borrower may enter into any such transactions
with Swedish Newco or its Subsidiaries or with any other Wholly-Owned
Subsidiary of the Company, other
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than with respect to the transfer of assets to such Subsidiary Borrower, in
an aggregate amount not to exceed $2,500,000 in any fiscal year of the
Company;
(viii) any Domestic Subsidiary of the Company may be merged with and
into, or be dissolved or liquidated into, or transfer any of its assets to
(x) the Company or (y) any Wholly-Owned Domestic Subsidiary of the Company
(other than Peltor, Inc.);
(ix) in addition to the sales of assets permitted under clauses (ii),
(iii), (iv), (x), (xi) and (xv) of this Section 8.02, (A) the Company and
its Wholly-Owned Subsidiaries (other than Swedish Newco and its
Subsidiaries) may sell or otherwise transfer assets (other than any (x)
Mortgaged Properties or (y) capital stock of any Subsidiary Borrower or,
subject to the second proviso of clause (iii) above, Swedish Newco or any
of its Subsidiaries) between or among one another in the ordinary course of
business so long as the aggregate value of all such assets transferred in
any fiscal year of the Company does not exceed $5,000,000, and (B) Swedish
Newco and its Subsidiaries may sell or otherwise transfer assets between or
among one another;
(x) in addition to the sales of assets permitted under clauses (ii),
(iii), (iv), (ix), (xi) and (xv) of this Section 8.02, the Company and its
Wholly-Owned Subsidiaries may sell or otherwise transfer inventory, raw
materials and work-in-progress between or among one another in the ordinary
course of business;
(xi) in addition to the sales of assets permitted under clauses (ii),
(iii), (iv), (ix), (x) and (xv) of this Section 8.02, the Company and its
Subsidiaries may sell or discount accounts receivable in the ordinary
course of business, but only in connection with the collection or
compromise thereof;
(xii) the Company and its Subsidiaries may, in the ordinary course of
business, license patents, trademarks, copyrights and know-how to third
Persons, so long as each such license does not prohibit the granting of a
Lien by the Company or such Subsidiary in the intellectual property covered
by such license;
(xiii) the Company and its Subsidiaries may liquidate any Inactive
Subsidiary; and
(xiv) the Company and any other Credit Party may make Permitted
Acquisitions in accordance with Section 7.14 in an aggregate amount not to
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exceed (w) $15,000,000 plus (x) the then Available Equity Issuance Amount,
plus (y) the then Available Retained ECF Amount, plus (z) the principal
amount of any Permitted Seller Subordinated Indebtedness.
8.03 DIVIDENDS. Holdings and each Borrower will not, and will not permit
any of their Subsidiaries to, authorize, declare or pay any Dividends with
respect to Holdings, any Borrower or any of their Subsidiaries, except that:
(i) any Subsidiary of the Company may pay Dividends to (x) the Company
or (y) any Wholly-Owned Subsidiary of the Company;
(ii) the Company may pay cash Dividends to Holdings in the amounts and
at the times of any payment by Holdings in respect of taxes, provided that
any refunds received by Holdings shall promptly be returned by Holdings to
the Company;
(iii) the Company may pay cash Dividends to Holdings (w) in an amount
not to exceed $500,000 in any fiscal year of Holdings prior to a Holdings
IPO so long as the proceeds thereof are promptly used by Holdings to pay
expenses in the ordinary course of business, (x) in an amount not to exceed
$1,000,000 in any fiscal year of the Company during or following a Holdings
IPO so long as the proceeds thereof are promptly used by Holdings to pay
expenses in the ordinary course of business, (y) in an amount equal to all
fees, costs and expenses related to a Holdings IPO so long as the proceeds
thereof are promptly used by Holdings to pay such fees, costs and expenses,
and (z) in an amount not to exceed $1,100,000 to satisfy its obligations to
make adjustments in the purchase price of the acquisition effected pursuant
to the Cabot Acquisition Agreement (to the extent not paid directly by the
Company or any of its Subsidiaries);
(iv) so long as no Default or Event of Default then exists or would
result therefrom, Holdings may redeem or purchase shares of its capital
stock (or options to purchase its capital stock) held by former employees
of Holdings or any of its Subsidiaries following the termination of their
employment, provided that the aggregate amount paid by Holdings in respect
of all such redemptions or purchases does not exceed the sum of (a)
$1,500,000, (b) the aggregate amount of cash proceeds received by Holdings
in such fiscal year from the sale to employees of its common stock
previously repurchased pursuant to this clause (iv) and (c) any amount
available for such redemptions or purchases pursuant to this clause (iv)
which has not been used for such purpose;
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(v) so long as no Default or Event of Default then exists or would
result therefrom, the Company may pay cash Dividends to Holdings, provided
that Holdings promptly uses such cash proceeds for the purposes described
in clause (iv) of this Section 8.03;
(vi) Holdings may pay Dividends on its Preferred Stock in additional
shares of Preferred Stock;
(vii) so long as no Default or Event of Default then exists or would
result therefrom, Holdings and the Company shall be permitted to pay
Dividends consisting of shares of Qualified Capital Stock; and
(viii) so long as no Default or Event of Default then exists or would
result therefrom, Holdings may use the proceeds received from a Holdings
IPO occurring on or prior to December 31, 1996 to redeem or otherwise
repurchase Preferred Stock (including accrued dividends thereon) so long as
the proceeds of a Holdings IPO occurring on or prior to December 31, 1996
are first used to repurchase, redeem or otherwise retire outstanding Senior
Subordinated Notes or repay Term Loans, all as provided in clause (z) of
the proviso to Section 8.11(i).
8.04 INDEBTEDNESS. Holdings and each Borrower will not, and will not permit
any of their Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(ii) Existing Indebtedness to the extent the same is listed on
Schedule VIII, but no refinancings or renewals thereof except to the extent
specifically permitted to be so refinanced or renewed as set forth on such
Schedule VIII, provided that any such refinancings and renewals shall not
exceed the principal amount of, and shall not be for a shorter maturity
than, such Existing Indebtedness outstanding at the time of the refinancing
or renewal thereof;
(iii) Indebtedness subject to Liens permitted under Section 8.01(iii),
(viii) and (xiv);
(iv) Indebtedness evidenced by Capitalized Lease Obligations and
purchase money Indebtedness of Holdings and its Subsidiaries, provided that
in no event shall the aggregate principal amount of Capitalized Lease
Obligations,
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and the principal amount of all such Indebtedness incurred in each case
after the Restatement Effective Date, permitted by this clause (iv) exceed
(x) $2,500,000 at any time outstanding to the extent incurred by Swedish
Newco and its Subsidiaries, and (y) $5,000,000 (including any amounts under
clause (x) above) in the aggregate at any time outstanding;
(v) intercompany Indebtedness among the Company and its Subsidiaries
to the extent permitted by Section 8.05;
(vi) Indebtedness of the Borrowers under Interest Rate Protection
Agreements entered into to protect the Borrowers against fluctuations in
interest rates in respect of the Obligations so long as management of the
Borrowers has determined that the entering into of such Interest Rate
Protection Agreements are bona fide hedging activities and the notional
amount thereof do not exceed the principal amount of the Term Loans;
(vii) Indebtedness of the Company and its Subsidiaries (other than
Swedish Newco or any of its Subsidiaries) under Other Hedging Agreements
providing protection against fluctuations in currency values in connection
with the Company's or any of its Subsidiaries' operations so long as
management of the Company or such Subsidiary, as the case may be, has
determined that the entering into of such Other Hedging Agreements are bona
fide hedging activities;
(viii) Indebtedness of the Company under the Senior Subordinated Notes
in an aggregate principal amount not to exceed $100,000,000 (less any
repayments or prepayments of principal thereof) and Indebtedness of
Holdings arising from the guaranty thereof as set forth in the Senior
Subordinated Note Documents;
(ix) the Company or any Subsidiary Borrower may become liable as a
guarantor with respect to obligations of any of its Subsidiaries, which
obligations are otherwise permitted under this Agreement;
(x) Indebtedness in respect of those accounts receivable permitted to
be sold or discounted pursuant to Section 8.02(xi);
(xi) additional Indebtedness of the Company and its Subsidiaries not
otherwise permitted under this Section 8.04 not to exceed (x) $1,000,000 to
the extent incurred by Swedish Newco and its Subsidiaries and (y)
$2,500,000
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(including any amounts under clause (x) above), in each case, in aggregate
principal amount at any one time outstanding;
(xii) Permitted Seller Subordinated Indebtedness not to exceed
$25,000,000 in aggregate principal amount; and
(xiii) Permitted Refinancing Subordinated Indebtedness so long as (x)
no Default or Event of Default then exists or would result therefrom and
(y) the proceeds thereof are used, to promptly repurchase, redeem or
otherwise retire outstanding Senior Subordinated Notes and/or applied to
repay outstanding Term Loans as set forth in Section 4.02(e).
8.05 ADVANCES, INVESTMENTS AND LOANS. Holdings and each Borrower will not,
and will not permit any of their Subsidiaries to, directly or indirectly, lend
money or credit or make advances to any Person, or purchase or acquire any
stock, obligations or securities of, or any other interest in, or make any
capital contribution to, any other Person, or purchase or own a futures contract
or otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or hold any
cash, Cash Equivalents or Foreign Cash Equivalents, except that the following
shall be permitted:
(i) the Company and its Subsidiaries may acquire and hold accounts
receivables owing to any of them, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with
customary terms;
(ii) the Company and its Subsidiaries may acquire and hold cash and
Cash Equivalents and any Foreign Subsidiary of each Borrower may acquire
and hold cash and Foreign Cash Equivalents;
(iii) the Company and its Subsidiaries may make loans and advances in
the ordinary course of business to their respective employees so long as
the aggregate principal amount thereof at any time outstanding (determined
without regard to any write-downs or write-offs of such loans and advances)
shall not exceed $750,000 and (y) make loans to certain members of
management to fund their purchase of common stock of Holdings in a
principal amount not to exceed $1,000,000 (excluding capitalized interest
on such loans) at any time outstanding;
(iv) the Borrowers may enter into Interest Rate Protection Agreements
to the extent permitted by Section 8.04(vi);
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(v) the Company and its Subsidiaries (other than Swedish Newco and its
Subsidiaries) may enter into Other Hedging Agreements to the extent
permitted by Section 8.04(vii);
(vi) investments in existence on the Restatement Effective Date and
listed on Schedule XI shall be permitted, without giving effect to any
additions thereto or replacements thereof;
(vii) (A) any Subsidiary of the Company may make intercompany loans to
the Company or to any Wholly-Owned Subsidiary of the Company which is a
Subsidiary Guarantor or a Subsidiary Borrower, Swedish Newco, Peltor and
their Subsidiaries may make intercompany loans among themselves, and the
Company may make intercompany loans to any Wholly-Owned Domestic Subsidiary
of the Company which is a Subsidiary Guarantor or to any Subsidiary
Borrower (collectively, "Intercompany Loans"), (B) any Credit Party may
make Intercompany Loans to any Wholly-Owned Subsidiary of the Company which
is not a Credit Party, PROVIDED that the aggregate outstanding principal
amount of all such Intercompany Loans made pursuant to this clause (B) or
clause (xv) below shall not exceed $2,500,000 at any one time (determined
without regard to any write-downs or write-offs of such loans); and
PROVIDED FURTHER, that no Intercompany Loan shall be evidenced by a
promissory note or other instrument;
(viii) the Company and its Subsidiaries shall be permitted to make
Capital Expenditures to the extent permitted under Section 8.07;
(ix) in addition to the Intercompany Loans permitted pursuant to
clause (vii) of this Section 8.05, Cabot Intermediate may make an
intercompany loan to Swedish Newco in an aggregate principal amount equal
to the amount of the proceeds of the New Term Loans less amounts used to
repay the Original Revolving Loans and costs of the Transaction;
(x) the Company and its Subsidiaries may acquire and hold promissory
notes issued by the purchasers of assets sold in accordance with Section
8.02(iii) or (iv);
(xi) so long as no Default under Section 9.01 or any Event of Default
then exists or would result therefrom, the Company and its Subsidiaries may
make cash equity contributions to their Foreign Subsidiaries to the extent
required to cause such Foreign Subsidiary to be in compliance with any
local law
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capitalization requirements, PROVIDED that the aggregate amount for all
such con- tributions shall not exceed $1,000,000;
(xii) the Company and its Subsidiaries may enter into guarantees to
the extent permitted by Section 8.04;
(xiii) the Company and any other Credit Party may make investments
which are Permitted Acquisitions in accordance with the definition thereof
and the other provisions of this Agreement;
(xiv) the Borrowers may make investments (other than investments in
Swedish Newco and its Subsidiaries) not otherwise permitted under this
Section 8.05 in an amount not to exceed the then Available Retained ECF
Amount;
(xv) Holdings may make capital contributions and/or loans to any
Wholly-Owned Subsidiary (other than Swedish Newco or any of its
Subsidiaries) in an amount equal to the amount of any indemnity proceeds
received by Holdings in respect of any A-O Environmental Loss or A-O
Respirator Loss (as such terms are respectively defined in the Cabot
Acquisition Agreement); and
(xvi) the Company and its Subsidiaries (other than Swedish Newco or
any of its Subsidiaries) may make additional advances, investments and
loans not otherwise permitted under this Section 8.05 so long as the
aggregate amount of such advances, investments and loans does not exceed
$2,000,000 in the aggregate.
8.06 TRANSACTIONS WITH AFFILIATES. Holdings and each Borrower will not, and
will not permit any of their Subsidiaries to, enter into any transaction or
series of related transactions, whether or not in the ordinary course of
business, with any Affiliate of Holdings, the Borrowers or any of their
Subsidiaries, other than on terms and conditions substantially as favorable to
Holdings, such Borrower or such Subsidiary as would reasonably be obtained by
Holdings, such Borrower or such Subsidiary at that time in a comparable
arm's-length transaction with a Person other than an Affiliate, except that:
(i) Dividends may be paid to the extent provided in Section 8.03;
(ii) transactions under Section 8.02 shall be permitted;
(iii) loans may be made and other transactions may be entered into by
Holdings, each Borrower and their Subsidiaries to the extent permitted by
Section 8.05; and
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(iv) the Borrower may make payments under the Vestar Management
Agreement (as in effect on the Restatement Effective Date).
<TABLE>
8.07 MAXIMUM CAPITAL EXPENDITURES. (a) Holdings and the Borrowers will not,
and will not permit any of their Subsidiaries to, make any Capital Expenditures,
except that during any fiscal period set forth below (taken as one accounting
period), the Company and its Subsidiaries may make Capital Expenditures so long
as the aggregate amount of such Capital Expenditures does not exceed in any
fiscal period set forth below the amount set forth opposite such fiscal period
below:
<CAPTION>
Fiscal Period Amount
------------- ------
<S> <C>
Restatement Effective Date to
fiscal year ending September 30, 1996 $ 4,000,000
Each fiscal year thereafter $10,000,000
</TABLE>
To the extent that the amount of Capital Expenditures made by the Company
and its Subsidiaries during any fiscal period set forth in the table above is
less than the amount applicable to the respective fiscal period set forth in the
table above (without giving effect to any increase in such amount as provided
below in this clause (a)), the lesser of (x) such unused amount and (y) 50% of
the respective scheduled amount (such lesser amount, the "Rollover Amount") may
be carried forward and utilized by the Company and its Subsidiaries to make
additional Capital Expenditures in the immediately succeeding fiscal period,
PROVIDED that no amount once carried forward to the next fiscal period may be
carried forward to a fiscal period thereafter, provided further, that Capital
Expenditures made during any fiscal period shall be first deemed made in respect
of the Rollover Amount and then deemed made in respect of the scheduled amount
permitted for such fiscal period.
(b) In addition to the Capital Expenditures permitted to be made pursuant
to clause (a) of this Section 8.07, the Company and its Subsidiaries may make
Capital Expenditures (i) with the proceeds of Asset Sales to the extent such
proceeds are not required to be applied to repay Term Loans pursuant to Section
4.02(f), (ii) to the extent that any Permitted Acquisition in accordance with
Section 7.14 constitutes a Capital Expenditure, (iii) in an amount equal to the
then Available Retained ECF Amount (provided that Swedish Newco and its
Subsidiaries may not make such additional Capital Expenditures pursuant to this
clause (iii)) and (iv) with the proceeds of insurance to the extent permitted
under Sections 4.02(h) and 7.03(d).
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<TABLE>
8.08 LEVERAGE RATIO. Holdings and the Borrowers will not permit the
Leverage Ratio at any time during a Test Period period ended on a date set forth
below to be more than the ratio set forth opposite such date below:
<CAPTION>
Date Ratio
---- -----
<S> <C>
September 30, 1996 5.50:1.00
December 31, 1996 5.50:1.00
March 31, 1997 5.50:1.00
June 30, 1997 5.25:1.00
September 30, 1997 5.25:1.00
December 31, 1997 5.00:1.00
March 31, 1998 5.00:1.00
June 30, 1998 4.75:1.00
September 30, 1998 4.75:1.00
December 31, 1998 4.50:1.00
March 31, 1999 4.50:1.00
June 30, 1999 4.25:1.00
September 30, 1999 4.25:1.00
December 31, 1999 4.00:1.00
March 31, 2000 4.00:1.00
June 30, 2000 3.75:1.00
September 30, 2000 3.75:1.00
December 31, 2000 3.50:1.00
March 31, 2001 3.50:1.00
June 30, 2001 3.25:1.00
September 30, 2001 3.25:1.00
The last day of each fiscal quarter
ended thereafter 3.00:1.00
</TABLE>
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<TABLE>
8.09 INTEREST COVERAGE RATIO. Holdings and the Borrowers will not permit
the Interest Coverage Ratio for any Test Period ending on a date set forth below
to be less than the ratio set forth opposite such date below:
<CAPTION>
Date Ratio
---- -----
<S> <C>
September 30, 1996 1.60:1.00
December 31, 1996 1.60:1.00
March 31, 1997 1.70:1.00
June 30, 1997 1.75:1.00
September 30, 1997 1.75:1.00
December 31, 1997 1.80:1.00
March 31, 1998 1.90:1.00
June 30, 1998 2.00:1.00
September 30, 1998 2.10:1.00
December 31, 1998 2.20:1.00
March 31, 1999 2.30:1.00
June 30, 1999 2.30:1.00
September 30, 1999 2.40:1.00
December 31, 1999 2.40:1.00
March 31, 2000 2.50:1.00
June 30, 2000 2.60:1.00
September 30, 2000 2.70:1.00
December 31, 2000 2.70:1.00
March 31, 2001 2.80:1.00
June 30, 2001 2.90:1.00
The last day of each fiscal quarter
ended thereafter 3.00:1.00
</TABLE>
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<TABLE>
8.10 FIXED CHARGE COVERAGE RATIO. Holdings and the Borrowers will not
permit the Fixed Charge Coverage Ratio for any Test Period ending on a date set
forth below to be less than the ratio set forth opposite such date below:
<CAPTION>
Date Ratio
---- -----
<S> <C>
September 30, 1996 0.80:1.00
December 31, 1996 0.80:1.00
March 31, 1997 0.90:1.00
June 30, 1997 1.00:1.00
September 30, 1997 1.00:1.00
December 31, 1997 1.00:1.00
March 31, 1998 1.00:1.00
June 30, 1998 1.00:1.00
September 30, 1998 1.00:1.00
December 31, 1998 1.00:1.00
March 31, 1999 1.00:1.00
June 30, 1999 1.10:1.00
September 30, 1999 1.10:1.00
December 31, 1999 1.10:1.00
March 31, 2000 1.10:1.00
June 30, 2000 1.10:1.00
September 30, 2000 1.10:1.00
The last day of each fiscal quarter ended
thereafter 1.20:1.00
</TABLE>
8.11 LIMITATION ON PAYMENTS OF CERTAIN INDEBTEDNESS; MODIFICATIONS OF
CERTAIN INDEBTEDNESS; MODIFICATIONS OF CERTIFICATE OF INCORPORATION, BY-LAWS AND
CERTAIN AGREEMENTS; ETC. Holdings and each Borrower will not, and will not
permit any of their Subsidiaries to, (i) make (or give any notice in respect of)
any voluntary or optional payment or prepayment on or redemption or acquisition
for value of, or any prepayment or redemption as a result of any change of
control, asset sale or similar event of any of the Senior Subordinated Notes,
or, after the incurrence thereof, any Permitted Seller Subordinated Indebtedness
or Permitted Refinancing Subordinated Indebtedness, PROVIDED that the Company
may (x) repurchase outstanding Senior
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Subordinated Notes with the then Available Retained ECF Amount in an amount not
to exceed $15,000,000, (y) repurchase, redeem or otherwise retire outstanding
Senior Subordinated Notes with the proceeds of Permitted Refinancing
Subordinated Indebtedness and (z) repurchase, redeem or otherwise retire
outstanding Senior Subordinated Notes pursuant to the IPO clawback provisions
thereof with the proceeds received from Holdings as a result of a Holdings IPO
occurring on or prior to December 31, 1996 so long as (A) no Default or Event of
Default then exists or would result therefrom (B) at least $25,000,000 of the
net cash proceeds from such Holdings IPO are either (I) so used pursuant to
clause (z) or (II) applied to repay Term Loans pursuant to Section 4.02(d)
(although the Company shall not be required to so redeem outstanding Senior
Subordinated Notes in an amount greater than the amount permitted by such IPO
claw-back provisions, and with any net cash proceeds not so used to be applied
as provided in Section 8.03(viii) and/or 4.02(d)), (ii) amend or modify, or
permit the amendment or modification of, any provision of any documentation
entered into in connection with the Indebtedness referred to in clause (i) above
(including, without limitation, (x) the Senior Subordinated Note Documents but
excluding any immaterial change not requiring the consent of the holders of the
Senior Subordinated Notes or (y) after the incur-rence thereof, the Permitted
Seller Subordinated Indebtedness or Permitted Refinancing Subordinated
Indebtedness, as the case may be) or (iii) amend, modify or change its
certificate of incorporation (including, without limitation, by the filing or
modification of any certificate of designation or amending the certificate of
designation for the Preferred Stock) or by-laws, or any agreement entered into
by it, with respect to its capital stock (including, without limitation, the
Shareholders' Agreement, PROVIDED that in connection with a Holdings IPO, the
Shareholders Agreement may be terminated or amended in any manner not reasonably
likely to be adverse to the interests of the Banks), or enter into any new
agreement with respect to its capital stock, other than any amendments,
modifications or changes pursuant to this clause (iii) or any such new
agreements which are not adverse in any material respect to the interests of the
Banks.
8.12 LIMITATION ON CERTAIN RESTRICTIONS ON SUBSIDIARIES. Holdings and each
Borrower will not, and will not permit any of their Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by Holdings, any Borrower or any
of their Subsidiaries, or pay any Indebtedness owed to Holdings, any Borrower or
any of their Subsidiaries, (b) make loans or advances to Holdings, any Borrower
or any of their Subsidiaries, or (c) transfer any of its properties or assets to
Holdings, any Borrower or any of their Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (i) applicable law,
(ii) this Agreement and the other Credit Documents, (iii) customary provisions
restricting subletting or assignment of any lease governing a leasehold interest
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of Holdings, any Borrower or any of their Subsidiaries, (iv) customary
provisions restricting assignment of any agreement entered into by the Company
or any Subsidiary of the Company in the ordinary course of business, (v)
customary provisions restricting the transfer of assets subject to Liens
permitted under Section 8.01(iii), (vii), (viii) and (xiv), (vi) any
restrictions contained in contracts for the sale of assets permitted in
accordance with Section 8.02 solely in respect of the assets to be sold pursuant
to such contract and (vii) any restrictions in the Senior Subordinated Note
Documents or, after the issuance thereof, the Permitted Refinancing Subordinated
Indebtedness and the Permitted Seller Subordinated Indebtedness.
8.13 LIMITATION ON ISSUANCE OF CAPITAL STOCK. (a) Holdings will not permit
any of its Subsidiaries to issue any capital stock (including by way of sales of
treasury stock) or any options or warrants to purchase, or securities
convertible into, capital stock, except (i) for transfers and replacements of
then outstanding shares of capital stock, (ii) for stock splits, stock dividends
and similar issuances which do not decrease the percentage ownership of Holdings
or any of its Subsidiaries in any class of the capital stock of such Subsidiary,
except that the Company's indirect ownership percentage in non-Wholly-Owned
Subsidiaries may decrease but not below a majority of the total economic and
voting interest of such Subsidiaries, (iii) for issuances to the Company or any
of its Subsidiaries in connection with the creation of new Wholly-Owned
Subsidiaries permitted under Section 8.15, (iv) for issuances by
non-Wholly-Owned Subsidiaries of the Company created in accordance with Section
8.15 so long as the Company's direct or indirect ownership percentage in such
non-Wholly-Owned Subsidiary does not fall below a majority of the total economic
and voting interest of such non-Wholly-Owned Subsidiary, (v) to qualify
directors to the extent required by applicable law, (vi) for issuances to the
Company or any of its Wholly-Owned Subsidiaries pursuant to transactions
permitted pursuant to Section 8.02(vii), (viii) or (ix) or (vii) for issuances
by Wholly-Owned Foreign Subsidiaries of the Company to third Persons to satisfy
local law requirements.
(b) Holdings will not, and will not permit any of its Subsidiaries to,
issue (i) any class of preferred stock (other than the Preferred Stock) or (ii)
any class of redeemable (except at the sole option of Holdings or such
Subsidiary) common stock.
8.14 BUSINESS. (a) The Company will not, and will not permit any of its
Subsidiaries to, engage (directly or indirectly) in any business other than the
business in which the Company and its Subsidiaries are engaged on the
Restatement Effective Date and other businesses reasonably related thereto.
(b) Notwithstanding anything to the contrary contained in this Agreement,
Holdings will not engage in any business activities and will not have any
significant
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assets or liabilities other than its ownership of the capital stock of the
Company and liabilities imposed by law and its obligations with respect to this
Agreement and the other Credit Documents to which it is a party and its guaranty
of the Senior Subordinated Notes.
(c) Notwithstanding anything to the contrary contained in this Agreement,
Cabot Intermediate will not engage in any business activities other than its
ownership and licensing of patents, trademarks and other intangibles and will
not have any significant assets or liabilities other than its ownership of (x)
such patents, trademarks and other intangibles, (y) the capital stock of its
Subsidiaries and (z) the Swedish Note, and liabilities imposed by law and its
obligations with to this Agreement and the other Credit Documents to which it is
a party.
(d) Notwithstanding anything to the contrary contained in this Agreement,
Swedish Newco will not engage in any business activities and will not have any
significant assets or liabilities other than its ownership of the capital stock
of its Subsidiaries (including Peltor) and liabilities imposed by law and its
obligations with to this Agreement and the other Credit Documents to which it is
a party; PROVIDED, HOWEVER, that nothing contained herein shall prevent Peltor
or any of its Subsidiaries from merging with or into Swedish Newco and with
Swedish Newco thereafter succeeding to the assets, liabilities and business
activities arising from or formerly conducted by the entity so merged with or
into Swedish Newco, subject to the terms hereof.
8.15 LIMITATION ON THE CREATION OF SUBSIDIARIES. Notwithstanding anything
to the contrary contained in this Agreement, Holdings will not, and will not
permit any of its Subsidiaries to, establish, create or acquire any Subsidiary;
PROVIDED that, the Company and its Subsidiaries shall be permitted to establish
or create Wholly-Owned Subsidiaries so long as, subject to the terms and
conditions of Section 7.12 hereof, (i) the capital stock of such new Subsidiary
to the extent owned by the Company (up to 65% of the capital stock of any such
new Foreign Subsidiary) or any other Credit Party is promptly pledged pursuant
to, and to the extent required by, the respective Pledge Agreement and the
certificates representing such stock, together with stock powers duly executed
in blank, are delivered to the Collateral Agent and (ii) such new Subsidiary (to
the extent that it is a Wholly-Owned Subsidiary of the Company) promptly
executes a counterpart of the US Subsidiary Guaranty or the Foreign Subsidiary
Guaranty, as is appropriate, a Pledge Agreement and (in the case of any Domestic
Subsidiary of the Company, or any Foreign Subsidiary of the Company which is
organized under the laws of Canada or the United Kingdom) a Security Agreement,
in each case on the same basis (and to the same extent) as such Subsidiary would
have executed such Credit Documents if it were a Credit Party on the Restatement
Effective Date and, in the case of any Foreign Subsidiary, to the extent that
the entering into of such Credit Documents
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are not prohibited under applicable local law. In addition, at the reasonable
request of the Administrative Agent, each new Wholly-Owned Subsidiary shall
execute and deliver, or cause to be executed and delivered, all other relevant
documentation of the type described in Section 5 as such new Wholly-Owned
Subsidiary would have had to deliver if such new Wholly-Owned Subsidiary were a
Credit Party on the Restatement Effective Date.
8.16 RESTRICTIONS ON SWEDISH NOTE. Holdings and the Company will not permit
Cabot Intermediate to (i) forgive, or otherwise consent to any reduction in, any
amounts owing under the Swedish Note (except as a result of a cash repayment
with respect thereto), (ii) amend or modify, or permit the amendment or
modification of, any provision of the Swedish Note, except for changes in
interest rate, amortization and maturity which could not adversely effect the
ability of the Borrowers to perform their Obligations under this Agreement or
(iii) sell, assign or otherwise transfer the Swedish Note to any Person.
SECTION 9. EVENTS OF DEFAULT. Upon the occurrence of any of the following
specified events (each an "Event of Default"):
9.01 PAYMENTS. (a) Any Borrower shall (i) default in the payment when due
of any principal of any Loan or any Note or (ii) default, and such default shall
continue unremedied for five or more days, in the payment when due of any Unpaid
Drawings or interest on any Loan or Note, or any Fees or any other amounts owing
hereunder or under any other Credit Document or (b) any Guarantor shall default
in the payment of any amount, in respect of any payment of the type described in
clause (a)(ii) above pursuant to its Guaranty, and such default shall continue
unremedied for five or more days; or
9.02 REPRESENTATIONS, ETC. Any representation, warranty or statement made
by any Credit Party herein or in any other Credit Document or in any certificate
delivered pursuant hereto or thereto shall prove to be untrue in any material
respect on the date as of which made or deemed made; or
9.03 COVENANTS. Any Credit Party shall (i) default in the due performance
or observance by it of any term, covenant or agreement contained in Section
7.01(g)(i), Section 7.08, Section 7.11, Section 7.13, Section 7.14 or Section 8
(other than Section 8.12) or (ii) default in the due performance or observance
by it of any other term, covenant or agreement contained in this Agreement
(other than as provided in Section 9.01) and such default shall continue
unremedied for a period of 30 days after written notice to the defaulting party
by the Administrative Agent or the Required Banks; or
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9.04 DEFAULT UNDER OTHER AGREEMENTS. (i) Holdings, any Borrower or any of
their Subsidiaries shall (x) default in any payment of any Indebtedness of the
type described in clauses (i), (ii) and (vi) in the definition thereof (other
than the Obligations) beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created or (y) default
in the observance or performance of any agreement or condition relating to any
such Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause (determined without regard to whether
any notice is required), any such Indebtedness to become due prior to its stated
maturity, or (ii) any such Indebtedness of Holdings, any Borrower or any of
their Subsidiaries shall be declared to be due and payable, or required to be
prepaid other than by a regularly scheduled prepayment or required prepayment
(other than pursuant to a "due-on-sale" clause in a mortgage or similar security
agreement) (unless such required prepayment results from a default thereunder or
an event of the type that constitutes an Event of Default), prior to the stated
maturity thereof, provided that it shall not be a Default or an Event of Default
under this Section 9.04 unless the aggregate outstanding principal amount of all
Indebtedness as described in preceding clauses (i) and (ii) is at least
$3,000,000; or
9.05 BANKRUPTCY, ETC. Holdings, any Borrower or any of their Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against Holdings, any Borrower or any of their Subsidiaries and the petition is
not controverted within 15 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
Holdings, any Borrower or any of their Subsidiaries, or Holdings, any Borrower
or any of their Subsidiaries commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to Holdings, any Borrower or any of their
Subsidiaries, or there is commenced against Holdings, any Borrower or any of
their Subsidiaries any such proceeding which remains undismissed for a period of
60 days; or Holdings, any Borrower or any of their Subsidiaries is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or Holdings, any Borrower or any of their
Subsidiaries suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 days; or Holdings, any Borrower or any of their Subsidiaries makes
a general assignment for the benefit of creditors; or any corporate
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action is taken by Holdings, any Borrower or any of their Subsidiaries for the
purpose of effecting any of the foregoing; or
9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or
extension of any amortization period is sought or granted under Section 412 of
the Code, any Plan shall have had or is reasonably likely to have a trustee
appointed to administer such Plan, any Plan is, shall have been or is reasonably
likely to be terminated or to be the subject of termination proceedings under
ERISA, any Plan shall have an Unfunded Current Liability, a contribution
required to be made to a Plan or a Foreign Pension Plan has not been timely
made, Holdings, any Borrower or any of their Subsidiaries or any ERISA Affiliate
has incurred or is likely to incur a liability to or on account of a Plan under
Section 409, 502(i), 502(1), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the Code, or Holdings, any
Borrower or any of their Subsidiaries has incurred or is reasonably likely to
incur liabilities pursuant to one or more employee welfare benefit plans (as
defined in Section 3(1) of ERISA) that provide benefits to retired employees or
other former employees (other than as required by Section 601 or ERISA) or
employee pension benefit plans (as defined in Section 3(2) of ERISA) or Foreign
Pension Plans; (b) there shall result from any such event or events the
imposition of a lien, the granting of a security interest, or a liability or a
material risk of incurring a liability; and (c) such lien, security interest or
liability, individually, and/or in the aggregate, in the reasonable opinion of
the Required Banks, could reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities or condition
(financial or otherwise) of Holdings, and its Subsidiaries taken as a whole; or
9.07 SECURITY DOCUMENTS. Except (x) in each case to the extent resulting
from the negligent or willful failure of the Collateral Agent to retain
possession of the applicable Pledged Securities and (y) in respect of an
immaterial portion of the Collateral, at any time after the execution and
delivery thereof, any of the Security Documents shall cease to be in full force
and effect, or shall cease to give the Collateral Agent for the benefit of the
Secured Creditors the Liens, rights, powers and privileges purported to be
created thereby (including, without limitation, a perfected security interest
in, and Lien on, all of the Collateral), in favor of the Collateral Agent,
superior to and prior to the rights of all third Persons (except as permitted by
Section 8.01), and subject to no other Liens, or any Credit Party shall default
in the due performance or observance of any term, covenant or agreement on its
part to be performed or observed pursuant to (i) any of the Security Documents
and such default shall constitute an Event of Default under Section 9.01, 9.02
or 9.03, (ii) Sections 2.4, 2.5, 2.7, 3.6, 4.6 and 5.6 of the US Security
Agreement, Sections 2.4, 2.5, 2.7 and 3.6 of the Canadian Security Agreement,
Section 4.03 of the English Security Agreement, or Sections 3.2, 3.3 and
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5 of the US Pledge Agreement or the Foreign Pledge Agreement, and in each case
such default shall continue unremedied for a period of 30 days or (iii) any
other term, covenant or agreement on its part to be performed or observed
pursuant to any Security Document and such default shall continue unremedied for
a period of 30 days after written notice to the Borrowers by the Administrative
Agent or the Required Banks (or such longer grace period as is specifically
provided in any Mortgage); or
9.08 GUARANTIES. (a) Any Guaranty or any provision thereof shall cease to
be in full force or effect as to the relevant Guarantor, or any Guarantor or
Person acting by or on behalf of such Guarantor shall deny or disaffirm such
Guarantor's obligations under the relevant Guaranty, or (b) except as otherwise
provided in Section 9.01(b), any Guarantor shall default in the due performance
or observance of any term, covenant or agreement on its part to be performed or
observed pursuant to such Guaranty, provided that in the case of Section 12 of
the US Subsidiary Guaranty, if the default constitutes a failure to perform or
comply with any provision, covenant or agreement contained in Section 8 of this
Agreement, such default shall continue unremedied for a period of at least 30
days after notice to the defaulting Subsidiary Guarantor by the Administrative
Agent or the Required Banks; or
9.09 JUDGMENTS. One or more judgments or decrees shall be entered against
Holdings, any of the Borrowers or any of their Subsidiaries involving in the
aggregate for Holdings, the Borrowers and their Subsidiaries a liability of
$3,000,000 or more (not paid or fully covered by a reputable and solvent
insurance company) and such judgments or decrees shall not have been vacated,
discharged or stayed or bonded pending appeal within 60 days from the entry
thereof;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written request of
the Required Banks, shall by written notice to the Borrowers, take any or all of
the following actions, without prejudice to the rights of the Administrative
Agent, any Bank or the holder of any Note to enforce its claims against any
Credit Party (PROVIDED, that, if an Event of Default specified in Section 9.05
shall occur with respect to any Borrower, the result which would occur upon the
giving of written notice by the Administrative Agent to the Borrowers as
specified in clauses (i) and (ii) below shall occur automatically without the
giving of any such notice): (i) declare the Total Commitment terminated,
whereupon all Commitments of each Bank shall forthwith terminate immediately and
any Commitment Fee shall forthwith become due and payable without any other
notice of any kind; (ii) declare the principal of and any accrued interest in
respect of all Loans and the Notes and all Obligations owing hereunder and
thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Credit Party; (iii)
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terminate any Letter of Credit which may be terminated in accordance with its
terms; (iv) direct the Company to pay (and the Company agrees that upon receipt
of such notice, or upon the occurrence of an Event of Default specified in
Section 9.05 with respect to the Company or any Borrower, it will pay) to the
Collateral Agent at the Payment Office such additional amount of cash, to be
held as security by the Collateral Agent, as is equal to the aggregate Stated
Amount of all Letters of Credit issued for the account of the Company and then
outstanding; (v) enforce, as Collateral Agent, all of the Liens and security
interests created pursuant to the Security Documents; and (vi) apply any cash
collateral held pursuant to this Agreement to pay Obligations.
SECTION 10. Definitions and Accounting Terms.
--------------------------------
10.01 DEFINED TERMS. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"A Term Loan" shall mean each Company A Dollar Term Loan, Company A
Deutsche Mark Term Loan, Company A Sterling Term Loan, Subsidiary A Canadian
Dollar Term Loan and Subsidiary A Sterling Term Loan.
"A Term Loan Commitment" shall mean, for each Bank on the Restatement
Effective Date (after giving effect thereto), such Bank's commitment to maintain
and make A Term Loans pursuant to Section 1.01(a) on such date.
"A Term Loan Maturity Date" shall mean May 30, 2002.
"A Term Loan Scheduled Repayment" shall have the meaning provided in
Section 4.02(b).
"A Term Loan Scheduled Repayment Date" shall have the meaning provided in
Section 4.02(b).
"A Tranche Percentage" shall mean, at any time, a fraction (expressed as a
percentage) the numerator of which is the aggregate principal amount of A Term
Loans then outstanding and the denominator is the aggregate principal amount of
Term Loans then outstanding.
"Acquisition" shall mean the acquisition of (a) 100% of the capital stock
and certain assets of Peltor and its Subsidiaries and (b) the payment by Swedish
Newco or Peltor of the Non-Compete Payment, all pursuant to the Acquisition
Documents.
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"Acquisition Documents" shall mean the Stock Purchase Agreement and other
documentation related to the Acquisition.
"Additional Mortgage" shall have the meaning provided in Section 7.11(a).
"Additional Mortgaged Property" shall have the meaning provided in Section
7.11(a).
"Adjusted Consolidated Net Income" for any period shall mean Consolidated
Net Income for such period plus, without duplication, the sum of the amount of
all net non-cash charges (including, without limitation, depreciation,
amortization, deferred tax expense and non-cash interest expense and net
non-cash losses which were included in arriving at Consolidated Net Income for
such period) for such period less (i) the sum of the amount of all net non-cash
gains (exclusive of items reflected in Adjusted Consolidated Working Capital)
included in arriving at Consolidated Net Income for such period and (ii) gains
or losses for such period from sales of assets other than sales in the ordinary
course of business.
"Adjusted Consolidated Working Capital" at any time shall mean Consolidated
Current Assets (but excluding therefrom all cash and Cash Equivalents) less
Consolidated Current Liabilities.
"Administrative Agent" shall mean BTCo, in its capacity as Administrative
Agent for the Banks hereunder, and shall include any successor to the
Administrative Agent appointed pursuant to Section 11.09.
"Affected Eurodollar Loans" shall have the meaning provided in Section
4.02(j).
"Affiliate" shall mean, with respect to any Person, any other Person (i)
directly or indirectly controlling (including, but not limited to, all
directors, officers and partners of such Person) controlled by, or under direct
or indirect common control with, such Person or (ii) that directly or indirectly
owns more than 10% of any class of the voting securities or capital stock of or
equity interests in such Person. A Person shall be deemed to control another
Person if such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such other Person, whether
through the ownership of voting securities, by contract or otherwise.
"Aggregate Unutilized Commitment" with respect to any Bank at any time
shall mean such Bank's Revolving Loan Commitment at such time, if any, less the
sum of (x) the aggregate outstanding principal amount of all Revolving Loans
made by such
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Bank (or the Dollar Equivalent thereof in the case of each outstanding Alternate
Currency Revolving Loan) and (y) such Bank's Revolving Percentage of the Letter
of Credit Outstandings (or Dollar Equivalent thereof in the case of Letters of
Credit issued in currencies other than Dollars) at such time.
"Agreement" shall mean this Amended and Restated Credit Agreement, as
modified, supplemented, amended, restated, extended, renewed, refinanced or
replaced from time to time.
"Alternate Currency" shall mean each of Canadian Dollars, Deutsche Marks
and Pounds Sterling.
"Alternate Currency Equivalent" shall mean the Canadian Dollar Equivalent,
the Deutsche Mark Equivalent or the Sterling Equivalent, as the case may be.
"Alternate Currency Loan" shall mean any Alternate Currency Term Loan or
Alternate Currency Revolving Loan.
"Alternate Currency Revolving Loan" shall mean each Sterling Revolving
Loan.
"Alternate Currency Term Loan" shall mean each Company A Deutsche Mark Term
Loan, Company A Sterling Term Loan, Subsidiary A Canadian Dollar Term Loan and
Subsidiary A Sterling Term Loan.
"Applicable" shall mean, with respect to Regulation D being applicable to
any determination of the Canadian Dollar Euro Rate, the Deutsche Mark Euro Rate
or the Sterling Euro Rate, that Regulation D reserves would be applicable to the
Alternate Currency Loan as to which such interest rate would apply (including by
giving effect to the assumption that such Bank had funded such Alternate
Currency Loan through the purchase of an Alternate Currency deposit by a
Subsidiary or Affiliate of such Bank in the London interbank market and the
transfer thereof to such Bank from such Subsidiary or Affiliate).
"Applicable Currency" shall mean Dollars and each Available Alternate
Currency.
"Applicable Margin" shall mean (i) in the case of A Term Loans and
Revolving Loans that are maintained as (x) Base Rate Loans, 1.00%, less the
Interest Reduction Discount, if any, and (y) Eurodollar Loans or Alternate
Currency Loans, 2.25%, less, the Interest Reduction Discount, if any and in the
case of B Term Loans that are maintained as (x) Base Rate Loans, 1.50% and (y)
Eurodollar Loans, 2.75%.
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"Approved Bank" shall have the meaning provided in the definition of "Cash
Equivalents."
"Asset Sale" shall mean any sale, transfer or other disposition by the
Company or any of its Subsidiaries to any Person other than the Company or any
of its Wholly-Owned Subsidiaries of any asset (including, without limitation,
any capital stock or other securities of another Person), of the Company of any
of its Subsidiaries other than any sale, transfer or disposition permitted by
Sections 8.02(ii), (iv), (vii), (viii), (ix), (x), (xi), (xii) or (xiii).
"Assignment and Assumption Agreement" shall mean the Assignment and
Assumption Agreement substantially in the form of Exhibit J (appropriately
completed).
"Authorized Officer" of any Credit Party shall mean any of the President,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, any
Vice-President, the Secretary or the General Counsel of such Credit Party or any
other officer of such Credit Party which is designated in writing to the
Administrative Agent and the relevant Issuing Bank by any of the foregoing
officers of such Credit Party as being authorized to give such notices under
this Agreement.
"Available Alternate Currency" shall mean each Alternate Currency except to
the extent that the Administrative Agent has given notice to the Borrowers
pursuant to Section 1.10(a) (which notice has not been rescinded by the
Administrative Agent) that one or more Alternate Currencies are no longer
available.
"Available Equity Issuance Amount" shall mean, at the time of determination
thereof, an amount (not to exceed $20,000,000) equal to (x) the Net Cash
Proceeds received from the issuance of equity by Holdings on or prior to such
date and not required to be used to repay Loans pursuant to Section 4.02(i) as a
result of clause (x) of the parenthetical of Section 4.02(d), plus (y) the fair
market value of equity issued by Holdings (for which no cash proceeds were
received) as consideration for Permitted Acquisitions, minus (z) any amount
previously used to make Permitted Acquisitions in accordance with Sections 7.14
and 8.02(xiv).
"Available Retained ECF Amount" shall mean, from and after any complete
fiscal year of the Company ending after October 1, 1996, (i) an amount which is
initially equal to zero, plus (ii) an amount of Excess Cash Flow permitted to be
retained by the Borrowers in any fiscal year after giving effect to the
calculation of Excess Cash Flow for the previous fiscal year and the payment of
Loans required pursuant to Section 4.02(g) during such fiscal year, minus (iii)
the amount of Excess Cash Flow for any fiscal year in which Excess Cash Flow was
a negative number, minus (iv) any amount of
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the Excess Cash Flow retained by the Borrowers as described by clause (ii) above
and used to make Capital Expenditures as permitted by Section 8.07(b)(iii),
minus (v) any amount designated as Available Retained ECF Amount and utilized to
make investments as permitted by Section 8.05(xiv), minus (vi) any amount
designated as Available Retained ECF Amount and utilized to effectuate a
Permitted Acquisition pursuant to Section 8.02(xiv)(y) during such fiscal year,
minus (vii) any amount designated as Available Retained ECF Amount and utilized
to repurchase Senior Subordinated Notes in accordance with the proviso to
Section 8.11(i). Notwithstanding anything to the contrary contained above, the
Available Retained ECF Amount shall be zero until the occurrence of the first
Excess Cash Payment Date.
"B Banks" shall have the meaning provided in Section 4.02(l).
"B Term Loan" shall have the meaning provided in Section 1.01(b).
"B Term Loan Commitment" shall mean, for each Bank on the Restatement
Effective Date (after giving effect thereto), such Bank's commitment to maintain
or make B Term Loans pursuant to Section 1.01(b) on such date.
"B Term Loan Maturity Date" shall mean May 30, 2003.
"B Term Loan Scheduled Repayment" shall have the meaning provided in
Section 4.02(c).
"B Term Loan Scheduled Repayment Date" shall have the meaning provided in
Section 4.02(c).
"B Term Note" shall have the meaning provided in Section 1.05(a).
"B Tranche Percentage" shall mean, at any time, a fraction (expressed as a
percentage) the numerator of which is the aggregate principal amount of B Term
Loans then outstanding and the denominator of which is the aggregate principal
amount of Term Loans then outstanding.
"Bank" shall mean each financial institution listed on Schedule II, as well
as any Person which becomes a "Bank" hereunder pursuant to 13.04(b); it being
understood and agreed, however, (i) that for purposes of making certain Types of
Alternate Currency Loans under this Agreement, certain of the Banks have
specifically designated on Schedule II certain of their branches, Subsidiaries
or Affiliates that will be responsible for making such Types of Alternate
Currency Loans or may make such a designation in an Assignment and Assumption
Agreement entered into by any such
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Bank and (ii) that in connection with any such designation, (x) such branch,
Subsidiary or Affiliate of such Bank shall be solely responsible under this
Agreement for making such Types of Alternate Currency Loans, and with all
principal and interest payments made in respect thereof to be made directly to
such branch, Subsidiary or Affiliate (and with all Fees to be paid directly to
such Bank) and (y) the respective Note for such Types of Alternate Currency
Loans will be issued to such branch, Subsidiary or Affiliate of such Bank.
"Bank Default" shall mean (i) the refusal (which has not been retracted) of
a Bank to make available its portion of any Borrowing or to fund its portion of
any unreimbursed payment under Section 2.03(c) or (ii) a Bank having notified in
writing any Borrower and/or the Administrative Agent that it does not intend to
comply with its obligations under Section 1.01(a), (b) or (c) or Section 2, in
the case of either clause (i) or (ii) as a result of any takeover of such Bank
by any regulatory authority or agency.
"Bankruptcy Code" shall have the meaning provided in Section 9.05.
"Base Rate" at any time shall mean the higher of (i) the rate which is 1/2
of 1% in excess of the overnight Federal Funds Rate and (ii) the Prime Lending
Rate.
"Base Rate Loan" shall mean each Dollar Loan designated or deemed
designated as such by the Borrowers at the time of the incurrence thereof or
conversion thereto.
"Borrower" shall have the meaning provided in the first paragraph of this
Agreement.
"Borrowing" shall mean the borrowing of one Type of Loan of a single
Tranche from all the Banks having Commitments in respect of the respective
Tranche on a given date (or resulting from a conversion or conversions on such
date) and, in the case of Fixed Rate Loans, having the same Interest Period,
PROVIDED that Base Rate Loans incurred pursuant to Section 1.10(b) shall be
considered part of the related Borrowing of Eurodollar Loans.
"BTCo" shall mean Bankers Trust Company in its individual capacity.
"Business Day" shall mean (i) for all purposes other than as covered by
clause (ii) below, any day except Saturday, Sunday and any day which shall be in
New York City a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close and (ii) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Fixed
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Rate Loans, any day which is a Business Day described in clause (i) above and
which is also a day for trading by and between banks in the London interbank
Eurodollar market and which shall not be a legal holiday or a day on which
banking institutions are authorized or required by law or other government
action to close in the city where the applicable Payment Office of the
Administrative Agent is located in respect of such Fixed Rate Loan.
"Cabot" shall mean Cabot Corporation, a Delaware corporation.
"Cabot Acquisition Agreement" shall mean that certain Asset Transfer
Agreement, dated as of June 13, 1995, among Cabot Safety Corporation, Cabot
Canada Ltd., Cabot Safety Limited, Cabot Corporation, Cabot Safety Holdings
Corporation and Cabot Safety Acquisition Corporation.
"Cabot Intermediate" shall mean Cabot Safety Intermediate Corporation, a
Delaware corporation and Wholly-Owned Subsidiary of the Company.
"Canadian Borrower" shall mean Cabot Safety Canada Corporation (f/k/a Cabot
Safety Canada Acquisition Ltd.), an Ontario corporation.
"Canadian Dollar Equivalent" shall mean, at any time for the computation
thereof, the amount of Canadian Dollars which could be purchased with the amount
of Dollars involved in such computation at the spot exchange rate therefor as
quoted by the Administrative Agent as of 11:00 A.M. (London time) on the date
three Business Days prior to the date of any determination thereof for purchase
on such date.
"Canadian Dollar Euro Rate" shall mean (a) (i) the rate per annum that
appears on page 3740 of the Dow Jones Telerate Screen (or any successor page)
for Canadian Dollar deposits with maturities comparable to the Interest Period
applicable to the A Canadian Dollar Loans subject to the respective Borrowing,
determined as of 11:00 A.M. (London time) on the date which is two Business Days
prior to the commencement of such Interest Period or (ii) if such a rate does
not appear on page 3740 of the Dow Jones Telerate Screen (or any successor
page), the offered quotation to first-class banks in the London interbank
Eurodollar market by BTCo for Canadian Dollar deposits of amounts in immediately
available funds comparable to the outstanding principal amount of the Subsidiary
A Canadian Dollar Loan of BTCo with maturities comparable to the Interest Period
applicable to such A Canadian Dollar Loan commencing two Business Days
thereafter as of 11:00 A.M. (London time) on the date which is two Business Days
prior to the commencement of such Interest Period, in either case divided (and
rounded off to the nearest 1/16 of 1%) by (b) a percentage equal to 100% minus
the then stated maximum rate of all reserve requirements (including, without
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limitation, any marginal, emergency, supplemental, special or other reserves
required by applicable law) applicable to any member bank of the Federal Reserve
System in respect of Eurocurrency funding or liabilities as defined in
Regulation D (or any successor category of liabilities under Regulation D) to
the extent Applicable; provided, in the event that the Administrative Agent has
made any determination pursuant to Section 1.10(a)(i) in respect of Subsidiary A
Canadian Dollar Loans, the Canadian Dollar Euro Rate determined pursuant to
clause (a) of this definition shall instead be the rate determined by BTCo as
the all-in cost of funds for BTCo to fund such Subsidiary A Canadian Dollar Loan
with maturities comparable to the Interest Period applicable thereto.
"Canadian Dollar Loan" shall mean a Loan made and repaid in Canadian
Dollars (I.E., each Subsidiary A Canadian Dollar Term Loan).
"Canadian Dollars" shall mean freely transferable lawful money of Canada.
"Canadian Security Agreement" shall have the meaning provided in Section
5.10.
"Capital Contribution" shall have the meaning provided in Section 5.07(b).
"Capital Expenditures" shall mean, with respect to any Person, all
expenditures by such Person which would be required to be capitalized in
accordance with generally accepted accounting principles, including all such
expenditures with respect to fixed or capital assets (including, without
limitation, expenditures for maintenance and repairs which should be capitalized
in accordance with generally accepted accounting principles) and, without
duplication, the amount of Capitalized Lease Obligations incurred by such
Person.
"Capitalized Lease Obligations" shall mean, with respect to any Person, all
rental obligations which, under generally accepted accounting principles, are or
will be required to be capitalized on the books of such Person, in each case
taken at the amount thereof accounted for as indebtedness in accordance with
such principles.
"Cash Equivalents" shall mean (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) U.S. dollar denominated time
deposits, certificates of deposit and bankers acceptances of (x) any Bank and
(y) any bank which has, or whose parent company has, a short-term commercial
paper rating from S&P of at least A-1 or the
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equivalent thereof or from Moody's of at least P-1 or the equivalent thereof
(any such bank or Bank, an "Approved Bank"), in each case with maturities of not
more than 270 days from the date of acquisition, (iii) commercial paper issued
by any Approved Bank or by the parent company of any Approved Bank and
commercial paper issued by, or guaranteed by, any company with a short-term
commercial paper rating of at least A-1 or the equivalent thereof by S&P or at
least P-1 or the equivalent thereof by Moody's, or guaranteed by any company
with a long term unsecured debt rating of at least A or A2, or the equivalent of
each thereof, from S&P or Moody's, as the case may be, and in each case maturing
within 270 days after the date of acquisition, (iv) 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 270 days from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either S&P or
Moody's and (v) investments in money market funds substantially all the assets
of which are comprised of securities of the types described in clauses (i)
through (iv) above.
"Cash Proceeds" shall mean, with respect to any Asset Sale, the aggregate
cash payments (including any cash received by way of deferred payment pursuant
to a note receivable issued in connection with such Asset Sale, but only as and
when so received) received by the Company or any of its Subsidiaries from such
Asset Sale.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as the same may be amended from time to time, 42
U.S.C. ss. 9601 ET SEQ.
"Change of Control" shall mean (i) Holdings shall cease to own 100% of the
capital stock of the Company, (ii) the Company shall cease to own 100% of the
capital stock of Cabot Intermediate, (iii) Cabot Intermediate shall cease to own
100% of the capital stock of each of (x) Swedish Newco, (y) the Canadian
Borrower and (z) the U.K. Borrower, (iv) Swedish Newco shall cease to own 100%
of the capital stock of Peltor, (v) Peltor or Intermediate shall cease to own,
directly or indirectly, 100% of the capital stock of the Subsidiaries of Peltor,
(vi) any "Person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), excluding Permitted Holders, is or shall become the
"beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange
Act), directly or indirectly, of 40% or more on a fully diluted basis of the
voting and economic interests of Holdings, (vii) the Board of Directors of
Holdings shall cease to consist of a majority of Continuing Directors, (viii)
prior to a Holdings IPO, either (a) the Permitted Holders shall cease to own a
majority of the capital stock of Holdings or (b) Cabot shall cease to own 20% of
the capital stock of Holdings or (ix) any "change of control" or similar event
shall occur under the Senior Subordinated Note Documents or, after the issuance
thereof, any documents evi-
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dencing or relating to the Permitted Seller Subordinated Indebtedness or
Permitted Refinancing Subordinated Indebtedness (provided that it shall not be a
Change of Control under (A) clauses (iii) or (iv) above if the Company directly
owns the capital stock which is the subject of such clause or (B) clauses (ii)
through (v) above as a result of any transaction permitted under Sections
8.02(vii) or (viii).
"Claims" shall have the meaning provided in the definition of "Environmental
Claims."
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated thereunder. Section references to
the Code are to the Code, as in effect on the date of this Agreement, and to any
subsequent provisions of the Code amendatory thereof, supplemental thereto or
substituted therefor.
"Collateral" shall mean all property (whether real or personal) with
respect to which any security interests have been granted (or purported to be
granted) pursuant to any Security Document, including, without limitation, all
Pledge Agreement Collateral, all Security Agreement Collateral, all Mortgaged
Properties, all Additional Mortgage Properties and all cash and Cash Equivalents
delivered as collateral pursuant to Sections 4.02 or 9 hereof.
"Collateral Agent" shall mean the Administrative Agent acting as collateral
agent for the Secured Creditors pursuant to the Security Documents.
"Commitment" shall mean any of the commitments of any Bank, I.E., whether
the A Term Loan Commitment, B Term Loan Commitment or Revolving Loan Commitment.
"Commitment Fee" shall have the meaning provided in Section 3.01(a).
"Commitment Fee Reduction Discount" shall mean initially zero and from and
after the Start Date of any Margin Reduction Period to and including the End
Date of such Margin Reduction Period, the Commitment Fee Reduction Discount
shall be 1/8 of 1% if, but only if, as of the Test Date for such Start Date, the
Leverage Ratio for the Test Period ended on such Test Date shall be less than
2.50:1.00. Notwithstanding anything to the contrary above in this definition,
the Commitment Fee Reduction Discount shall be reduced to zero at all times when
there shall exist a Default under Section 9.01 or 9.05 or an Event of Default.
"Company" shall have the meaning provided in the first paragraph of this
Agreement.
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"Company A Deutsche Mark Term Loan" shall have the meaning provided in
Section 1.01(a)(ii).
"Company A Deutsche Mark Term Note" shall have the meaning provided in
Section 1.05(a).
"Company A Dollar Term Loan" shall have the meaning provided in Section
1.01(a)(i).
"Company A Dollar Term Note" shall have the meaning provided in Section
1.05(a).
"Company A Sterling Term Loan" shall have the meaning provided in Section
1.01(a)(iii).
"Company A Sterling Term Note" shall have the meaning provided in Section
1.05(a).
"Company A Term Loans" shall mean the Company A Dollar Term Loans, Company
A Deutsche Mark Term Loans and Company A Sterling Term Loans.
"Consolidated Capital Expenditures" shall mean, for any period, the
aggregate amount of Capital Expenditures made by the Company and its
Subsidiaries during such period.
"Consolidated Cash Interest Expense" shall mean, for any period,
Consolidated Interest Expense for such period but only to the extent such
Consolidated Interest Expense is payable in cash in respect of such period.
"Consolidated Current Assets" shall mean, at any time, the consolidated
current assets of the Company and its Subsidiaries.
"Consolidated Current Liabilities" shall mean, at any time, the
consolidated current liabilities of the Company and its Subsidiaries at such
time, but excluding the current portion of any Indebtedness under this Agreement
and the current portion of any other long-term Indebtedness which would
otherwise be included therein.
"Consolidated Debt" shall mean, at any time, the sum of (i) all
Indebtedness of the Company and its Subsidiaries as would be required to be
reflected on the liability side of a balance sheet of such Person determined on
a consolidated basis in accordance with generally accepted accounting principles
and (ii) all Indebtedness of the Company
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and its Subsidiaries of the type described in clause (ii) of the definition of
Indebtedness (other than arising under a Letter of Credit or letter of credit
supporting obligations already included under clause (i) hereof).
"Consolidated EBIT" shall mean, for any period, the Consolidated Net Income
of the Company and its Subsidiaries for such period, before Consolidated
Interest Expense for such period and provision for taxes and without giving
effect to any extra-ordinary gains or losses for such period or gains or losses
from sales of assets other than in the ordinary course of business.
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT,
adjusted by adding thereto the amount of all amortization of intangibles and
depreciation, non-cash charges relating to employee stock option plans, the
amount of any premiums and related non-cash charge for the write-off of deferred
financing expenses associated with the repurchase or redemption of Senior
Subordinated Notes pursuant to the IPO clawback permitted hereunder and any
payments made in consideration for an early termination of the Vestar Management
Agreement, in each case that were deducted in arriving at Consolidated EBIT for
such period.
"Consolidated Fixed Charges" shall mean, for any period, the sum of,
without duplication, (i) Consolidated Cash Interest Expense for such period,
(ii) the amount of all cash Consolidated Capital Expenditures for such period
(other than Consolidated Capital Expenditures constituting Capitalized Lease
Obligations) and (iii) the scheduled principal amount of all amortization
payments on all Indebtedness (excluding payments pursuant to a revolving credit
facility or an over-draft facility as a result of the occurrence of the
scheduled termination date thereunder) of the Company and its Subsidiaries for
such period (as determined on the first day of the respective period).
"Consolidated Interest Expense" shall mean, for any period, the total
consolidated interest expense of the Company and its Subsidiaries for such
period (calculated without regard to any limitations on the payment thereof)
plus, without duplication, that portion of Capitalized Lease Obligations of the
Company and its Subsidiaries representing the interest factor for such period.
"Consolidated Net Income" shall mean, for any period, net after tax income
of the Company and its Subsidiaries for such period; PROVIDED, HOWEVER, that
there shall be excluded from Consolidated Net Income (i) the income (or loss) of
any Person accrued prior to the date it becomes a consolidated Subsidiary of the
Company or is merged into or consolidated with the Company or any of its
consolidated Subsidiaries or such Person's assets are acquired by the Company or
any of its consolidated Subsidiaries, except to the extent of the amount of cash
dividends or distributions act-
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ually paid to the Company or any of its consolidated Subsidiaries by such Person
during such period and (ii) the income of any consolidated Subsidiary of the
Company to the extent the declaration or payment of dividends or similar
distributions by that Subsidiary of its income is not at the time permitted by
operation of the terms of its charter or any agreement or instrument (other than
this Agreement or any other Credit Document), judgment, decree, order, statute,
rule or governmental regulation applicable to that Subsidiary.
"Contingent Obligation" shall mean, as to any Person, any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the holder
of such primary obligation against loss in respect thereof; PROVIDED, HOWEVER,
that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Continuing Directors" shall mean the directors of the Company on the
Restatement Effective Date and each other director, if such director's
nomination for election to the Board of Directors of Holdings is recommended by
a majority of the then Continuing Directors.
"Credit Documents" shall mean this Agreement and, after the execution and
delivery thereof pursuant to the terms of this Agreement, each Note, each
Security Document and each Guaranty.
"Credit Event" shall mean the making of any Loan or the issuance of any
Letter of Credit.
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"Credit Party" shall mean Holdings, the Company, each other Borrower and
each Subsidiary Guarantor.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank Default
is in effect.
"Deutsche Mark" shall mean the freely transferable lawful money of Germany.
"Deutsche Mark Equivalent" shall mean, at any time for the computation
thereof, the amount of Deutsche Marks which could be purchased with the amount
of Dollars involved in such computation at the spot exchange rate therefor as
quoted by the Administrative Agent as of 11:00 A.M. (London Time) on the date 3
Business Days prior to the date of any determination thereof for purchase on
such date.
"Deutsche Mark Euro Rate" shall mean (a) (i) the rate per annum that
appears on page 3750 of the Dow Jones Telerate Screen (or any successor page)
for Deutsche Mark deposits with maturities comparable to the Interest Period
applicable to the Company A Deutsche Mark Term Loans subject to the respective
Borrowing, determined as of 11:00 A.M. (London time) on the date that is two
Business Days prior to the commencement of such Interest Period or (ii) if such
a rate does not appear on page 3750 of the Dow Jones Telerate Screen (or any
successor page), the offered quotation to first-class banks in the London
interbank Eurodollar market by BTCo for Deutsche Mark deposits of amounts in
immediately available funds comparable to the outstanding principal amount of
the Company A Deutsche Mark Term Loan of BTCo with maturities comparable to the
Interest Period applicable to such Company A Deutsche Mark Term Loan commencing
two Business Days thereafter as of 11:00 A.M. (London time) on the date which is
two Business Days prior to the commencement of such Interest Period, in either
case divided (and rounded off to the nearest 1/16 of 1%) by (b) a percentage
equal to 100% minus the then stated maximum rate of all reserve requirements
(including, without limitation, any marginal, emergency, supplemental, special
or other reserves required by applicable law) applicable to any member bank of
the Federal Reserve System in respect of Eurocurrency funding or liabilities as
defined in Regulation D (or any successor category of liabilities under
Regulation D) to the extent applicable; provided, in the event that the
Administrative Agent has made any determination pursuant to Section 1.10(a)(i)
in respect of Company A Deutsche Mark Term Loans, the Deutsche Mark Euro Rate
determined pursuant to clause (a) of this definition shall instead be the rate
determined by BTCo as the all-in cost of funds for
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BTCo to fund such Company A Deutsche Mark Term Loan with maturities comparable
to the Interest Period applicable thereto.
"Deutsche Mark Loan" shall mean a Loan made and repaid in Deutsche Marks
(I.E., each Company A Deutsche Mark Term Loan).
"Dividends" with respect to any Person shall mean that such Person has
declared or paid a dividend or returned any equity capital to its stockholders
or authorized or made any other distribution, payment or delivery of property or
cash to its stockholders as such, or redeemed, retired, purchased or otherwise
acquired, directly or indirectly, for consideration any shares of any class of
its capital stock outstanding on or after the Restatement Effective Date (or any
options or warrants issued by such Person with respect to its capital stock), or
set aside any funds for any of the foregoing purposes, or shall have permitted
any of its Subsidiaries to purchase or otherwise acquire for consideration any
shares of any class of the capital stock of such Person outstanding on or after
the Restatement Effective Date (or any options or warrants issued by such Person
with respect to its capital stock). Without limiting the foregoing, "Dividends"
with respect to any Person shall also include all payments made or required to
be made by such Person with respect to any stock appreciation rights, plans,
equity incentive or achievement plans or any similar plans or setting aside of
any funds for the foregoing purposes.
"Documents" shall mean and include the Acquisition Documents and the Credit
Documents.
"Dollar Equivalent" shall mean, at any time for the computation thereof,
the amount of Dollars which could be purchased with (or, in the case of Letters
of Credit denominated in a currency other than Dollars, the amount of Dollars
necessary to purchase) the amount of the relevant Alternate Currency (or, in the
case of a Letter of Credit or other Indebtedness denominated in a currency other
than an Alternate Currency, such other currency) involved in such computation at
the spot exchange rate therefor as quoted by the Administrative Agent as of
11:00 A.M. (London time) on the date two Business Days prior to the date of any
determination thereof for purchase on such date, provided that the Dollar
Equivalent of any Unpaid Drawing in a currency other than Dollars shall be
determined at the time the drawing under the related Letter of Credit was paid
or disbursed by the relevant Issuing Bank, and such computation will be at the
spot exchange rate therefor as quoted by the Administrative Agent as of 11:00
A.M. (New York time) on such date.
"Dollar Loan" shall mean each Loan made and repaid in Dollars (and shall
include each Dollar Term Loan and Dollar Revolving Loan).
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"Dollar Revolving Loan" shall have the meaning provided in Section 1.01(c).
"Dollar Revolving Note" shall have the meaning provided in Section 1.05(a).
"Dollar Term Loan" shall mean each Company A Dollar Term Loan and B Term
Loan.
"Dollars" and the sign "$" shall each mean freely transferable lawful money
of the United States.
"Domestic Subsidiary" shall mean each Subsidiary of the Company that is
incorporated or organized in the United States or any State or territory
thereof.
"Drawing" shall have the meaning provided in Section 2.04(b).
"Eligible Transferee" shall mean and include a commercial bank, financial
institution or other "accredited investor" (as defined in Regulation D of the
Securities Act).
"End Date" shall have the meaning provided in the definition of Margin
Reduction Period.
"English Pledge Agreement" shall mean the Charge over Shares, dated as of
July 11, 1995, between Cabot Intermediate and the Collateral Agent, as amended,
modified or supplemented from time to time.
"English Security Agreement" shall mean the Debenture, dated as of July 11,
1995, between the U.K. Borrower and the Collateral Agent, as amended, modified
or supplemented from time to time.
"Environmental Claims" shall mean any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compli-ance or violation, investigations or proceedings arising under any
Environmental Law (hereafter "Claims") or any permit issued under any such law,
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (b)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
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"Environmental Law" shall mean any applicable Federal, state, provincial,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy and rule of common
law now or hereafter in effect and in each case as amended, and any binding
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment relating to the environment,
employee health and safety or Hazardous Materials, including, without
limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C.
[SECTION] 2601 ET SEQ.; the Clean Air Act, 42 U.S.C. [SECTION] 7401 ET SEQ.;
the Safe Drinking Water Act, 42 U.S.C. [SECTION] 3803 ET SEQ.; the Oil
Pollution Act of 1990, 33 U.S.C. [SECTION] 2701 ET SEQ.; the Emergency
Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. [SECTION]
11001 ET SEQ.; the Hazardous Material Transportation Act, 49 U.S.C. [SECTION]
1801 ET SEQ.; the Occupational Safety and Health Act, 29 U.S.C. [SECTION] 651
ET SEQ. (to extent it regulates occupational exposure to Hazardous Materials);
and any state and local or foreign counterparts or equivalents, in each case
as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated thereunder. Section
references to ERISA are to ERISA, as in effect on the date of this Agreement and
any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or
substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of
ERISA) which together with any Credit Party would be deemed to be a "single
employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loan" shall mean each Dollar Loan designated as such by the
Company at the time of the incurrence thereof or conversion thereto.
"Eurodollar Rate" shall mean (a) the offered quotation to first-class banks
in the London interbank Eurodollar market by BTCo for Dollar deposits of amounts
in immediately available funds comparable to the outstanding principal amount of
the Eurodollar Loan of BTCo with maturities comparable to the Interest Period
applicable to such Eurodollar Loan commencing two Business Days thereafter as of
11:00 A.M. (London time) on the date which is two Business Days prior to the
commencement of such Interest Period, divided (and rounded off to the nearest
1/16 of 1%) by (b) a percentage equal to 100% minus the then stated maximum rate
of all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves required by applicable law)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency funding or liabilities as defined in Regulation D (or any successor
category of liabilities under Regulation D).
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"Eurodollar Spread" shall mean the Applicable Margin as in effect from time
to time for Revolving Loans which are maintained as Eurodollar Loans.
"Event of Default" shall have the meaning provided in Section 9.
"Excess Cash Flow" shall mean, for any period, the difference between (a)
the sum of (i) Adjusted Consolidated Net Income for such period and (ii) the
decrease, if any, in Adjusted Consolidated Working Capital from the first day to
the last day of such period, and (b) the sum of (i) an amount equal to (1) the
amount of Consolidated Capital Expenditures (but excluding Consolidated Capital
Expenditures financed with equity or Indebtedness (other than the Revolving
Loans)) made during such period pursuant to and in accordance with Section 8.07
plus (or minus, if negative) (2) the Rollover Amount for such period to be
carried forward to the next period less the Rollover Amount (if any) for the
preceding period carried forward to the current period, (ii) without duplication
of amounts deducted under preceding clause (b)(i), the amounts expended by the
Company and its Subsidiaries in respect of acquisitions made during such period
pursuant to Section 8.02(xiv) and investments made in Persons other than
Wholly-Owned Subsidiaries during such period pursuant to Section 8.05(xiii),
(iii) the aggregate amount of permanent principal payments of Indebtedness for
borrowed money of the Company and its Subsidiaries (but excluding repayments of
(A) Indebtedness made with the proceeds of equity, with other Indebtedness
(other than the Revolving Loans) or with the Available Retained ECF Amount and
(B) Loans, PROVIDED that repayments of Loans shall be deducted in determining
Excess Cash Flow if such repayments were (x) required as a result of a Scheduled
Repayment under Section 4.02(b) or (c) or (y) made as a voluntary prepayment
pursuant to Section 4.01 with internally generated funds (but in the case of a
voluntary prepayment of Revolving Loans, only to the extent accompanied by a
voluntary reduction to the Total Revolving Loan Commitment)) during such period
and (iv) the increase, if any, in Adjusted Consolidated Working Capital from the
first day to the last day of such period.
"Excess Cash Payment Date" shall mean the earlier of (x) the date of
delivery of the financial statements pursuant to Section 7.01(c) in respect of
the Company's fiscal year then last ended and (y) the date occurring 90 days
after the last day of each fiscal year of the Company (in either case beginning
with its fiscal year ended September 30, 1997).
"Excess Cash Payment Period" shall mean, with respect to the repayment
required on each Excess Cash Payment Date, the immediately preceding fiscal year
of the Company, PROVIDED that the first Excess Cash Payment Period hereunder
shall be the period from and including October 1, 1996 to and including
September 30, 1997.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Existing Indebtedness" shall have the meaning provided in Section 6.21.
"Existing Indebtedness Agreements" shall mean the agreements pursuant to
which Existing Mortgage Debt has been issued or is secured and the "Existing
Indebtedness Agreements" under, and as defined in, the Original Credit
Agreement.
"Existing Letters of Credit" shall have the meaning provided in Section
2.07.
"Existing Mortgage Debt" shall mean mortgage debt of Peltor in aggregate
principal amount not in excess of $1,570,000, as set forth on Schedule VIII.
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Rate" shall mean for any period, a fluctuating interest rate
equal for each day during such period to the weighted average of the rates on
overnight Federal Funds transactions with members of the Federal Reserve System
arranged by Federal Funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Administrative Agent from three Federal Funds brokers of
recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in Section
3.01.
"Fixed Charge Coverage Ratio" shall mean, for any Test Period, the ratio of
Consolidated EBITDA to Consolidated Fixed Charges for such Test Period.
"Fixed Rate" shall mean and include each of the Eurodollar Rate, the
Canadian Dollar Euro Rate, the Deutsche Mark Euro Rate and the Sterling Euro
Rate.
"Fixed Rate Loan" shall mean any Eurodollar Loan, Canadian Dollar Term
Loan, Deutsche Mark Term Loan and Sterling Loan.
"Foreign Cash Equivalents" shall mean, with respect to any Foreign
Subsidiary of the Company (i) any evidence of Indebtedness maturing not later
than 270 days after the date of acquisition and issued or guaranteed by the
national government of the
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country in which such Foreign Subsidiary is incorporated or organized, (ii) any
time deposits, certificates of deposit or bankers acceptances maturing not later
than 270 days after the date of acquisition and issued by any bank, and (iii)
investments in money market funds substantially all of the assets of which are
comprised of securities of the types described in clauses (i) and (ii) above
and/or Cash Equivalents.
"Foreign Pension Plan" shall mean any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside of the United States by Holdings or any one or more of its
Subsidiaries primarily for the benefit of employees of Holdings or such
Subsidiaries residing outside of the United States, which plan, fund or other
similar program provides, or results in, retirement income, a deferral of income
in contemplation of retirement or payments to be made upon termination of
employment, and which plan is not subject to ERISA or the Code.
"Foreign Pledge Agreement" shall have the meaning provided in Section
5.09(b).
"Foreign Subsidiary" shall mean each Subsidiary of the Company that is not
a Domestic Subsidiary.
"Foreign Subsidiary Guaranty" shall have the meaning provided in Section
7.12.
"Guarantee Obligations" shall mean (i) in respect of Holdings, (a) all
indebtedness of the Company and the Subsidiary Borrowers, under this Agreement
or the other Credit Documents and (b) all indebtedness of the Company and the
Subsidiary Borrowers under any Interest Rate Protection Agreement or Other
Hedging Agreement entered into with any Bank or any Affiliate thereof which by
its express terms is entitled to the benefit of the guaranty in Section 12 and
(ii) in respect of the Company, (a) all indebtedness of the Subsidiary Borrowers
under this Agreement or the other Credit Documents and (b) all indebtedness of
the Subsidiary Borrowers under any Interest Rate Protection Agreement or Other
Hedging Agreement referred to in preceding clause (i)(b). The word
"indebtedness" as used in the preceding sentence is used in its most
comprehensive sense and includes any and all advances, debts, obligations and
liabilities of the Company and/or the Subsidiary Borrowers, as the case may be,
arising under this Agreement, the other Credit Documents, any Interest Rate
Protection Agreement or Other Hedging Agreement described in the preceding
sentence, heretofore, now, or hereafter made, incurred or created, whether
voluntarily or involuntarily, absolute or contingent, liquidated or
unliquidated, determined or undetermined, whether or not such indebtedness is
from time to time reduced, or extinguished and thereafter increased or incurred,
whether the Company and/or the Subsidiary Borrowers, as the case may be, may be
liable individually or jointly with others (and whether in its capac-
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ity as a Borrower or guarantor), and whether or not such indebtedness may be or
hereafter become otherwise unenforceable.
"Guaranteed Parties" shall mean (i) in respect of Holdings, as Guarantor,
the Company and each Subsidiary Borrower and (ii) in respect of the Company, as
Guarantor, each Subsidiary Borrower.
"Guarantor" shall mean each of Holdings, the Company and each Subsidiary
Guarantor.
"Guaranty" shall mean and include each of the guaranties of Holdings and
the Company set forth in Section 12, the Foreign Subsidiary Guaranty and the US
Subsidiary Guaranty.
"Hazardous Materials" shall mean (a) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formal-dehyde foam insulation, transformers or other equipment
that contain dielectric fluid containing levels of polychlorinated biphenyls,
and radon gas; and (b) any chemicals, materials or substances defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "restricted hazardous materials," "extremely hazardous
wastes," "restrictive hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect under any applicable Environmental Law.
"Holdings" shall have the meaning provided in the first paragraph of this
Agreement.
"Holdings IPO" shall have the meaning provided in Section 4.02(d).
"Inactive Subsidiary" shall mean any Subsidiary of the Company (other than
a Subsidiary Borrower) that does not have any assets in excess of $100,000
or has not had revenues in excess of $100,000 for the Test Period then most
recently ended.
"Indebtedness" shall mean, as to any Person, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (ii) the maximum amount available to be drawn
under all letters of credit issued for the account of such Person and all unpaid
drawings in respect of such letters of credit, (iii) all Indebtedness of the
types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition
secured by any Lien on any property owned by such Person, whether or not such
Indebtedness has been assumed by such Person, (iv) the aggregate amount required
to be capitalized under leases under which such Person is
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the lessee, (v) all obligations of such person to pay a specified purchase price
for goods or services, whether or not delivered or accepted, I.E., take-or-pay
and similar obligations, (vi) all Contingent Obligations of such Person and
(vii) all obligations under any Interest Rate Protection Agreement or Other
Hedging Agreement or under any similar type of agreement or arrangement,
provided that Indebtedness shall not include trade payables and accrued
expenses, in each case arising in the ordinary course of business.
"Initial Interest Period" shall have the meaning provided in Section 1.02.
"Intercompany Loans" shall have the meaning provided in Section 8.05(vii).
"Interest Coverage Ratio" shall mean, for any Test Period, the ratio of (x)
Consolidated EBITDA for such Test Period to (y) Consolidated Cash Interest
Expense for such Test Period.
"Interest Determination Date" shall mean, with respect to any Fixed Rate
Loan, the second Business Day prior to the commencement of any Interest Period
relating to such Fixed Rate Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest collar agreement, interest rate
hedging agreement, interest rate floor agreement or other similar agreement or
arrangement.
"Interest Reduction Discount" shall mean (a) initially zero and (b) from
and after the Start Date of any Margin Reduction Period to and including the End
Date of such Margin Reduction Period, the Interest Reduction Discount shall be:
(A) 1/4 of 1% if, but only if, as of the Test Date for such Start Date
both of the following conditions are met and the conditions set forth in
clauses (B) and (C) below are not satisfied:
(i) the Leverage Ratio for the Test Period ended on such Test Date
shall be greater than or equal to 3.25:1.00; and
(ii) the Leverage Ratio for the Test Period ended on such Test Date
shall be less than 3.75:1.00; or
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(B) 1/2 of 1% if, but only if, as of the Test Date for such Start Date
both of the following conditions are met and the conditions set forth in
clauses (A) and (C) are not satisfied:
(i) the Leverage Ratio for the Test Period ended on such Test Date
shall be greater than or equal to 2.75:1.00; and
(ii) the Leverage Ratio for the Test Period ended on such Test Date
shall be less than 3.25:1.00; or
(C) 3/4 of 1% if, but only if, as of the Test Date for such Start Date
the following condition is met and the conditions set forth in clauses (A)
and (B) above are not satisfied:
(i) the Leverage Ratio for the Test Period ended on such Test Date
shall be less than 2.75:1.00.
Notwithstanding anything to the contrary above in this definition, the Interest
Reduction Discount shall be reduced to zero at all times when there shall exist
a Default under Section 9.01 or 9.05 or an Event of Default.
"Issuing Bank" shall mean BTCo (and any Lending Affiliate of BTCo
performing obligations on its behalf and reasonably acceptable to the Company)
and any other Bank designated by, and acceptable to, the Administrative Agent
and the Company.
"Judgment Currency" shall have the meaning provided in Section 13.17(a).
"Judgment Currency Conversion Date" shall have the meaning provided in
Section 13.17(a).
"L/C Supportable Obligations" shall mean (i) obligations of the Borrowers
or their Subsidiaries incurred in the ordinary course of business with respect
to insurance obligations and workers' compensation, surety bonds and other
similar obligations and (ii) such other obligations of the Borrowers or any of
their Subsidiaries which would not be inconsistent with the policy of the
respective Issuing Bank and otherwise permitted to exist pursuant to the terms
of this Agreement.
"Leaseholds" of any Person means all the right, title and interest of such
Person as lessee or licensee in, to and under leases or licenses of land,
improvements and/or fixtures.
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"Lending Affiliate" shall mean, with respect to any Person, any other
Person (i) directly or indirectly controlling (including, but not limited to,
all directors, officers and partners of such Person), controlled by, or under
direct or indirect common control with, such Person or (ii) that directly or
indirectly owns more than 50% of any class of the voting securities or capital
stock of or equity interests in such Person. A Person shall be deemed to control
another Person if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such other
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Lesser Period" shall have the meaning provided in Section 1.14.
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section 3.01(b).
"Letter of Credit Outstandings" shall mean, at any time, the sum of (i) the
aggregate Stated Amount of all outstanding Letters of Credit and (ii) the
aggregate amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in Section
2.02(a)
"Leverage Ratio" shall mean, at any time, the ratio of Consolidated Debt at
such time to Consolidated EBITDA for the Test Period most recently ended,
PROVIDED that for any Test Period ending on or prior to March 31, 1997,
Consolidated EBITDA for such Test Period shall be calculated on a PRO FORMA
basis, in a manner reasonably satisfactory to the Administrative Agent, for the
sum of Holdings and its Subsidiaries (other than Peltor and its Subsidiaries)
plus Peltor and its Subsidiaries.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other) or other security agreement
or preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, and any
lease having substantially the same effect as any of the foregoing).
"Loan" shall mean each Term Loan and each Revolving Loan.
"Majority Banks" of any Tranche shall mean those Non-Defaulting Banks which
would constitute the Required Banks under, and as defined in, this Agreement if
all outstanding Obligations of the other Tranches under this Agreement were
repaid in full and all Commitments with respect thereto were terminated. With
respect to any amount of
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Loans or Term Loan Commitments used in determining "Majority Banks" and
denominated in an Alternate Currency, the amount of such Loans or Term Loan
Commitments shall be the Dollar Equivalent thereof on the date of such
determination.
"Management Agreements" shall mean the "Management Agreements" under, and
as defined in, the Original Credit Agreement.
"Margin Reduction Period" shall mean each period which shall commence on a
date (the "Start Date") occurring after June 30, 1997 on which the financial
statements are delivered pursuant to Section 7.01(b) or (c) and which shall end
on the earlier (such earlier date, the "End Date") of (i) the date of actual
delivery of the next financial statements pursuant to Section 7.01(b) or (c) and
(ii) the latest date on which the next financial statements are required to be
delivered pursuant to Section 7.01(b) or (c).
"Margin Stock" shall have the meaning provided in Regulation U.
"Minority Peltor Partnership Interests" shall mean the interests of Leif
Anderzon and Leif Palmaer not to exceed 0.02% of the beneficial interest
thereof, in Peltor Elektronic HB, Peltor Pressarverkstad AB, Peltor
Plastspruntning HB, Peltor Plastsvetsing HB, Peltor Mekanik HB, Peltor Montering
HB, and Peltor Utveckling HB.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgage" shall mean all Mortgages granted by the Borrowers pursuant to
the Original Credit Agreement and which have not been released by the lenders
prior to the Restatement Effective Date and, after the execution and delivery
thereof, shall include each Additional Mortgage.
"Mortgage Policies" shall mean each mortgage insurance policy issued with
respect to a Mortgage.
"Mortgaged Property" shall mean all Real Property of the Company and its
Subsidiaries listed on Schedule V and designated as "Existing Mortgaged
Property" and, after the execution and delivery of any Additional Mortgage,
shall include the respective Additional Mortgaged Property.
"Mortgages Amendments" shall have the meaning provided in Section 5.12.
"Multiemployer Plan" shall have the meaning provided in Section 6.10.
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"Net Cash Proceeds" shall mean, with respect to any Asset Sale, the Cash
Proceeds resulting therefrom net of (x) cash expenses of sale (including
brokerage fees, if any, and payment of principal, premium and interest of
Indebtedness (other than the Loans) required to be repaid as a result of such
Asset Sale) and (y) incremental income taxes paid or payable as a result
thereof.
"New Term Loans" shall mean all new Term Loans incurred, and not maintained
as Original Term Loans, on the Restatement Effective Date pursuant to Sections
1.01(a) and (b).
"Non-Compete Payment" shall have the meaning provided in the second Whereas
clause of this Agreement.
"Non-Defaulting Bank" shall mean and include each Bank other than a
Defaulting Bank.
"Note" shall mean each Term Note and each Revolving Note.
"Notice of Borrowing" shall have the meaning provided in Section 1.03.
"Notice of Conversion" shall have the meaning provided in Section 1.06.
"Notice Office" shall mean the office of the Administrative Agent located
at 130 Liberty Street, Commercial Loan Division, 14th Floor, New York, New York
10006, Attention: Christopher Kinslow, or such other office as the
Administrative Agent may hereafter designate in writing as such to the other
parties hereto.
"Obligation Currency" shall have the meaning provided in Section 13.17(a).
"Obligations" shall mean all amounts owing to the Administrative Agent, the
Collateral Agent or any Bank pursuant to the terms of this Agreement or any
other Credit Document.
"Original Banks" shall mean the "Banks" under, and as defined in, the
Original Credit Agreement.
"Original Canadian Dollar Term Loans" shall mean the "Canadian Dollar Term
Loans" under, and as defined in, the Original Credit Agreement.
"Original Credit Agreement" shall have the meaning provided in the recitals
to this Agreement.
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"Original Dollar Term Loans" shall mean the "Dollar Term Loans" under, and
as defined in, the Original Credit Agreement.
"Original Loans" shall mean all Original Term Loans and all Original
Revolving Loans.
"Original Revolving Loans" shall mean the "Revolving Loans" under, and as
defined in, the Original Credit Agreement.
"Original Sterling Term Loans" shall mean the "Sterling Term Loans" under,
and as defined in, the Original Credit Agreement.
"Original Term Loans" shall mean the "Term Loans" under, and as defined in,
the Original Credit Agreement.
"Other Creditor" shall have the meaning provided in the respective Security
Documents.
"Other Hedging Agreements" shall mean any foreign exchange contracts,
currency swap agreements, commodity agreements or other similar agreements or
arrangements designed to protect against fluctuations of currency values.
"Participant" shall have the meaning provided in Section 2.03(a).
"Participation" shall have the meaning provided in Section 2.03(a).
"Payment Office" shall mean (i) in respect of all Loans made to the
Company, Letters of Credit, Fees and, except as provided in clauses (ii) and
(iii) of this definition, all other amounts owing under this Agreement, the
office of the Administrative Agent located at One Bankers Trust Plaza, New York,
New York, ABA Number: 021-001-003, Account Name: Commercial Loan Division,
Account Number: 99-401-268, Attention: Mary Rodwell, Reference: Cabot Safety
Corporation, (ii) in respect of all Loans made to the Canadian Borrower and all
payments of interest in respect thereof, the Administrative Agent's account
located at The Bank of Nova Scotia, Toronto, Canada, Account Name, Bankers Trust
Company, NY, Account Number 0204013, Reference, Cabot Safety Canada Corporation
and (iii) in respect of all Loans made to the U.K. Borrower and all payments of
interest in respect thereof, the office of the Administrative Agent, located in
London, England, Account Name, Bankers Trust Company, NY, Account Number
700001012, Reference: Cabot Safety Limited, or in each case, such other office
or offices as the Administrative Agent may hereafter designate in writing as
such to the other parties hereto.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Peltor" shall have the meaning provided in the recitals to this Agreement.
"Peltor, Inc." shall mean Peltor, Inc., a Delaware corporation.
"Permitted Acquisition" shall mean the acquisition by the Company or
any other Credit Party (to the extent such other Credit Party would be able to,
and does, grant a Lien on and security interest in assets acquired thereby in
connection with such Permitted Acquisition)] of (x) assets constituting part of
or an entire business or division of any Person not already a Subsidiary of the
Company or (y) 100% of the capital stock of any such Person which Person shall,
as a result of such acquisition, become a Subsidiary, provided that (A) the
consideration paid by the Company and/or its Domestic Subsidiaries can be in the
form of (i) cash proceeds received from a Borrowing of Revolving Loans (not to
exceed $15,000,000 in the aggregate) and/or (ii) cash proceeds received,
directly or indirectly, by the Borrowers from the issuance of equity by
Holdings, or common stock of Holdings, so long as the aggregate amount of such
cash proceeds and the fair market value of such common stock does not exceed the
then Available Equity Issuance Amount and/or (iii) cash in an amount equal to
the then Available Retained ECF Amount and/or (iv) the issuance to any such
Person of Permitted Seller Subordinated Indebtedness, and (B) the assets
acquired, or the business of the Person whose stock is acquired, shall be in the
same or related line of business in which the Company and its Subsidiaries are
already engaged, and (C) in the case of the acquisition of 100% of the capital
stock of any Person, such Person shall own no capital stock of any other Person
unless either (i) such Person owns 100% of the capital stock of such other
Person or (ii) (1) such Person and/or its Wholly-Owned Subsidiaries own 80% of
the consolidated assets of such Person and its Subsidiaries and (2) any
non-Wholly Owned Subsidiary of such Person was non-Wholly Owned prior to the
date of such Permitted Acquisition of such Person (it being understood and
agreed that investments by Subsidiaries shall be permitted in accordance with
the provisions of Section 8.05).
"Permitted Encumbrance" shall mean, with respect to any Mortgaged Property,
such exceptions to title as are set forth in the title insurance policy or title
commitment delivered with respect thereto, all of which exceptions must be
acceptable to the Administrative Agent in its reasonable discretion.
"Permitted Holders" shall mean the holders of the capital stock of Holdings
on the Restatement Effective Date.
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"Permitted Liens" shall have the meaning provided in Section 8.01.
"Permitted Refinancing Subordinated Indebtedness" shall mean any
Indebtedness incurred by the Company which is subordinated to all Obligations
hereunder and any other obligations secured pursuant to the Security Documents
in a manner which, in the reasonable judgment of the Administrative Agent, is
customary for such Indebtedness, so long as (i) such Indebtedness shall require
no amortization, sinking fund payment or any other scheduled maturity of the
principal amount thereof on any date which is earlier than the date occurring
one year after the B Term Loan Maturity Date, (ii) the interest rate for such
Indebtedness shall not be in excess of that of the Senior Subordinated Notes and
(iii) the terms governing any such Indebtedness shall not contain any provision
(including, without limitation, covenants, defaults and remedies) which, in the
opinion of the Administrative Agent, is more restrictive than the provisions in
the Credit Documents and, in any event, shall be satisfactory to the
Administrative Agent.
"Permitted Seller Subordinated Indebtedness" shall mean any Indebtedness
incurred by Holdings or the Borrowers which is subordinated to all Obligations
hereunder and any other obligations secured pursuant to the Security Documents
in a manner which, in the reasonable judgment of the Administrative Agent, is
customary for such Indebtedness, so long as (i) such Indebtedness shall require
no amortization, sinking fund payment or any other scheduled maturity of the
principal amount thereof on any date which is earlier than the date occurring
one year after the B Term Loan Maturity Date and (ii) the terms governing any
such Indebtedness shall not contain any provision (including, without
limitation, covenants, defaults and remedies) which, in the opinion of the
Administrative Agent, is more restrictive than the provisions in the Credit
Documents.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any multiemployer or single-employer plan as defined in
Section 4001 of ERISA and which is covered by Title IV of ERISA and/or Section
412 of the Code, which is maintained or contributed to by (or to which there is
an obligation to contribute of) any Credit Party or any ERISA Affiliate, and
each such plan for the five year period immediately following the latest date on
which any Credit Party or any ERISA Affiliate maintained, contributed to or had
an obligation to contribute to such plan where the maintenance, contribution or
obligation to contribute to such plan within such five year period could
reasonably be expected to result in a material liability to one or more Credit
Parties and/or ERISA Affiliates.
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"Pledge Agreement Collateral" shall mean all "Collateral" as defined in
each Pledge Agreement.
"Pledge Agreements" shall mean the US Pledge Agreement, the Foreign Pledge
Agreement and the English Pledge Agreement.
"Pledged Securities" shall have the meaning provided in the respective
Pledge Agreements.
"Pledged Stock" shall have the meaning provided in the respective Pledge
Agreements.
"Pooled Assignment Agreement" shall have the meaning set forth in Section
5.17(a).
"Pounds Sterling" shall mean freely transferable lawful money of the United
Kingdom.
"Preferred Stock" shall mean the preferred stock of Holdings issued
pursuant to the Certificate of Designations of Cabot Safety Holding Corporation,
dated as of June 13, 1995.
"Prime Lending Rate" shall mean the rate which BTCo announces from time to
time as its prime lending rate, the Prime Lending Rate to change when and as
such prime lending rate changes. The Prime Lending Rate is a reference rate and
does not necessarily represent the lowest or best rate actually charged to any
customer. BTCo may make commercial loans or other loans at rates of interest at,
above or below the Prime Lending Rate.
"PRO FORMA Basis" shall mean, as to any Person, for any of the following
events which occur subsequent to the commencement of a period for which the
financial effect of such event is being calculated, and giving effect to the
event for which such calculation is being made, such calculation as will give
pro forma effect to such event as if same had occurred at the beginning of such
period of calculation, and
(i) for purposes of the foregoing calculation, the transaction giving
rise to the need to calculate the pro forma effect to any of the following
events shall be assumed to have occurred on the first day of the four
fiscal quarter period last ended before the occurrence of the respective
event for which such pro forma effect is being determined (the "Reference
Period"), and
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(ii) in making any determination with respect to the incurrence or
assumption of any Indebtedness during the Reference Period or subsequent to
the Reference Period and on or prior to the date of the transaction
referenced in clause (i) above (the "Transaction Date"), (w) all
Indebtedness (including the Indebtedness incurred or assumed and for which
the financial effect is being calculated) incurred or permanently repaid
during the Reference Period shall be deemed to have been incurred or repaid
at the beginning of such period, (x) Consolidated Net Interest Expense of
such Person attributable to interest on any Indebtedness bearing floating
interest rates should be computed on a PRO FORMA basis as if the rate in
effect on the Transaction Date had been the applicable rate for the entire
period, (y) Consolidated Net Interest Expense of such Person attributable
to interest on any Indebtedness under any revolving credit facility which
was in effect during the respective Reference Period shall be computed on a
pro forma basis based upon the average daily balance of such Indebtedness
outstanding during the applicable period (or, if shorter, the portion of
the period during which the revolving credit facility was in effect) and
(z) Consolidated Net Interest Expense will be increased or reduced by the
net cost (including amortization of discount) or benefit (after giving
effect to amortization of discount) associated with the Interest Rate
Protection Agreements, which will remain in effect for the twelve-month
period after the Transaction Date and which shall have the effect of fixing
the interest rate on the date of computation, and
(iii) in making any determination of Consolidated EBITDA, PRO FORMA
effect shall be given to any Permitted Acquisition which occurred during
the Reference Period or subsequent to the Reference Period and prior to the
Transaction Date, Consolidated EBITDA shall be determined as if such
Permitted Acquisition occurred on the first day of the Reference Period,
taking into account cost savings and expenses which would otherwise be
accounted for as an adjustment pursuant to Article 11 of Regulation S-X
under the Securities Act, as if such cost savings or expenses were realized
on the first day of the Reference Period.
"Projections" shall have the meaning provided in Section 6.05(d).
"Qualified Capital Stock" means any preferred stock of Holdings or the
Company, or any other common stock of Holdings or the Company, the express terms
of which shall provide that Dividends thereon shall not be required to be paid
in cash at any time that such cash payment would be prohibited by the terms of
this Agreement (and any refinancings, replacements or extensions hereof) and in
either case which, by its terms (or by the terms of any security into which it
is convertible or for which it is
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exchangeable), or upon the happening of any event (including an event which
would constitute a Change of Control), cannot mature (excluding any maturity as
the result of an optional redemption by the issuer thereof) and is not
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, and
is not redeemable, or required to be repurchased, at the sole option of the
holder thereof (including, without limitation, upon the occurrence of an event
which would constitute a Change of Control), in whole or in part, on or prior to
the first anniversary of the B Term Loan Maturity Date.
"Quarterly Payment Date" shall mean the last Business Day of each May,
August, November and February.
"RC Bank" shall mean, at any time, each Bank with a Revolving Loan
Commitment (or after the termination of the Total Revolving Loan Commitment,
each Bank which had a Revolving Loan Commitment immediately prior to such
termination).
"RCRA" shall mean the Resource Conservation and Recovery Act, as the same
may be amended from time to time, 42 U.S.C. [Section] 6901 ET SEQ.
"Real Property" of any Person shall mean all the right, title and interest
of such Person in and to land, improvements thereto and fixtures thereon,
including Leaseholds.
"Recovery Event" shall mean the receipt by Holdings, any Borrower or any of
their respective Subsidiaries of any cash insurance proceeds or condemnation
award payable (i) by reason of theft, loss, physical destruction or damage or
any other similar event with respect to any Mortgaged Property, and (ii) under
any policy of insurance required to be maintained under Section 7.03 as relating
to any Mortgaged Property.
"Refinancing" shall have the meaning provided in Section 5.07(d).
"Register" shall have the meaning provided in Section 13.16.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof.
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"Regulation T" shall mean Regulation T of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing or
migration into the environment.
"Replaced Bank" shall have the meaning provided in Section 1.13.
"Replacement Bank" shall have the meaning provided in Section 1.13.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan other than those events as to which the 30-day
notice period is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC
Regulation 2615.
"Required Banks" shall mean Non-Defaulting Banks, the sum of whose
outstanding Term Loans (or if prior to the Restatement Effective Date, Term Loan
Commitments) and Revolving Loan Commitments (or after the termination thereof,
outstanding Revolving Loans and Revolving Percentage of Letter of Credit
Outstand-ings) represent an amount greater than 50% of the sum of all
outstanding Term Loans of Non-Defaulting Banks, (or if prior to the Restatement
Effective Date, Term Loan Commitments), the Total Term Loan Commitments (less
the Term Loan Commitments of Defaulting Banks), and the Total Revolving Loan
Commitment (less the Revolving Loan Commitments of Defaulting Banks) (or after
the termination thereof, the sum of the then total outstanding Revolving Loans
of Non-Defaulting Banks and the aggregate Revolving Percentages of all
Non-Defaulting Banks of the total outstanding Letter of Credit Outstandings at
such time). With respect to any amount of Loans or Term Loan Commitments used in
determining "Required Banks" and denominated in an Alternate Currency, the
amount of such Loans or Term Loan Commitments shall be the Dollar Equivalent
thereof on the date of such determination.
"Restatement Effective Date" shall have the meaning set forth in Section
13.10.
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"Returns" shall have the meaning provided in Section 6.09.
"Revolving Loan" shall have the meaning provided in Section 1.01(c).
"Revolving Loan Commitment" shall mean, for each Bank, the amount set forth
opposite such Bank's name in Schedule I directly below the column entitled
"Revolving Loan Commitment," as the same may be (x) reduced from time to time
pursuant to Sections 3.02, 3.03 and/or 9 and (y) adjusted from time to time as a
result of assignments to or from such Bank pursuant to Section 1.13 or 13.04(b).
"Revolving Loan Maturity Date" shall mean May 30, 2002.
"Revolving Note" shall have the meaning provided in Section 1.05(a).
"Revolving Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Bank at such time and the denominator of which is the Total
Revolving Loan Commitment at such time, provided that if the Revolving
Percentage of any Bank is to be determined after the Total Revolving Loan
Commitment has been terminated, then the Revolving Percentages of the Banks
shall be determined immediately prior (and without giving effect) to such
termination.
"Rollover Amount" shall have the meaning provided in Section 8.07(a).
"S&P" shall mean Standard & Poor's Ratings Services.
"Scheduled Repayments" shall mean each A Term Loan Scheduled Repayment and
each B Term Loan Scheduled Repayment.
"SEC" shall have the meaning provided in Section 7.01(h).
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b).
"Secured Creditors" shall have the meaning assigned to that term in the
respective Security Documents.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
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"Security Agreement Collateral" shall mean all "Collateral" as defined in
each Security Agreement.
"Security Agreements" shall mean the US Security Agreement, the Canadian
Security Agreement and the English Security Agreement.
"Security Documents" shall mean each Pledge Agreement, each Security
Agreement and each Mortgage.
"Senior Subordinated Note Documents" shall mean and include each of the
documents, instruments (including the Senior Subordinated Notes) and other
agreements entered into by the Company (including, without limitation, the
Senior Subordinated Note Indenture) relating to the issuance by the Company of
the Senior Subordinated Notes, as in effect on the Restatement Effective Date.
"Senior Subordinated Note Indenture" shall mean the Indenture, dated as of
July 11, 1995, entered into by and between the Company and Shawmut Bank
Connecticut, N.A., as trustee thereunder, with respect to the Senior
Subordinated Notes as in effect on the Restatement Effective Date.
"Senior Subordinated Notes" shall mean the Senior Subordinated Notes due
2005 issued by the Company under the Senior Subordinated Note Indenture (which
notes shall include any Series B Senior Subordinated Notes into which the Senior
Subordinated Notes were exchanged pursuant to the Senior Subordinated Notes
Documents).
"Shareholders' Agreements" shall mean the "Shareholder Agreements" under,
and as defined in, the Original Credit Agreement.
"Standby Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Start Date" shall have the meaning provided in the definition of Margin
Reduction Period.
"Stated Amount" shall mean, for each Letter of Credit, the maximum amount
available to be drawn thereunder, in each case determined without regard to
whether any conditions to drawing could then be met, provided that the "Stated
Amount" of each Letter of Credit denominated in a currency other than Dollars
shall be, on any date of calculation, the Dollar Equivalent of the maximum
amount available to be drawn in the respective currency thereunder (determined
without regard to whether any conditions to drawing could then be met).
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"Sterling Equivalent" shall mean, at any time for the computation thereof,
the amount of Pounds Sterling which could be purchased with the amount of
Dollars involved in such computation at the spot exchange rate therefor as
quoted by the Administrative Agent as of 11:00 a.m. (London time) on the date
three Business Days prior to the date of any computation thereof for purchase on
such date.
"Sterling Euro Rate" shall mean (a) (i) the rate per annum that appears on
page 3750 of the Dow Jones Telerate Screen (or any successor page) for Sterling
deposits with maturities comparable to the Interest Period applicable to the
Sterling Loans subject to the respective Borrowing, determined as of 11:00 A.M.
(London time) on the date which is two Business Days prior to the commencement
of such Interest Period or (ii) if such a rate does not appear on page 3750 of
the Dow Jones Telerate Screen (or any successor page), the offered quotation to
first-class banks in the London interbank Eurodollar market by BTCo for Pounds
Sterling deposits of amounts in immediately available funds comparable to the
outstanding principal amount of the Sterling Loan of BTCo with maturities
comparable to the Interest Period applicable to such Sterling Loan commencing
two Business Days thereafter as of 11:00 A.M. (London time) on the date which is
two Business Days prior to the commencement of such Interest Period, in either
case divided (and rounded off to the nearest 1/16 of 1%) by (b) a percentage
equal to 100% minus the then stated maximum rate of all reserve requirements
(including, without limitation, any marginal, emergency, supplemental, special
or other reserves required by applicable law) applicable to any member bank of
the Federal Reserve System in respect of Eurocurrency funding or liabilities as
defined in Regulation D (or any successor category of liabilities under
Regulation D) to the extent Applicable; provided, in the event that the
Administrative Agent has made any determination pursuant to Section 1.10(a)(i)
in respect of Sterling Loans, the Sterling Euro Rate determined pursuant to
clause (a) of this definition shall instead be the rate determined by BTCo as
the all-in cost of funds for BTCo to fund such Sterling Loan with maturities
comparable to the Interest Period applicable thereto.
"Sterling Loan" shall mean a Loan made and repaid in Pounds Sterling
(including each Company A Sterling Term Loan, Subsidiary A Sterling Term Loan
and Sterling Revolving Loan.
"Sterling Revolving Loan" shall have the meaning provided in Section
1.01(c).
"Sterling Revolving Note" shall have the meaning provided in Section
1.05(a).
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement, dated
as of April 25, 1996, as amended as of May 15, 1996, by and among the Company,
Peltor and Active i Malmo AB (publ.), a Swedish corporation.
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"Subsidiary" shall mean, as to any Person, (i) any corporation more than
50% of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time.
"Subsidiary A Canadian Dollar Term Loan" shall have the meaning provided in
Section 1.01(a)(iv).
"Subsidiary A Canadian Dollar Term Note" shall have the meaning provided in
Section 1.05(a).
"Subsidiary A Sterling Term Loan" shall have the meaning provided in
Section 1.01(a)(v).
"Subsidiary A Sterling Term Note" shall have the meaning provided in
Section 1.05(a).
"Subsidiary Borrower" shall mean the Canadian Borrower and the U.K.
Borrower.
"Subsidiary Guarantor" shall mean each Domestic Subsidiary of the Company
and each Foreign Subsidiary of the Company which either owns capital stock of a
Subsidiary Borrower or is a Subsidiary of a Subsidiary Borrower.
"Supermajority Banks" of any Tranche shall mean those Non-Defaulting Banks
which would constitute the Required Banks under, and as defined in, this
Agreement if (x) all outstanding Obligations of the other Tranches under this
Agreement were repaid in full and all Commitments with respect thereto were
terminated and (y) the percentage "50%" contained therein were changed to
"66-2/3%." With respect to any amount of Loans or Term Loan Commitments used in
determining "Supermajority Banks" and denominated in an Alternate Currency, the
amount of such Loans or Term Loan Commitments shall be the Dollar Equivalent
thereof on the date of such determination.
"Swedish Loan" shall have the meaning provided in Section 5.07(c).
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"Swedish Newco" shall have the meaning provided in the second Whereas
clause of this Agreement.
"Swedish Note" shall have the meaning provided in Section 8.05(ix)
"Syndication Date" shall mean the earlier of (x) the 60th day following the
Restatement Effective Date and (y) that date upon which the Administrative Agent
determines (and notifies the Company) that the primary syndication (and the
resultant addition of Persons as Banks pursuant to Section 13.04) has been
completed.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Loan" shall mean each A Term Loan and each B Term Loan.
"Term Loan Commitments" shall mean the A Term Loan Commitments and the
B Term Loan Commitments.
"Term Note" shall mean each Company A Dollar Term Note, each Company A
Deutsche Mark Term Note, each Company A Sterling Term Note, each Subsidiary A
Canadian Dollar Term Note, each Subsidiary A Sterling Term Note and each B Term
Note.
"Test Date" shall mean, in respect of any Margin Reduction Period, the last
day of the fiscal quarter of the Company ended immediately prior to the Start
Date in respect of such Margin Reduction Period.
"Test Period" shall mean (x) for any determination of the Leverage Ratio,
the period of four consecutive fiscal quarters of the Company then last ended
(taken as one accounting period) any (y) for determinations of the Fixed Charge
Coverage Ratio or Interest Coverage Ratio, (i) the period (taken as one
accounting period) from July 1, 1996 through September 30, 1996, (ii) the period
(taken as one accounting period) from July 1, 1996 through December 31, 1996,
(iii) the period (taken as one accounting period) from July 1, 1996 through
March 31, 1997 and (i) thereafter, the period of four consecutive fiscal
quarters of the Company then last ended (taken as one accounting period).
"Total A Term Loan Commitment" shall mean, at any time, the sum of the A
Term Loan Commitments of each of the Banks.
"Total B Term Loan Commitment" shall mean, at any time, the sum of the B
Term Loan Commitments of each of the Banks.
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"Total Commitment" shall mean, at any time, the sum of the Commitments of
each of the Banks.
"Total Modified Revolving Loan Commitment" shall mean the Total Revolving
Loan Commitment then in effect plus, in the event that any Alternate Currency
Revolving Loans are outstanding at such time, the amount (not to exceed 15%) by
which the Dollar Equivalent of the principal amount of such Alternate Currency
Revolving Loan has increased from the Original Dollar Equivalent thereof.
"Total Revolving Loan Commitment" shall mean, at any time, the sum of the
Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean, at any time, the sum of the A Term
Loan Commitments and B Term Loan Commitments of each of the Banks.
"Total Unutilized Revolving Commitment" shall mean, at any time, an amount
equal to the remainder of (x) the then Total Revolving Loan Commitment less (y)
the sum of the aggregate principal amount of Revolving Loans plus the then
aggregate amount of Letter of Credit Outstandings.
"Trade Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Tranche" shall mean the respective facility, commitments and currencies
utilized in making Loans hereunder, with there being seven separate Tranches,
I.E., Company A Dollar Term Loans, Company A Deutsche Mark Term Loans, Company A
Sterling Term Loans, Subsidiary A Canadian Dollar Term Loans, Subsidiary A
Sterling Term Loans, B Term Loans and Revolving Loans.
"Transaction" shall mean (i) the consummation of the Acquisition, (ii) the
making of the Capital Contribution, (iii) the making of the Swedish Loan and
issuance of the Swedish Note, (iv) the consummation of the Refinancing, (v) the
maintenance and incurrence of the Loans hereunder on the Restatement Effective
Date and (vi) the amendment and restatement of the Original Credit Agreement in
the form of this Agreement as provided herein and the amendment or amendment and
restatement, as the case may be, of the Security Documents and the US Subsidiary
Guaranty.
"Transaction Documents" shall mean and include (i) this Agreement and the
other Credit Documents, (ii) the Acquisition Documents, (iii) the Swedish Note
and (iv) all other agreements and documents effectuating the Transaction.
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"Type" shall mean the type of Loan determined with regard to the interest
option applicable thereto, I.E., whether a Base Rate Loan, a Eurodollar Loan, a
Canadian Dollar Loan, a Deutsche Mark Loan or a Sterling Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in effect
in the relevant jurisdiction.
"U.K. Borrower" shall mean Cabot Safety Limited, a limited liability
company formed under the laws of England.
"Unfunded Current Liability" of any Plan shall mean the amount, if any, by
which the actuarial present value of the accumulated plan benefits under the
Plan as of the close of its most recent plan year exceeds the fair market value
of the assets allocable thereto, based upon the actuarial assumptions used by
the Plan's actuary in the most recent annual valuation of the Plan for purposes
of plan funding pursuant to Section 412 of the Code.
"Uniform Customs" shall mean the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"United States" and "U.S." shall each mean the United States of America.
"Unpaid Drawing" shall have the meaning provided for in Section 2.04(a).
"Unutilized Revolving Commitment" with respect to any Bank, at any time,
shall mean such Bank's Revolving Loan Commitment at such time less the sum of
(i) the aggregate outstanding principal amount of Revolving Loans made by such
Bank (or the Dollar Equivalent thereof in the case of each Alternate Currency
Revolving Loan then outstanding) and (ii) such Bank's Revolving Percentage of
the Letter of Credit Outstandings.
"US Pledge Agreement" shall have the meaning provided in Section 5.09.
"US Security Agreement" shall have the meaning provided in Section 5.10.
"US Subsidiary Guaranty" shall have the meaning provided in Section 5.11.
"Vestar Management Agreement" shall mean the Agreement, made as of July 11,
1995, among Cabot Safety Corporation, certain of its subsidiaries, Cabot Safety
Holding Corporation, Vestar Capital Partners and Cabot Corporation.
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"Waivable Mandatory Repayment" shall have the meaning provided in Section
4.02(l).
"Wholly-Owned Domestic Subsidiary" shall mean any Domestic Subsidiary of
the Company that is a Wholly-Owned Subsidiary.
"Wholly-Owned Foreign Subsidiary" shall mean any Foreign Subsidiary of the
Company that is a Wholly-Owned Subsidiary.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation
100% of whose capital stock (other than (a) director's qualifying shares and (b)
any other shares of capital stock of a Foreign Subsidiary of the Company (not to
exceed 5% of such Foreign Subsidiary's total capital stock (determined on a
fully diluted basis) required by law to be issued to Persons other than the
Company and its Wholly-Owned Subsidiaries) is at the time owned by such Person
and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity
interest at such time (other than a portion of such equity interest of any
Foreign Subsidiary (not to exceed 5% of such Foreign Subsidiary's total equity
interest (determined on a fully diluted basis) required by law to be issued to
Persons other than the Company and its Wholly-Owned Subsidiaries).
SECTION 11. The Administrative Agent.
------------------------
11.01 APPOINTMENT. The Banks hereby designate BTCo as the Administrative
Agent (for purposes of this Section 11, the term "Administrative Agent" shall
include BTCo in its capacity as Administrative Agent and as Collateral Agent
pursuant to the Security Documents) to act as specified herein and in the other
Credit Documents. Each Bank hereby irrevocably authorizes, and each holder of
any Note by the acceptance of such Note shall be deemed irrevocably to
authorize, the Administrative Agent to take such action on its behalf under the
provisions of this Agreement, the other Credit Documents and any other
instruments and agreements referred to herein or therein and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of the Administrative Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. The
Administrative Agent may perform any of its duties hereunder by or through its
respective officers, directors, agents, employees or affiliates.
11.02 NATURE OF DUTIES. The Administrative Agent shall not have any duties
or responsibilities except those expressly set forth in this Agreement and in
the other Credit Documents. Neither the Administrative Agent nor any of its
respective officers,
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directors, agents, employees or affiliates shall be liable for any action taken
or omitted by it or them hereunder or under any other Credit Document or in
connection herewith or therewith, unless caused by its or their gross negligence
or willful misconduct. The duties of the Administrative Agent shall be
mechanical and administrative in nature; the Administrative Agent shall not have
by reason of this Agreement or any other Credit Document a fiduciary
relationship in respect of any Bank or the holder of any Note; and nothing in
this Agreement or any other Credit Document, expressed or implied, is intended
to or shall be so construed as to impose upon the Administrative Agent any
obligations in respect of this Agreement or any other Credit Document except as
expressly set forth herein or therein.
11.03 LACK OF RELIANCE ON THE ADMINISTRATIVE AGENT. Independently and
without reliance upon the Administrative Agent, each Bank and the holder of each
Note, to the extent it deems appropriate, has made and shall continue to make
(i) its own independent investigation of the financial condition and affairs of
Holdings, each Borrower and their Subsidiaries in connection with the making and
the continuance of the Loans and the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of
Holdings, each Borrower and their Subsidiaries and, except as expressly provided
in this Agreement, the Administrative Agent shall not have any duty or
responsibility, either initially or on a continuing basis, to provide any Bank
or the holder of any Note with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter. The Administrative Agent shall not be responsible
to any Bank or the holder of any Note for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, collectibility, priority or
sufficiency of this Agreement or any other Credit Document or the financial
condition of Holdings, each Borrower and their Subsidiaries or be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement or any other Credit Document,
or the financial condition of Holdings, each Borrower and their Subsidiaries or
the existence or possible existence of any Default or Event of Default.
11.04 CERTAIN RIGHTS OF THE ADMINISTRATIVE AGENT. If the Administrative
Agent shall request instructions from the Required Banks with respect to any act
or action (including failure to act) in connection with this Agreement or any
other Credit Document, the Administrative Agent shall be entitled to refrain
from such act or taking such action unless and until the Administrative Agent
shall have received instructions from the Required Banks; and the Administrative
Agent shall not incur liability to any Bank or the holder of any Note by reason
of so refraining. Without limiting the foregoing, no Bank or the holder of any
Note shall have any right of action whatsoever against the
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Administrative Agent as a result of the Administrative Agent acting or
refraining from acting hereunder or under any other Credit Document in
accordance with the instructions of the Required Banks.
11.05 RELIANCE. The Administrative Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that the Administrative Agent believed to be the proper Person, and,
with respect to all legal matters pertaining to this Agreement and any other
Credit Document and its duties hereunder and thereunder, upon advice of counsel
selected by the Administrative Agent.
11.06 INDEMNIFICATION. To the extent the Administrative Agent is not
reimbursed and indemnified by the Borrowers, the Banks will reimburse and
indemnify the Administrative Agent, in proportion to their respective
"percentages" as used in determining the Required Banks (determined as if there
were no Defaulting Banks), for and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, costs, expenses or
disbursements of whatsoever kind or nature which may be imposed on, asserted
against or incurred by the Administrative Agent in performing its respective
duties hereunder or under any other Credit Document, in any way relating to or
arising out of this Agreement or any other Credit Document; PROVIDED that no
Bank shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Administrative Agent's gross negligence or willful
misconduct.
11.07 THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to
its obligation to make Loans under this Agreement, the Administrative Agent
shall have the rights and powers specified herein for a "Bank" and may exercise
the same rights and powers as though it were not performing the duties specified
herein; and the term "Banks," "Required Banks," "holders of Notes" or any
similar terms shall, unless the context clearly otherwise indicates, include the
Administrative Agent in its individual capacity. The Administrative Agent may
accept deposits from, lend money to, and generally engage in any kind of
banking, trust or other business with any Credit Party or any Affiliate of any
Credit Party as if it were not performing the duties specified herein, and may
accept fees and other consideration from the Company or any other Credit Party
for services in connection with this Agreement and otherwise without having to
account for the same to the Banks.
11.08 HOLDERS. The Administrative Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment, transfer or endorsement thereof, as the case may be,
shall have been
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filed with the Administrative Agent. Any request, authority or consent of any
Person who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee, assignee or indorsee, as the case may be, of such
Note or of any Note or Notes issued in exchange therefor.
11.09 RESIGNATION BY THE ADMINISTRATIVE AGENT. (a) The Administrative Agent
may resign from the performance of all its functions and duties hereunder and/or
under the other Credit Documents at any time by giving 20 Business Days' prior
written notice to the Company and the Banks. Such resignation shall take effect
upon the appointment of a successor Administrative Agent pursuant to clauses (b)
and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Banks shall appoint a
successor Administrative Agent hereunder and under the other Credit Documents
who shall be a Bank, a commercial bank or a trust company in each case
reasonably acceptable to the Company.
(c) If a successor Administrative Agent shall not have been so appointed
within such 20 Business Day period, the Administrative Agent, with the consent
of the Company, shall then appoint a successor Administrative Agent who shall
serve as Administrative Agent hereunder and under the other Credit Documents
until such time, if any, as the Required Banks appoint a successor
Administrative Agent as provided above.
(d) If no successor Administrative Agent has been appointed pursuant to
clause (b) or (c) above by the 25th Business Day after the date such notice of
resignation was given by the Administrative Agent, the Administrative Agent's
resignation shall become effective and the Banks shall thereafter perform all
the duties of the Administrative Agent hereunder and/or under any of the Credit
Document until such time, if any, as the Required Banks appoint a successor
Administrative Agent as provided above.
SECTION 12. Guaranties.
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12.01 THE GUARANTIES. In order to induce the Banks to enter into this
Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by Holdings and the Company from the proceeds of the
Loans, Holdings and the Company hereby agree with the Banks as follows: each of
Holdings and the Company hereby unconditionally and irrevocably guarantees as
primary obligor and not merely as surety the full and prompt payment and
performance when due, upon maturity, acceleration or otherwise, of any and all
of Obligations of the Guaranteed
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Parties to the Secured Creditors. If any or all of Obligations of the Guaranteed
Parties to the Secured Creditors become due and payable hereunder, Holdings and
the Company unconditionally promise to pay such Obligations of the Guaranteed
Parties to the Secured Creditors, or to the order of the Secured Creditors, as
the case may be, on demand, together with any and all expenses which may be
incurred by the Administrative Agent or the Secured Creditors in collecting any
of such Obligations of the Guaranteed Parties.
12.02 BANKRUPTCY. Additionally, each of Holdings and the Company
unconditionally and irrevocably guarantees the payment of any and all of its
Guarantee Obligations to the Secured Creditors whether or not due or payable by
the Guaranteed Parties upon the occurrence in respect of the Guaranteed Parties
of any of the events specified in Section 9.05, and unconditionally and
irrevocably promises to pay such Guarantee Obligations to the Secured Creditors,
or to the order of the Secured Creditors, as the case may be, on demand, in
lawful money of the United States.
12.03 NATURE OF LIABILITY. The liability of Holdings and the Company
hereunder is exclusive and independent of any security for, or other guaranty
of, the Obligations of the Guaranteed Parties (which for purposes of this
Section 12 only, shall mean any and all Obligations under the Credit Agreement
and the other Credit Documents and any obligations under Interest Rate
Protection Agreements or Other Hedging Agreements guaranteed by Holdings and/or
the Company in accordance with the definition of Guarantee Obligations), whether
executed by the Guaranteed Parties or by any other party, and the liability of
Holdings and the Company hereunder is not affected or impaired by (a) any
direction as to application of payment by the Guaranteed Parties or by any other
party, (b) any other continuing or other guaranty, undertaking or maximum
liability of a guarantor or of any other party as to the Obligations of the
Guaranteed Parties (which for purposes of this Section 12 only, shall mean any
and all Obligations under the Credit Agreement and the other Credit Documents
and any obligations under Interest Rate Protection Agreements or Other Hedging
Agreements guaranteed by Holdings and/or the Company in accordance with the
definition of Guarantee Obligations), (c) any payment on, or in reduction of,
any such other guaranty or undertaking, (d) any dissolution, termination or
increase, decrease or change in personnel of the Guaranteed Parties, or (e) any
payment made to the Administrative Agent or the Secured Creditors on the
indebtedness which the Administrative Agent or such Secured Creditors repay to
the Guaranteed Parties pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
each of Holdings and the Company waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding.
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12.04 INDEPENDENT OBLIGATION. The obligations of Holdings and the Company
hereunder are independent of the obligations of any other guarantor, any other
party or the Guaranteed Parties, and a separate action or actions may be brought
and prosecuted against Holdings and the Company whether or not action is brought
against any other guarantor, any other party or the Guaranteed Parties and
whether or not any other guarantor, any other party or the Guaranteed Parties be
joined in any such action or actions. Each of Holdings and the Company waives,
to the fullest extent permitted by law, the benefit of any statute of
limitations affecting its liability hereunder or the enforcement thereof. Any
payment by the Guaranteed Parties or other circumstance which operates to toll
any statute of limitations as to the Guaranteed Parties shall operate to toll
the statute of limitations as to Holdings and the Company.
12.05 AUTHORIZATION. Each of Holdings and the Company authorizes the
Administrative Agent and the Secured Creditors without notice, demand or consent
(except as shall be required under the Credit Documents or as required by
applicable statute and cannot be waived), and without affecting or impairing its
liability hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the Obligations of the Guaranteed Parties (including any increase or
decrease in the rate of interest thereon), any security therefor, or any
liability incurred directly or indirectly in respect thereof, and the
Guaranties herein made shall apply to such Obligations of the Guaranteed
Parties as so changed, extended, renewed or altered;
(b) take and hold security for the payment of the Obligations of the
Guaranteed Parties and sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, such Obligations of the Guaranteed Parties or any liabilities
(including any of those hereunder) incurred directly or indirectly in
respect thereof or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Guaranteed Parties or others or otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers, guarantors, the
Guaranteed Parties or other obligors;
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(e) settle or compromise any of the Obligations of the Guaranteed
Parties, any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof,
and may subordinate the payment of all or any part thereof to the payment
of any liability (whether due or not) of the Guaranteed Parties to its
creditors other than the Banks;
(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Guaranteed Parties to the Secured Creditors
regardless of what liability or liabilities of Holdings and the Company or
the Guaranteed Parties remain unpaid;
(g) consent to or waive any breach of, or any act, omission or default
under, these Guaranties or any of the instruments or agreements referred to
herein, or otherwise amend, modify or supplement these Guaranties or any of
such other instruments or agreements; and/or
(h) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
Holdings and the Company from their liabilities under these Guaranties.
12.06 RELIANCE. It is not necessary for the Administrative Agent or the
Secured Creditors to inquire into the capacity or powers of the Guaranteed
Parties or their Subsidiaries or the officers, directors, partners or agents
acting or purporting to act on its behalf, and any Obligations of the Guaranteed
Parties made or created in reliance upon the professed exercise of such powers
shall be guaranteed hereunder.
12.07 SUBORDINATION. Any of the indebtedness of the Guaranteed Parties now
or hereafter owing to Holdings and/or the Company, as the case may be, is hereby
subordinated to the Indebtedness of the Guaranteed Parties owing to the
Administrative Agent and the Secured Creditors; and if the Administrative Agent
so requests at a time when an Event of Default exists, all such Indebtedness of
the Guaranteed Parties to Holdings and the Company, as the case may be, shall be
collected, enforced and received by Holdings and the Company for the benefit of
the Secured Creditors and be paid over to the Administrative Agent on behalf of
the Secured Creditors on account of such Indebtedness of the Guaranteed Parties
to the Secured Creditors, but without affecting or impairing in any manner the
liability of Holdings and the Company under the other provisions of these
Guaranties. Prior to the transfer by Holdings and the Company of any note or
negotiable instrument evidencing any Indebtedness of the Guaranteed Parties to
Holdings and the Company, Holdings and the Company shall mark such note or
negotiable instrument with a legend that the same is subject to this
subordination.
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12.08 WAIVER. (a) Each of Holdings and the Company waives any right (except
as shall be required by applicable statute and cannot be waived) to require the
Administrative Agent or the Secured Creditors (i) to proceed against the
Guaranteed Parties, any other guarantor or any other party, (ii) to proceed
against or exhaust any security held from the Guaranteed Parties, any other
guarantor or any other party or (iii) to pursue any other remedy in the
Administrative Agent's or the Secured Creditors' power whatsoever. Each of
Holdings and the Company waives any defense based on or arising out of any
defense of the Guaranteed Parties, any other guarantor or any other party, other
than payment in full of the Obligations of the Guaranteed Parties, based on or
arising out of the disability of the Guaranteed Parties, any other guarantor or
any other party, or the unenforceability of the Obligations of the Guaranteed
Parties or any part thereof from any cause, or the cessation from any cause of
the liability of the Guaranteed Parties other than payment in full of the
Obligations of the Guaranteed Parties. The Administrative Agent and the Secured
Creditors may, at their election, foreclose on any security held by the
Administrative Agent, the Collateral Agent or the Secured Creditors by one or
more judicial or nonjudicial sales, whether or not every aspect of any such sale
is commercially reasonable (to the extent such sale is permitted by applicable
law), or exercise any other right or remedy the Administrative Agent and the
Secured Creditors may have against the Guaranteed Parties, any other party, or
any security, without affecting or impairing in any way the liability of
Holdings and the Company hereunder except to the extent the Obligations of the
Guaranteed Parties have been paid.
(b) Each of Holdings and the Company waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of these Guaranties, and notices of the existence, creation or incurring of new
or additional Obligations of the Guaranteed Parties. Each of Holdings and the
Company assumes all responsibility for being and keeping itself informed of the
Guaranteed Parties' financial conditions and assets, and of all other
circumstances bearing upon the risk of non-payment of the Guarantee Obligations
and the nature, scope and extent of the risks which Holdings and the Company
assumes and incurs hereunder, and agrees that the Administrative Agent and the
Secured Creditors shall have no duty to advise Holdings and the Company of
information known to them regarding such circumstances or risks.
12.09 LIMITATION ON LIABILITY. It is the desire and intent of Holdings and
the Company and the Secured Creditors that these Guaranties shall be enforced
against Holdings and the Company to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. If, however, and to the extent that, the obligations of Holdings and the
Company under the Guaranties shall be adjudicated to be invalid or unenforceable
for any reason (including, without
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limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers), then the amount of the Guarantee
Obligations of Holdings and the Company shall be deemed to be reduced and
Holdings and the Company shall pay the maximum amount of such Guarantee
Obligations which would be permissible under applicable law.
SECTION 13. Miscellaneous.
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13.01 PAYMENT OF EXPENSES, ETC. The Borrowers jointly and severally agree
that they shall: (i) whether or not the transactions contemplated herein are
consummated, pay all reasonable out-of-pocket costs and expenses of the
Administrative Agent (including, without limitation, the reasonable fees and
disbursements of White & Case and one local and one foreign counsel in each
relevant jurisdiction and any third party consultants retained by the
Administrative Agent before the Restatement Effective Date with the consent of
the Company (such consent not to be unreasonably withheld)) in connection with
the preparation, execution and delivery of this Agreement and the other Credit
Documents and the documents and instruments referred to herein and therein and
any amendment, waiver or consent relating hereto or thereto, of the
Administrative Agent in connection with its syndication efforts with respect to
this Agreement and, following an Event of Default, each of the Banks in
connection with the enforcement of this Agreement and the other Credit Documents
and the documents and instruments referred to herein and therein (including,
without limitation, the reasonable fees and disbursements of counsel for the
Administrative Agent and, following an Event of Default, for each of the Banks);
(ii) pay and hold each of the Banks harmless from and against any and all
present and future stamp, excise and other similar taxes with respect to the
foregoing matters and save each of the Banks harmless from and against any and
all liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Bank) to pay such taxes; and (iii)
indemnify the Administrative Agent and each Bank, and each of their respective
officers, directors, employees, representatives and agents from, and hold each
of them harmless against, any and all liabilities, obligations (including
removal or remedial actions), losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses and disbursements (including reasonable
attorneys' and consultants' fees and disbursements but excluding any losses,
liabilities, claims, damages or expenses to the extent incurred by reason of the
gross negligence or willful misconduct of the Person to be indemnified) incurred
by, imposed on, or assessed against, any of them as a result of, or arising out
of, or in any way related to, or by reason of, (a) any investigation, litigation
or other proceeding (whether or not the Administrative Agent or any Bank is a
party thereto) related to the entering into and/or performance of this Agreement
or any other Credit Document or the use of any Letter of Credit or the proceeds
of any Loans hereunder or the consummation of any of the transactions
contemplated herein
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or in any other Credit Document or the exercise of any of their rights or
remedies provided herein or in the other Credit Documents, or (b) the actual or
alleged presence of Hazardous Materials in the air, surface water or groundwater
or on the surface or subsurface of any Real Property owned or at any time
operated by any Credit Party or any of its Subsidiaries, the Release,
generation, storage, transportation, handling or disposal of Hazardous Materials
at any location, whether or not owned or operated by any Credit Party or any of
its Subsidiaries, the non-compliance of any Real Property with foreign, federal,
state and local laws, regulations, and ordinances (including applicable permits
thereunder) applicable to any Real Property, or any Environmental Claim asserted
against any Credit Party, any of its Subsidiaries or any Real Property owned or
at any time operated by any Credit Party or any of its Subsidiaries. To the
extent that the undertaking to indemnify, pay or hold harmless the
Administrative Agent or any Bank set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Borrowers
shall make the maximum contribution to the payment and satisfaction of each of
the indemnified liabilities which is permissible under applicable law.
13.02 RIGHT OF SETOFF. In addition to any rights now or hereafter granted
under applicable law or otherwise, and not by way of limitation of any such
rights, upon the occurrence of an Event of Default, each Bank is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to any Borrower or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by such Bank (including, without limitation, by branches
and agencies of such Bank wherever located) to or for the credit or the account
of such Borrower against and on account of the Obligations and liabilities of
such Borrower to such Bank under this Agreement or under any of the other Credit
Documents, including, without limitation, all interests in Obligations purchased
by such Bank pursuant to Section 13.06(b), and all other claims of any nature or
description arising out of, or connected with, this Agreement or any other
Credit Document, irrespective of whether or not such Bank shall have made any
demand hereunder and although said Obligations, liabilities or claims, or any of
them, shall be contingent or unmatured.
13.03 NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telex or telecopier) and mailed by certified mail, telexed,
telecopied or delivered: if to Holdings or any Borrower, at its address
specified opposite its signature below; if to any Bank, at its address specified
opposite its name on Schedule II; and if to the Administrative Agent, at its
Notice Office; or, as to any Credit Party or the Administrative Agent, at such
other address as shall be designated by such party in a written notice to the
other
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parties hereto and, as to each Bank, at such other address as shall be
designated by such Bank in a written notice to the Borrowers and the
Administrative Agent. All such notices and communications shall be effective
when received.
13.04 BENEFIT OF AGREEMENT. (a) This Agreement shall be binding upon and
inure to the benefit of, and be enforceable by, the respective successors and
assigns of the parties hereto; PROVIDED, HOWEVER, that no Borrower may assign or
transfer any of its rights, obligations or interest hereunder or under any other
Credit Document without the prior written consent of the Banks and, PROVIDED
FURTHER, that, although any Bank may transfer, assign or grant participations in
its rights hereunder, such Bank shall remain a "Bank" for all purposes hereunder
(and may not transfer or assign all or any portion of its Commitments hereunder
except as provided in Section 13.04(b)) and the transferee, assignee or
participant, as the case may be, shall not constitute a "Bank" hereunder and,
PROVIDED FURTHER, that no Bank shall transfer or grant any participation under
which the participant shall have rights to approve any amendment to or waiver of
this Agreement or any other Credit Document except to the extent such amendment
or waiver would (i) extend the final scheduled maturity of any Loan, Note or
Letter of Credit (unless such Letter of Credit is not extended beyond the
Revolving Loan Maturity Date) in which such participant is participating, or
reduce the rate or extend the time of payment of interest or Fees thereon
(except in connection with a waiver of applicability of any post-default
increase in interest rates) or reduce the principal amount thereof, or increase
the amount of the participant's participation over the amount thereof then in
effect (it being understood that a waiver of any Default or Event of Default or
of a mandatory reduction in the Total Commitment shall not constitute a change
in the terms of such participation, and that an increase in any Commitment or
Loan shall be permitted without the consent of any participant if the
participant's participation is not increased as a result thereof), (ii) consent
to the assignment or transfer by any Borrower of any of their respective rights
and obligations under this Agreement to the extent relating to such
participation or (iii) release all or substantially all of the Collateral under
all of the Security Documents (except as expressly provided in the Credit
Documents) supporting the Loans hereunder in which such participant is
participating. In the case of any such participation, the participant shall not
have any rights under this Agreement or any of the other Credit Documents (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto) and all amounts payable by the Borrowers hereunder
shall be determined as if such Bank had not sold such participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank together with one
or more other Banks) may (x) assign all or a portion of its Revolving Loan
Commitment (and related outstanding Obligations hereunder) and/or its
outstanding A Term
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Loans, B Term Loans, A Term Loan Commitments or B Term Loan Commitments to any
Lending Affiliate of such Bank or to one or more Banks or (y) assign all, or if
less than all, a portion equal to at least $5,000,000 in the aggregate for the
assigning Bank or assigning Banks, of such Revolving Loan Commitments (and
related outstanding Obligations hereunder) and outstanding principal amount of A
Term Loans, B Term Loans, A Term Loan Commitments or B Term Loan Commitments
hereunder to one or more Eligible Transferees, each of which assignees shall
become a party to this Agreement as a Bank by execution of an Assignment and
Assumption Agreement, PROVIDED that (i) at such time Schedule I shall be deemed
modified to reflect the Commitments (and/ or outstanding Term Loans, as the case
may be) of such new Bank and of the existing Banks, (ii) upon surrender of the
old Notes, new Notes will be issued, at the Borrowers' expense, to such new Bank
and to the assigning Bank, such new Notes to be in conformity with the
requirements of Section 1.05 (with appropriate modifications) to the extent
needed to reflect the revised Commitments (and/or outstanding Term Loans, as the
case may be), (iii) the consent of the Administrative Agent, the Issuing Banks
and the Borrowers shall be required in connection with any such assignment
pursuant to clause (y) above (which consent shall not be unreasonably withheld
or delayed), (iv) any assignment of A Term Loans shall include a pro rata amount
of Company A Dollar Term Loans, Company A Deutsche Mark Term Loans, Company A
Sterling Term Loans, Subsidiary A Canadian Dollar Term Loans and Subsidiary A
Sterling Term Loans and (v) the Administrative Agent shall receive at the time
of each such assignment, from the assigning or assignee Bank, the payment of a
non-refundable assignment fee of $3,500 (or $1,500 in the case of an assignment
pursuant to clause (x) of this sentence) and, PROVIDED FURTHER, that such
transfer or assignment will not be effective until recorded by the
Administrative Agent on the Register pursuant to Section 13.16. To the extent of
any assignment pursuant to this Section 13.04(b), the assigning Bank shall be
relieved of its obligations hereunder with respect to its assigned Commitments.
At the time of each assignment pursuant to this Section 13.04(b) to a Person
which is not already a Bank hereunder and which is not a United States person
(as such term is defined in Section 7701(a)(30) of the Code) for Federal income
tax purposes, the respective assignee Bank shall provide to the Company and the
Administrative Agent the appropriate Internal Revenue Service Forms (and, if
applicable a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To
the extent that an assignment of all or any portion of a Bank's Commitments and
related outstanding Obligations pursuant to Section 1.13 or this Section
13.04(b) would, at the time of such assignment, result in increased costs under
Section 1.10, 1.11, 2.05 or 4.04 from those being charged by the respective
assigning Bank prior to such assignment, then the Borrowers shall not be
obligated to pay such increased costs (although the Borrowers shall be obligated
to pay any other increased costs of the type described above resulting from
changes after the date of the respective assignment).
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(c) Nothing in this Agreement shall prevent or prohibit any Bank from
pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of
borrowings made by such Bank from such Federal Reserve Bank.
13.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
the Administrative Agent, any Bank or any holder of any Note in exercising any
right, power or privilege hereunder or under any other Credit Document and no
course of dealing between any Borrower or any other Credit Party and the
Administrative Agent, any Bank or the holder of any Note shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights, powers and remedies herein or in any other
Credit Document expressly provided are cumulative and not exclusive of any
rights, powers or remedies which the Administrative Agent, any Bank or the
holder of any Note would otherwise have. No notice to or demand on any Credit
Party in any case shall entitle any Credit Party to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of the Administrative Agent, any Bank or the holder of any Note to any other or
further action in any circumstances without notice or demand.
13.06 PAYMENTS PRO RATA; SPECIAL SHARING PROVISIONS REGARDING U.S.
GUARANTIES. (a) Except as otherwise provided in this Agreement, including
Section 13.06(c) below, the Administrative Agent agrees that promptly after its
receipt of each payment from or on behalf of any Borrower in respect of any
Obligations hereunder, it shall distribute such payment to the Banks (other than
any Bank that has consented in writing to waive its PRO RATA share of any such
payment) PRO RATA based upon their respective shares, if any, of the Obligations
with respect to which such payment was received.
(b) Each of the Banks agrees that, subject to Section 13.06(c) below, if it
should receive any amount hereunder (whether by voluntary payment, by
realization upon security, by the exercise of the right of setoff or banker's
lien, by counterclaim or cross action, by the enforcement of any right under the
Credit Documents, or otherwise), which is applicable to the payment of the
principal of, or interest on, the Loans, Unpaid Drawings, Commitment Fee or
Letter of Credit Fees, of a sum which, with respect to the related sum or sums
received by other Banks, is in a greater proportion than the total of such
Obligation then owed and due to such Bank bears to the total of such Obligation
then owed and due to all of the Banks immediately prior to such receipt, then
such Bank receiving such excess payment shall purchase for cash without recourse
or warranty from the other Banks an interest in the Obligations of the
respective Credit Party to such Banks in such amount as shall result in a
proportional partici-
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pation by all the Banks in such amount; PROVIDED that if all or any portion of
such excess amount is thereafter recovered from such Bank, such purchase shall
be rescinded and the purchase price restored to the extent of such recovery, but
without interest.
(c) Notwithstanding anything to the contrary contained in the Credit
Agreement or in any other Credit Document, any amounts received by any Bank in
respect of the US Subsidiary Guaranty in respect of Obligations of the Company
or as a result of any sale or other disposition of Collateral pledged or
encumbered by any Domestic Subsidiary of the Company which is party to the US
Subsidiary Guaranty pursuant to any Security Document in support of such
Obligations of the Company shall be shared on a pro rata basis, based on each
Bank's Pro Rata Share of the Obligations. For purposes of this Section 13.06(c)
(x) "Pro Rata Share" shall mean, when calculating a Bank's portion of any
distribution or amount, that amount (expressed as a percentage) equal to a
fraction the numerator of which is the then unpaid amount of such Bank's Primary
Obligations or Secondary Obligations, as the case may be, and the denominator of
which is the then outstanding amount of all Primary Obligations or Secondary
Obligations, as the case may be, (y) "Primary Obligations" shall mean all
obligations and liabilities of the Company arising out of or in connection with
the principal of, and interest on, all Loans made to the Company, all Unpaid
Drawings theretofore made (together with all interest accrued thereon), and the
aggregate Stated Amounts of all Letters of Credit issued under the Credit
Agreement, and all Fees relating thereto and (z) "Secondary Obligations" shall
mean all Obligations of the Company other than Primary Obligations. When
payments to Banks are based upon their respective Pro Rata Shares, the amounts
received by such Banks hereunder shall be applied (i) first, to their Primary
Obligations and (ii) second, to their Secondary Obligations. If any payment to
any Bank of its Pro Rata Share of any distribution would result in over-payment
to such Bank, such excess amount shall instead be distributed in respect of the
unpaid Primary Obligations or Secondary Obligations, as the case may be, of the
other Banks, with each Bank whose Primary Obligations or Secondary Obligations,
as the case may be, have not been paid in full to receive an amount equal to
such excess amount multiplied by a fraction the numerator of which is the unpaid
Primary Obligations or Secondary Obligations, as the case may be, of such Bank
and the denominator of which is the unpaid Primary Obligations or Secondary
Obligations, as the case may be, of all Banks entitled to such distribution.
(d) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 13.06(a), (b) and (c) shall be subject to
the express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Banks as opposed to Defaulting Banks.
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13.07 CALCULATIONS; COMPUTATIONS; DETERMINATION OF DOLLAR EQUIVALENT AND
FIXED RATES. (a) The financial statements to be furnished to the Banks pursuant
hereto shall be made and prepared in accordance with generally accepted
accounting principles in the United States consistently applied throughout the
periods involved (except as set forth in the notes thereto or as otherwise
disclosed in writing by each Borrower to the Banks); PROVIDED that, except as
otherwise specifically provided herein, all computations of Excess Cash Flow
and all computations determining compliance with Sections 8.07 through 8.10,
inclusive, shall utilize accounting principles and policies in conformity with
those used to prepare the historical financial statements delivered to the Banks
pursuant to Section 6.05(a). For purposes of determining compliance with Section
8.04 with respect to outstanding Indebtedness incurred in a currency other than
Dollars, each Borrower and its Subsidiaries will not be in violation of such
Section solely as a result of fluctuations in the Dollar Equivalent of any such
Indebtedness from the Dollar Equivalent thereof at the time such Indebtedness
was incurred.
(b) All computations of interest, Commitment Fees, and other Fees hereunder
shall be made on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day except as otherwise provided
in Section 3.01(b) and (c)) occurring in the period for which such interest,
Commitment Fees or other Fees are payable, provided that all computations of
interest on Base Rate Loans and Sterling Loans shall be made on the basis of a
year of 365 days (or 366 days as the case may be) for the actual number of days
(including the first day but excluding the last day occurring in the period for
which such interest is payable).
(c) For purposes of this Agreement, the Dollar Equivalent of each Alternate
Currency (whether in respect of Alternate Currency Loans or Letters of Credit
denominated in a currency other than Dollars) shall be calculated on the first
Business Day of each month, provided that the Dollar Equivalent for each Letter
of Credit denominated in a foreign currency other than an Alternate Currency
shall also be calculated on the date of issuance of such Letter of Credit. The
Dollar Equivalent for all reimbursement obligations with respect to Letters of
Credit issued in a currency other than Dollars shall be determined by using the
Dollar Equivalent thereof as in effect on the date the respective Unpaid Drawing
was paid or disbursed by the relevant Issuing Bank. The Dollar Equivalent for
each Alternate Currency (and for any other foreign currency in which a Letter of
Credit may be denominated) shall remain in effect until the same is recalculated
by BTCo as provided above and notice of such recalculation is received by the
Company, it being understood that until such notice is received, the Dollar
Equivalent shall be that Dollar Equivalent as last reported to the Company by
BTCo. BTCo shall promptly notify the Company and the Banks of each determination
of the Dollar Equivalent for each Alternate Currency (and for any other foreign
currency in which a Letter of Credit may be denominated).
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(d) In the event that (and for so long as) BTCo ceases to be a first-class
bank, the Company shall have the right, upon 20 Business Days' prior written
notice to the Administrative Agent and the Banks, to appoint another Bank (with
the consent of such Bank and the Required Banks) for purposes of making the
offered quotations for the respective Fixed Rates.
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY
TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS OTHERWISE
PROVIDED IN CERTAIN OF THE SECURITY DOCUMENTS, BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
HOLDINGS AND EACH BORROWER HEREBY IRREVOCABLY ACCEPT FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH OF HOLDINGS AND EACH BORROWER HEREBY FURTHER IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER HOLDINGS OR SUCH
BORROWER, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF
THE AFORESAID COURTS, THAT ANY SUCH COURT LACKS JURISDICTION OVER HOLDINGS OR
SUCH BORROWER. EACH OF HOLDINGS AND EACH SUBSIDIARY BORROWER HEREBY IRREVOCABLY
DESIGNATES, APPOINTS AND EMPOWERS THE COMPANY, WITH OFFICES ON THE DATE HEREOF
AT ONE WASHINGTON MALL - 8TH FLOOR, BOSTON, MASSACHUSETTS 02108-2610, AS ITS
DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS
BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS,
SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR
PROCEEDING. IF FOR ANY REASON THE COMPANY SHALL CEASE TO BE AVAILABLE TO ACT AS
SUCH, EACH OF HOLDINGS AND EACH SUBSIDIARY BORROWER AGREES TO DESIGNATE A NEW
DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES
OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT. EACH OF HOLDINGS AND
EACH OF THE BORROWERS FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT
OF ANY OF THE AFOREMENTIONED
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COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO HOLDINGS OR SUCH BORROWER AT
ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH OF HOLDINGS AND EACH BORROWER HEREBY
IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING
COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS
MADE IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 13.08 WAS IN ANY WAY
INVALID OR EFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY
BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST HOLDINGS OR ANY BORROWER IN ANY OTHER
JURISDICTION.
(b) EACH OF HOLDINGS AND EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) THE COMPANY HEREBY AGREES WITH HOLDINGS, EACH SUBSIDIARY BORROWER,
EACH OTHER CREDIT PARTY, THE ADMINISTRATIVE AGENT AND EACH BANK THAT THE COMPANY
IRREVOCABLY ACCEPTS SUCH APPOINTMENT AS AGENT AS SET FORTH IN CLAUSE (a) OF THIS
SECTION 13.08 AND AS SET FORTH IN THE US SUBSIDIARY GUARANTY AND AGREES THAT THE
COMPANY (i) SHALL INFORM THE ADMINISTRATIVE AGENT PROMPTLY IN WRITING OF ANY
CHANGE OF ITS ADDRESS, (ii) SHALL NOTIFY THE ADMINISTRATIVE AGENT OF ANY
TERMINATION OF ANY OF THE AGENCY RELATIONSHIPS CREATED BY CLAUSE (a) OF THIS
SECTION 13.08 OR BY THE US SUBSIDIARY GUARANTY, (iii) SHALL PERFORM ITS
OBLIGATIONS AS SUCH AGENT IN ACCORDANCE WITH THE PROVISIONS OF CLAUSE (a) OF
THIS SECTION 13.08 AND THE US SUBSIDIARY GUARANTY AND (iv) SHALL FORWARD
PROMPTLY TO EACH CREDIT PARTY ANY LEGAL PROCESS RECEIVED BY THE COMPANY IN ITS
CAPACITY AS PROCESS AGENT. AS PROCESS AGENT, THE COMPANY
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AGREES TO DISCHARGE THE ABOVE-MENTIONED OBLIGATIONS AND WILL NOT REFUSE
FULFILLMENT OF SUCH OBLIGATIONS UNDER CLAUSE (a) OF THIS SECTION 13.08 AND AS
SET FORTH IN THE US SUBSIDIARY GUARANTY. IN ADDITION, THE COMPANY AGREES THAT IT
SHALL AT ALL TIMES HAVE A REGISTERED AGENT IN NEW YORK TO RECEIVE SERVICE OF
PROCESS. THE INITIAL REGISTERED AGENT SHALL BE THE PRENTICE-HALL CORPORATION
SYSTEM, INC. THE COMPANY SHALL PROMPTLY NOTIFY THE ADMINISTRATIVE AGENT OF ANY
CHANGE OF ADDRESS OF SUCH REGISTERED AGENT AND OF ANY APPOINTMENT OF A NEW
REGISTERED AGENT AND SUCH NEW REGISTERED AGENT'S ADDRESS.
(D) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
13.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrowers and the
Administrative Agent.
13.10 EFFECTIVENESS. This Agreement shall become effective on the date (the
"Restatement Effective Date") on which (i) each of Holdings, the Company, each
Subsidiary Borrower, the Administrative Agent and each Bank shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered the same to the Administrative Agent at its Notice Office or, in the
case of the Banks, shall have given to the Administrative Agent telephonic
(confirmed in writing), written or telex notice (actually received) at such
office that the same has been signed and mailed to it and (ii) the conditions
contained in Section 5 are met to the satisfaction of the Administrative Agent
and the Required Banks (determined immediately after the occurrence of the
Restatement Effective Date). Unless the Administrative Agent has received actual
notice from any Bank that the conditions contained in Section 5 have not been
met to its satisfaction, upon the satisfaction of the condition described in
clause (i) of the immediately preceding sentence and upon the Administrative
Agent's good faith determination that the conditions described in clause (ii) of
the immediately preceding sentence have been met, then the Restatement Effective
Date shall have been deemed to have occurred, regardless of any subsequent
determination that one or more of the conditions thereto had not been met
(although the occurrence of the Restatement
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Effective Date shall not release the Borrowers from any liability for failure to
satisfy one or more of the applicable conditions contained in Section 5. The
Administrative Agent will give the Borrowers and each Bank prompt written notice
of the occurrence of the Restatement Effective Date.
13.11 HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
13.12 AMENDMENT OR WAIVER; ETC. (a) Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Banks, PROVIDED that no such change, waiver, discharge or termination
shall, without the consent of each Bank (other than a Defaulting Bank) with
Obligations being directly affected thereby, (i) extend the final scheduled
maturity of any Loan or Note or extend the stated maturity of any Letter of
Credit beyond the Revolving Loan Maturity Date, or reduce the rate or extend the
time of payment of interest or Fees thereon, or reduce the principal amount
thereof, (ii) release all or substantially all of the Collateral (except as
expressly provided in the Security Documents) under all the Security Documents,
or release any Guarantor from its obligations thereunder (in each case except as
expressly provided in the Credit Documents), (iii) amend, modify or waive any
provision of this Section 13.12, (iv) reduce the percentage specified in the
definition of Required Banks (it being understood that, with the consent of the
Required Banks, additional extensions of credit pursuant to this Agreement may
be included in the determination of the Required Banks on substantially the same
basis as the extensions of Term Loans and Revolving Loan Commitments are
included on the Restatement Effective Date), (v) consent to the assignment or
transfer by the Company or any Subsidiary Borrower of any of its rights and
obligations under this Agreement or (vi) release Holdings from its obligations
under the Holdings Guaranty; PROVIDED FURTHER, that no such change, waiver,
discharge or termination shall (u) increase the Commitments of any Bank over the
amount thereof then in effect without the consent of such Bank (it being
understood that waivers or modifications of conditions precedent, covenants,
Defaults or Events of Default or of a mandatory reduction in the Total
Commitment shall not constitute an increase of the Commitment of any Bank, and
that an increase in the available portion of any Commitment of any Bank shall
not constitute an increase in the Commitment of such Bank), (v) without the
consent of the Issuing Banks, amend, modify or waive any provision of Section 2
or alter its rights or obligations with respect to Letters of Credit, (w)
without the consent of the Administrative Agent, amend, modify or waive any
provision of Section 11 as same applies to the Administrative Agent or any other
provision as same relates to the rights or obligations of the Administrative
Agent, (x) without the
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consent of the Collateral Agent, amend, modify or waive any provision relating
to the rights or obligations of the Collateral Agent, (y) without the consent of
the Majority Banks of each Tranche which is being allocated a lesser prepayment,
repayment or commitment reduction as a result of the actions described below (or
without the consent of the Majority Banks of each Tranche in the case of an
amendment to the definition of Majority Banks), amend the definition of Majority
Banks or alter the required application of any prepayments or repayments (or
commitment reductions), as between the various Tranches, pursuant to Section
4.01 or 4.02 (excluding Sections 4.02(b) and (c)) (although the Required Banks
may waive, in whole or in part, any such prepayment, repayment or commitment
reduction, so long as the application, as amongst the various Tranches, of any
such prepayment, repayment or commitment reduction which is still required to be
made is not altered) or (z) without the consent of the Supermajority Banks of
the respective Tranche, amend, modify or waive any Scheduled Repayment of such
Tranche (in each case other than the last such Scheduled Repayment) or amend the
definition of Supermajority Banks.
(b) If, in connection with any proposed change, waiver, discharge or
termination with respect to any of the provisions of this Agreement as
contemplated by clauses (i) through (vi), inclusive, of the first proviso to
Section 13.12(a), the consent of the Required Banks is obtained but the consent
of one or more of such other Banks whose consent is required is not obtained,
then the Company shall have the right, to replace each such non-consenting Bank
or Banks (so long as all non-consenting Banks are so replaced) with one or more
Replacement Banks pursuant to Section 1.13 so long as at the time of such
replacement, each such Replacement Bank consents to the proposed change, waiver,
discharge or termination, provided that the Company shall not have the right to
replace a Bank solely as a result of the exercise of such Bank's rights (and the
withholding of any required consent by such Bank) pursuant to the second proviso
to Section 13.12(a).
13.13 SURVIVAL. All indemnities set forth herein including, without
limitation, in Sections 1.10, 1.11, 2.05, 4.04, 11.06 and 13.01 shall survive
the execution, delivery and termination of this Agreement and the Notes and the
making and repayment of the Loans.
13.14 DOMICILE OF LOANS. Each Bank may transfer and carry its Loans at, to
or for the account of any office, Subsidiary or Affiliate of such Bank.
Notwithstanding anything to the contrary contained herein, to the extent that a
transfer of Loans pursuant to this Section 13.14 would, at the time of such
transfer, result in increased costs under Section 1.10, 1.11, 2.05 or 4.04 from
those being charged by the respective Bank prior to such transfer, then no
Borrower shall be obligated to pay such increased costs (although each Borrower
shall be obligated to pay any other increased costs of the type
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described above resulting from changes after the date of the respective
transfer), it being understood that the designation by a Bank on the Restatement
Effective Date of a Subsidiary or Affiliate of such Bank to make certain
Alternate Currency Loans of the Type specified in the footnotes to Schedule I
shall not be subject to the provisions of this sentence (although any subsequent
transfer by such Subsidiary or Affiliate shall be so subject).
13.15 CONFIDENTIALITY. (a) Subject to the provisions of clause (b) of this
Section 13.15, each Bank agrees that it will use its reasonable efforts not to
disclose without the prior consent of the Company (other than to its employees,
auditors, advisors or counsel or to another Bank if the Bank or such Bank's
holding or parent company in its sole discretion determines that any such party
should have access to such information, provided such Persons shall be subject
to the provisions of this Section 13.15 to the same extent as such Bank) any
information with respect to Holdings, the Company or any of their Subsidiaries
which is now or in the future furnished pursuant to this Agreement or any other
Credit Document and which is designated by the Company to the Banks in writing
as confidential or would customarily be treated as confidential in banking
practice, PROVIDED that any Bank may disclose any such information (a) as has
become generally available to the public, (b) as may be required or appropriate
in any report, statement or testimony submitted to any municipal, state or
Federal regulatory body having or claiming to have jurisdiction over such Bank
or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or
similar organizations (whether in the United States or elsewhere) or their
successors, (c) as may be required or appropriate in respect to any summons or
subpoena or in connection with any litigation, (d) in order to comply with any
law, order, regulation or ruling applicable to such Bank, (e) to the
Administrative Agent or the Collateral Agent and (f) to any prospective or
actual transferee or participant in connection with any contemplated transfer or
participation of any of the Notes or Commitments or any interest therein by such
Bank, PROVIDED that such prospective transferee agrees to maintain the
confidentiality contained in this Section.
(b) Each of Holdings, the Company and each other Borrower hereby
acknowledges and agrees that each Bank may share with any of its Lending
Affiliates any information related to Holdings, the Company or any of their
Subsidiaries (including, without limitation, any nonpublic customer information
regarding the creditworthiness of Holdings, the Company and their Subsidiaries,
provided such Persons shall be subject to the provisions of this Section 13.15
to the same extent as such Bank).
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13.16 REGISTER. Each Borrower hereby designates the Administrative Agent to
serve as such Borrower's agent, solely for purposes of this Section 13.16, to
maintain a register (the "Register") on which it will record the Commitments
from time to time of each of the Banks, the Loans made by each of the Banks and
each repayment in respect of the principal amount of the Loans of each Bank.
Failure to make any such recordation, or any error in such recordation, shall
not affect the respective Borrower's obligations in respect of such Loans. With
respect to any Bank, the transfer of the Commitments of such Bank and the rights
to the principal of, and interest on, any Loan made pursuant to such Commitments
shall not be effective until such transfer is recorded on the Register
maintained by the Administrative Agent with respect to ownership of such
Commitments and Loans and prior to such recordation all amounts owing to the
transferor with respect to such Commitments and Loans shall remain owing to the
transferor. The registration of the assignment or transfer of all or part of any
Commitments and Loans shall be recorded by the Administrative Agent on the
Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment and Assumption Agreement pursuant to Section
13.04(b). Coincident with the delivery of such an Assignment and Assumption
Agreement to the Administrative Agent for acceptance and registration of the
assignment or transfer of all or part of a Loan, or as soon thereafter as
practicable, the assigning or transferor Bank shall surrender the Note
evidencing such Loan, and thereupon one or more new Notes in the same aggregate
principal amount shall be issued to the assigning or transferor Bank and/or the
new Bank. Each Borrower jointly and severally agrees to indemnify the
Administrative Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Administrative Agent in performing its duties under this Section
13.16 other than those resulting from the Administrative Agent's willful
misconduct or gross negligence.
13.17 JUDGMENT CURRENCY. (a) The Credit Parties' obligations hereunder and
under the other Credit Documents to make payments in the Applicable Currency
(the "Obligation Currency") shall not be discharged or satisfied by any tender
or recovery pursuant to any judgment expressed in or converted into any currency
other than the Obligation Currency, except to the extent that such tender or
recovery results in the effective receipt by the Administrative Agent, the
Collateral Agent or the respective Bank of the full amount of the Obligation
Currency expressed to be payable to the Administrative Agent, the Collateral
Agent or such Bank under this Agreement or the other Credit Documents. If, for
the purpose of obtaining or enforcing judgment against any Credit Party in any
court or in any jurisdiction, it becomes necessary to convert into or from any
currency other than the Obligation Currency (such other currency being
hereinafter referred to as the "Judgment Currency") an amount due in the
Obligation Currency, the conversion shall be made at the Alternate Currency
Equivalent
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or the Dollar Equivalent thereof, as the case may be, and, in the case of other
currencies, the rate of exchange (as quoted by the Administrative Agent or if
the Administrative Agent does not quote a rate of exchange on such currency, by
a known dealer in such currency designated by the Administrative Agent and
reasonably acceptable to the relevant Borrower) determined, in each case, as of
the Business Day immediately preceding the day on which the judgment is given
(such Business Day being hereinafter referred to as the "Judgment Currency
Conversion Date").
(b) If there is a change in the rate of exchange prevailing between the
Judgment Currency Conversion Date and the date of actual payment of the amount
due, the Borrowers covenant and agree to pay, or cause to be paid, such
additional amounts, if any (but in any event not a lesser amount) as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of Judgment Currency stipulated in the judgment or judicial
award at the rate or exchange prevailing on the Judgment Currency Conversion
Date.
(c) For purposes of determining the Alternate Currency Equivalent or the
Dollar Equivalent or any other rate of exchange for this Section, such amounts
shall include any premium and costs payable in connection with the purchase of
the Obligation Currency.
13.18 POST-CLOSING MATTERS. Notwithstanding anything to the contrary
contained in this Agreement or the other Credit Documents, the parties hereto
acknowledge and agree that:
(a) Within 30 days after the Restatement Effective Date, the
Collateral Agent shall have received endorsements of the authorized issuing
agent for the title insurers reasonably satisfactory to the Collateral
Agent to each Mortgage Policy assuring the Collateral Agent that each
Mortgage is a valid and enforceable first priority mortgage lien on the
respective Mortgaged Properties, free and clear of all defects and
encumbrances, except Permitted Encumbrances; and
(b) Within 30 days after the Restatement Effective Date, the
Collateral Agent shall have received certified copies of Requests for
Information or Copies (Form UCC-11), or equivalent reports, listing all
effective financing statements that name Peltor, Inc. as debtor and that
are filed in the appropriate filing offices located in Rhode Island,
together with copies of such other financing statements (none of which
shall cover the Collateral except to the extent evidencing Permitted Liens
or in respect of which the Collateral Agent shall
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have received termination statements (Form UCC-3) or such other termination
statements as shall be required by local law) fully executed for filing.
13.19 AMENDMENT AND RESTATEMENT; TERMINATION OF ORIGINAL CREDIT AGREEMENT.
On the Restatement Effective Date, without further action by any party the
Original Credit Agreement shall be amended and restated to read in full as set
forth herein. Holdings, the Company, each Subsidiary Borrower and each of the
Banks agrees that on and as of the Restatement Effective Date the "Commitments"
as defined in the Original Credit Agreement shall be terminated in their
entirety and all "Notes" as defined in, and issued under, the Original Credit
Agreement, shall be superseded hereby and by the Notes issued hereunder on the
Restatement Effective Date.
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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
Address:
- --------
c/o Cabot Safety Corporation AEARO CORPORATION
One Washington Mall
Boston, MA 01550 By /s/ Bryan J. Carey
Telephone No. (617) 371-4200 -------------------------------
Telecopy No. (617) 371-4233 Title: Vice President &
Treasurer
Attention: General Counsel
with a copy to
Vestar Equity Partners, L.P.
245 Park Avenue
New York, New York 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
c/o Cabot Safety Corporation CABOT SAFETY CORPORATION
One Washington Mall
Boston, MA 01550 By /s/ Bryan J. Carey
Telephone No. (617) 371-4200 -------------------------------
Telecopy No. (617) 371-4233 Title: Treasurer
Attention: General Counsel
with a copy to
Vestar Equity Partners, L.P.
245 Park Avenue
New York, New York 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
<PAGE> 165
c/o Cabot Safety Corporation CABOT SAFETY CANADA CORPORATION
One Washington Mall
Boston, MA 01550 By /s/ Bryan J. Carey
Telephone No. (617) 371-4200 ------------------------------------
Telecopy No. (617) 371-4233 Title: Treasurer
Attention: General Counsel
with a copy to
Vestar Equity Partners, L.P.
245 Park Avenue
New York, New York 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
c/o Cabot Safety Corporation CABOT SAFETY LIMITED
One Washington Mall
Boston, MA 01550 By /s/ John D. Curtin, Jr.
Telephone No. (617) 371-4200 ------------------------------------
Telecopy No. (617) 371-4233 Title: Chairman/Director
Attention: General Counsel By /s/ Bryan J. Carey
------------------------------------
with a copy to Title: Director
Vestar Equity Partners, L.P.
245 Park Avenue
New York, New York 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
<PAGE> 166
BANKERS TRUST COMPANY,
Individually and as
Administrative Agent
By /s/ Chris Kinslow
----------------------------------
Title: Vice President
<PAGE> 167
SCHEDULE I
<TABLE> ----------
COMMITMENTS
-----------
<CAPTION>
Bank A Term Loan Commitment
- ---- ----------------------
SUBSIDIARY A
COMPANY A COMPANY A COMPANY A (IN CANADIAN SUBSIDIARY A
(IN US$) (IN DEUTSCHE MARKS) (IN POUNDS STERLING) DOLLARS) (IN POUNDS STERLING)
<S> <C> <C> <C> <C> <C>
Bankers Trust Company US$35,148,243.73 DM30,958.000.00 [Pound]13,204,806.55 CDN$6,133,050.00 [Pound]6,857,146.95
(US$20,000,000.00)** (US$20,000,000.00)** (US$4,465,921.50)** (US$10,385,834.77)**
---------------- ---------------- ---------------- ----------------- --------------
TOTAL US$35,148,243.73 (DM30,958.000.00) ([Pound]13,204,806.55) (CDN$6,133,050.00) ([Pound]6,857,146.95)
(US$20,000,000.00)** (US$20,000,000.00)** (US$4,465,921.50)** (US$10,385,834.77)**
</TABLE>
<TABLE>
<CAPTION>
B Term Loan Revolving Total
Commitment Commitment Commitment
---------- ---------- ----------
U.S.
----
<C> <C> <C>
$50,000,000.00 $25,000,000.00 $165,000,000.00
([Pound]16,506,008.19)***
---------------- --------------------- ---------------
$50,000,000.00 $25,000,000.00 $165,000,000.00
([Pound]16,506,008.19)***
<FN>
**/ Dollar Equivalent on the Restatement Effective Date.
***/ Sterling Equivalent on the Restatement Effective Date.
</TABLE>
<PAGE> 168
SCHEDULE II
-----------
BANK ADDRESSES
--------------
Bankers Trust Company 130 Liberty Street
New York, New York 10006
Telephone No.: (212) 250-7671
Telecopier No.: (212) 250-7218
Attention: Christopher Kinslow
<PAGE> 169
SCHEDULE III
------------
EXISTING LETTERS OF CREDIT
See Attached.
<PAGE> 170
<TABLE>
SCHEDULE III
<CAPTION>
===============================================================================
BENEFICIARY AMOUNT CREDIT #
- -------------------------------------------------------------------------------
<S> <C> <C>
Dong Woo Corporation $100,000 S-10583
Suite 701, Sungjee (EXP. 7/31/96)
Heights - III
642-6 Yeoksam-Dong
Kangnam-Ku
Seoul, Korea 135-080
===============================================================================
</TABLE>
<PAGE> 171
SCHEDULE IV
<TABLE>
A TERM LOAN SCHEDULED REPAYMENTS
1. COMPANY A DOLLAR TERM LOANS
TOTAL AMOUNT ON RESTATEMENT EFFECTIVE DATE: $35,148,243.73
TOTAL AMOUNT DESIGNATED AS ORIGINAL LOANS: $11,564,910.39
TOTAL AMOUNT DESIGNATED AS NEW LOANS: $23,583,333.34
<CAPTION>
AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
TOTAL AMOUNT OF SCHEDULED REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
A TERM LOAN SCHEDULED REPAYMENT DATE REPAYMENT IN US DOLLARS LOANS (IN US$) LOANS (IN US$)
<S> <C> <C> <C>
last Business Day in August, 1996 $ 732,255.08 $ 732,255.08 0
last Business Day in November, 1996 $ 732,255.08 $ 732,255.08 0
last Business Day in February, 1997 $ 732,255.08 $ 732,255.08 0
last Business Day in May, 1997 $ 732,255.08 $ 732,255.08 0
last Business Day in August, 1997 $ 976,340.10 $ 976,340.10 0
last Business Day in November, 1997 $ 976,340.10 $ 976,340.10 0
last Business Day in February, 1998 $ 976,340.10 $ 976,340.10 0
last Business Day in May, 1998 $ 976,340.10 $ 976,340.10 0
last Business Day in August, 1998 $1,220,425.13 $1,220,425.13 0
last Business Day in November, 1998 $1,220,425.13 $1,220,425.13 0
</TABLE>
<PAGE> 172
SCHEDULE IV
Page 2
<TABLE>
<CAPTION>
AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
TOTAL AMOUNT OF SCHEDULED REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
A TERM LOAN SCHEDULED REPAYMENT DATE REPAYMENT IN US DOLLARS LOANS (IN US$) LOANS (IN US$)
<S> <C> <C> <C>
last Business Day in February, 1999 $1,220,425.13 $1,220,425.13 0
last Business Day in May, 1999 $1,220,425.13 $1,069,254.28 $ 151,170.85
last Business Day in August, 1999 $1,464,510.16 0 $1,464,510.16
last Business Day in November, 1999 $1,464,510.16 0 $1,464,510.16
last Business Day in February, 2000 $1,464,510.16 0 $1,464,510.16
last Business Day in May, 2000 $1,464,510.16 0 $1,464,510.16
last Business Day in August, 2000 $1,952,680.21 0 $1,952,680.21
last Business Day in November, 2000 $1,952,680.21 0 $1,952,680.21
last Business Day in February, 2001 $1,952,680.21 0 $1,952,680.21
last Business Day in May, 2001 $1,952,680.21 0 $1,952,680.21
last Business Day in August, 2001 $2,440,850.26 0 $2,440,850.26
last Business Day in November, 2001 $2,440,850.26 0 $2,440,850.26
last Business Day in February, 2002 $2,440,850.26 0 $2,440,850.26
A Term Loan Maturity Date $2,440,850.26 0 $2,440,850.26
</TABLE>
<PAGE> 173
SCHEDULE IV
Page 3
<TABLE>
A TERM LOAN SCHEDULED REPAYMENTS
2. COMPANY A DEUTSCHE MARK TERM LOANS
TOTAL AMOUNT ON RESTATEMENT EFFECTIVE DATE: 30,958,000.00 DEUTSCHE MARKS
TOTAL AMOUNT DESIGNATED AS ORIGINAL LOANS: 10,319,333.33 DEUTSCHE MARKS
TOTAL AMOUNT DESIGNATED AS NEW LOANS: 20,638,666.67 DEUTSCHE MARKS
AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
TOTAL AMOUNT OF SCHEDULED REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
A TERM LOAN SCHEDULED REPAYMENT DATE REPAYMENT IN DEUTSCHE MARKS LOANS (IN DEUTSCHE MARKS) LOANS (IN DEUTSCHE MARKS)
<S> <C> <C> <C>
last Business Day in August, 1996 644,958.33 644,958.33 0
last Business Day in November, 1996 644,958.33 644,958.33 0
last Business Day in February, 1997 644,958.33 644,958.33 0
last Business Day in May, 1997 644,958.33 644,958.33 0
last Business Day in August, 1997 859,944.44 859,944.44 0
last Business Day in November, 1997 859,944.44 859,944.44 0
last Business Day in February, 1998 859,944.44 859,944.44 0
last Business Day in May, 1998 859,944.44 859,944.44 0
last Business Day in August, 1998 1,074,930.56 1,074,930.56 0
last Business Day in November, 1998 1,074,930.56 1,074,930.56 0
last Business Day in February, 1999 1,074,930.56 1,074,930.56 0
</TABLE>
<PAGE> 174
SCHEDULE IV
Page 4
<TABLE>
<CAPTION>
AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
TOTAL AMOUNT OF SCHEDULED REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
A TERM LOAN SCHEDULED REPAYMENT DATE REPAYMENT IN DEUTSCHE MARKS LOANS (IN DEUTSCHE MARKS) LOANS (IN DEUTSCHE MARKS)
<S> <C> <C> <C>
last Business Day in May, 1999 1,074,930.56 1,074,930.56 0
last Business Day in August, 1999 1,289,916.67 0 1,289,916.67
last Business Day in November, 1999 1,289,916.67 0 1,289,916.67
last Business Day in February, 2000 1,289,916.67 0 1,289,916.67
last Business Day in May, 2000 1,289,916.67 0 1,289,916.67
last Business Day in August, 2000 1,719,888.89 0 1,719,888.89
last Business Day in November, 2000 1,719,888.89 0 1,719,888.89
last Business Day in February, 2001 1,719,888.89 0 1,719,888.89
last Business Day in May, 2001 1,719,888.89 0 1,719,888.89
last Business Day in August, 2001 2,149,861.11 0 2,149,861.11
last Business Day in November, 2001 2,149,861.11 0 2,149,861.11
last Business Day in February, 2002 2,149,861.11 0 2,149,861.11
A Term Loan Maturity Date 2,149,861.11 0 2,149,861.11
</TABLE>
<PAGE> 175
SCHEDULE IV
Page 5
<TABLE>
A TERM LOAN SCHEDULED REPAYMENTS
3. COMPANY A STERLING TERM LOANS
TOTAL AMOUNT ON RESTATEMENT EFFECTIVE DATE: 13,204,806.55 POUNDS STERLING
TOTAL AMOUNT DESIGNATED AS ORIGINAL LOANS: 4,401,602.19 POUNDS STERLING
TOTAL AMOUNT DESIGNATED AS NEW LOANS: 8,803,204.36 POUNDS STERLING
<CAPTION>
AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
TOTAL AMOUNT OF SCHEDULED REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
A TERM LOAN SCHEDULED REPAYMENT DATE REPAYMENT IN POUNDS STERLING LOANS (IN POUNDS STERLING) LOANS (IN POUNDS STERLING)
<S> <C> <C> <C>
last Business Day in August, 1996 [Pound]275,100.14 [Pound]275,100.14 0
last Business Day in November, 1996 [Pound]275,100.14 [Pound]275,100.14 0
last Business Day in February, 1997 [Pound]275,100.14 [Pound]275,100.14 0
last Business Day in May, 1997 [Pound]275,100.14 [Pound]275,100.14 0
last Business Day in August, 1997 [Pound]366,800.18 [Pound]366,800.18 0
last Business Day in November, 1997 [Pound]366,800.18 [Pound]366,800.18 0
last Business Day in February, 1998 [Pound]366,800.18 [Pound]366,800.18 0
last Business Day in May, 1998 [Pound]366,800.18 [Pound]366,800.18 0
</TABLE>
<PAGE> 176
SCHEDULE IV
Page 6
<TABLE>
<CAPTION>
AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
TOTAL AMOUNT OF SCHEDULED REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
A TERM LOAN SCHEDULED REPAYMENT DATE REPAYMENT IN POUNDS STERLING LOANS (IN POUNDS STERLING) LOANS (IN POUNDS STERLING)
<S> <C> <C> <C>
last Business Day in August, 1998 [Pound]458,500.23 [Pound]458,500.23 0
last Business Day in November, 1998 [Pound]458,500.23 [Pound]458,500.23 0
last Business Day in February, 1999 [Pound]458,500.23 [Pound]458,500.23 0
last Business Day in May, 1999 [Pound]458,500.23 [Pound]458,500.23 0
last Business Day in August, 1999 [Pound]550,200.27 0 [Pound]550,200.27
last Business Day in November, 1999 [Pound]550,200.27 0 [Pound]550,200.27
last Business Day in February, 2000 [Pound]550,200.27 0 [Pound]550,200.27
last Business Day in May, 2000 [Pound]550,200.27 0 [Pound]550,200.27
last Business Day in August, 2000 [Pound]733,600.36 0 [Pound]733,600.36
last Business Day in November, 2000 [Pound]733,600.36 0 [Pound]733,600.36
last Business Day in February, 2001 [Pound]733,600.36 0 [Pound]733,600.36
last Business Day in May, 2001 [Pound]733,600.36 0 [Pound]733,600.36
last Business Day in August, 2001 [Pound]917,000.45 0 [Pound]917,000.45
last Business Day in November, 2001 [Pound]917,000.45 0 [Pound]917,000.45
last Business Day in February, 2002 [Pound]917,000.45 0 [Pound]917,000.45
A Term Loan Maturity Date [Pound]917,000.45 0 [Pound]917,000.45
</TABLE>
<PAGE> 177
SCHEDULE IV
Page 7
<TABLE>
A TERM LOAN SCHEDULED REPAYMENTS
4. SUBSIDIARY A CANADIAN TERM LOANS
TOTAL AMOUNT ON RESTATEMENT EFFECTIVE DATE: 6,133,050.00 CANADIAN DOLLARS
TOTAL AMOUNT DESIGNATED AS ORIGINAL LOANS: 6,133,050.00 CANADIAN DOLLARS
TOTAL AMOUNT DESIGNATED AS NEW LOANS: 0 CANADIAN DOLLARS
<CAPTION>
AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
TOTAL AMOUNT OF SCHEDULED REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
A TERM LOAN SCHEDULED REPAYMENT DATE REPAYMENT IN CANADIAN DOLLARS LOANS (IN CANADIAN DOLLARS) LOANS (IN CANADIAN DOLLARS)
<S> <C> <C> <C>
last Business Day in August, 1996 0 0 0
last Business Day in November, 1996 0 0 0
last Business Day in February, 1997 0 0 0
last Business Day in May, 1997 0 0 0
last Business Day in August, 1997 0 0 0
last Business Day in November, 1997 0 0 0
last Business Day in February, 1998 0 0 0
</TABLE>
<PAGE> 178
SCHEDULE IV
Page 8
<TABLE>
<CAPTION>
AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
TOTAL AMOUNT OF SCHEDULED REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
A TERM LOAN SCHEDULED REPAYMENT DATE REPAYMENT IN CANADIAN DOLLARS LOANS (IN CANADIAN DOLLARS) LOANS (IN CANADIAN DOLLARS)
<S> <C> <C> <C>
last Business Day in May, 1998 0 0 0
last Business Day in August, 1998 0 0 0
last Business Day in November, 1998 0 0 0
last Business Day in February, 1999 0 0 0
last Business Day in May, 1999 0 0 0
last Business Day in August, 1999 0 0 0
last Business Day in November, 1999 0 0 0
last Business Day in February, 2000 0 0 0
last Business Day in May, 2000 0 0 0
last Business Day in August, 2000 0 0 0
last Business Day in November, 2000 0 0 0
last Business Day in February, 2001 0 0 0
last Business Day in May, 2001 0 0 0
last Business Day in August, 2001 0 0 0
last Business Day in November, 2001 0 0 0
last Business Day in February, 2002 0 0 0
A Term Loan Maturity Date $6,133,050.00 $6,133,050.00 0
</TABLE>
<PAGE> 179
SCHEDULE IV
Page 9
<TABLE>
A TERM LOAN SCHEDULED REPAYMENTS
5. SUBSIDIARY A STERLING TERM LOANS
TOTAL AMOUNT ON RESTATEMENT EFFECTIVE DATE: 6,857,146.95 POUNDS STERLING
TOTAL AMOUNT DESIGNATED AS ORIGINAL LOANS: 6,857,146.95 POUNDS STERLING
TOTAL AMOUNT DESIGNATED AS NEW LOANS: 0 POUNDS STERLING
<CAPTION>
AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
TOTAL AMOUNT OF SCHEDULED REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
A TERM LOAN SCHEDULED REPAYMENT DATE REPAYMENT IN POUNDS STERLING LOANS (IN POUNDS STERLING) LOANS (IN POUNDS STERLING)
<S> <C> <C> <C>
last Business Day in August, 1996 [Pound]142,857.23 [Pound]142,857.23 0
last Business Day in November, 1996 [Pound]142,857.23 [Pound]142,857.23 0
last Business Day in February, 1997 [Pound]142,857.23 [Pound]142,857.23 0
last Business Day in May, 1997 [Pound]142,857.23 [Pound]142,857.23 0
last Business Day in August, 1997 [Pound]190,476.30 [Pound]190,476.30 0
last Business Day in November, 1997 [Pound]190,476.30 [Pound]190,476.30 0
last Business Day in February, 1998 [Pound]190,476.30 [Pound]190,476.30 0
last Business Day in May, 1998 [Pound]190,476.30 [Pound]190,476.30 0
</TABLE>
<PAGE> 180
SCHEDULE IV
Page 10
<TABLE>
<CAPTION>
AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
TOTAL AMOUNT OF SCHEDULED REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
A TERM LOAN SCHEDULED REPAYMENT DATE REPAYMENT IN POUNDS STERLING LOANS (IN POUNDS STERLING) LOANS (IN POUNDS STERLING)
<S> <C> <C> <C>
last Business Day in August, 1998 [Pound]238,095.38 [Pound]238,095.38 0
last Business Day in November, 1998 [Pound]238,095.38 [Pound]238,095.38 0
last Business Day in February, 1999 [Pound]238,095.38 [Pound]238,095.38 0
last Business Day in May, 1999 [Pound]238,095.38 [Pound]238,095.38 0
last Business Day in August, 1999 [Pound]285,714.46 [Pound]285,714.46 0
last Business Day in November, 1999 [Pound]285,714.46 [Pound]285,714.46 0
last Business Day in February, 2000 [Pound]285,714.46 [Pound]285,714.46 0
last Business Day in May, 2000 [Pound]285,714.46 [Pound]285,714.46 0
last Business Day in August, 2000 [Pound]380,952.61 [Pound]380,952.61 0
last Business Day in November, 2000 [Pound]380,952.61 [Pound]380,952.61 0
last Business Day in February, 2001 [Pound]380,952.61 [Pound]380,952.61 0
last Business Day in May, 2001 [Pound]380,952.61 [Pound]380,952.61 0
last Business Day in August, 2001 [Pound]476,190.76 [Pound]476,190.76 0
last Business Day in November, 2001 [Pound]476,190.76 [Pound]476,190.76 0
last Business Day in February, 2002 [Pound]476,190.76 [Pound]476,190.76 0
A Term Loan Maturity Date [Pound]476,190.76 [Pound]476,190.76 0
</TABLE>
<PAGE> 181
SCHEDULE IV
Page 11
SCHEDULE IV
<TABLE>
A TERM LOAN SCHEDULED REPAYMENTS
[FOR INFORMATIONAL PURPOSES ONLY]
7. A TERM LOANS
TOTAL AMOUNT ON RESTATEMENT EFFECTIVE DATE: $90,000,000.00
TOTAL AMOUNT DESIGNATED AS ORIGINAL LOANS: $39,750,000.00
TOTAL AMOUNT DESIGNATED AS NEW LOANS: $50,250,000.00
<CAPTION>
TOTAL AMOUNT OF A TERM AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
LOAN SCHEDULED REPAYMENT IN REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
US DOLLARS OR US DOLLAR LOANS (IN US$ OR US DOLLAR LOANS (IN US$ OR US DOLLAR
A TERM LOAN SCHEDULED REPAYMENT EQUIVALENTS (CALCULATED ON THE EQUIVALENTS (CALCULATED ON THE EQUIVALENTS (CALCULATED ON THE
DATE RESTATEMENT EFFECTIVE DATE) RESTATEMENT EFFECTIVE DATE)) RESTATEMENT EFFECTIVE DATE))
<S> <C> <C> <C>
last Business Day in August, 1996 $1,781,959.97 $1,781,959.97 0
last Business Day in November, 1996 $1,781,959.97 $1,781,959.97 0
last Business Day in February, 1997 $1,781,959.97 $1,781,959.97 0
last Business Day in May, 1997 $1,781,959.97 $1,781,959.97 0
last Business Day in August, 1997 $2,375,946.62 $2,375,946.62 0
last Business Day in November, 1997 $2,375,946.62 $2,375,946.62 0
last Business Day in February, 1998 $2,375,946.62 $2,375,946.62 0
last Business Day in May, 1998 $2,375,946.62 $2,375,946.62 0
</TABLE>
<PAGE> 182
SCHEDULE IV
Page 12
<TABLE>
<CAPTION>
TOTAL AMOUNT OF A TERM AMOUNT OF SUCH SCHEDULED AMOUNT OF SUCH SCHEDULED
LOAN SCHEDULED REPAYMENT IN REPAYMENT CONSISTING OF ORIGINAL REPAYMENT CONSISTING OF NEW
US DOLLARS OR US DOLLAR LOANS (IN US$ OR US DOLLAR LOANS (IN US$ OR US DOLLAR
A TERM LOAN SCHEDULED REPAYMENT EQUIVALENTS (CALCULATED ON THE EQUIVALENTS (CALCULATED ON THE EQUIVALENTS (CALCULATED ON THE
DATE RESTATEMENT EFFECTIVE DATE) RESTATEMENT EFFECTIVE DATE)) RESTATEMENT EFFECTIVE DATE))
<S> <C> <C> <C>
last Business Day in August, 1998 $ 2,969,933.28 $2,969,933.28 0
last Business Day in November, 1998 $ 2,969,933.28 $2,969,933.28 0
last Business Day in February, 1999 $ 2,969,933.28 $2,969,933.28 0
last Business Day in May, 1999 $ 2,969,933.28 $2,818,762.43 $ 151,170.85
last Business Day in August, 1999 $ 3,563.919.94 $ 432,743.12 $3,131,176.82
last Business Day in November, 1999 $ 3,563.919.94 $ 432,743.12 $3,131,176.82
last Business Day in February, 2000 $ 3,563.919.94 $ 432,743.12 $3,131,176.82
last Business Day in May, 2000 $ 3,563.919.94 $ 432,743.12 $3,131,176.82
last Business Day in August, 2000 $ 4,751,893.25 $ 576,990.82 $3,563,919.94
last Business Day in November, 2000 $ 4,751,893.25 $ 576,990.82 $3,563,919.94
last Business Day in February, 2001 $ 4,751,893.25 $ 576,990.82 $3,563,919.94
last Business Day in May, 2001 $ 4,751,893.25 $ 576,990.82 $3,563,919.94
last Business Day in August, 2001 $ 5,939,866.57 $ 721,238.53 $5,218,628.04
last Business Day in November, 2001 $ 5,939,866.57 $ 721,238.53 $5,218,628.04
last Business Day in February, 2002 $ 5,939,866.57 $ 721,238.53 $5,218,628.04
A Term Loan Maturity Date $10,405,788.07 $5,187,160.03 $5,218,626.04
</TABLE>
<PAGE> 183
<TABLE>
SCHEDULE IV
Page 13
B TERM LOAN SCHEDULED REPAYMENTS
1. B TERM LOANS
TOTAL AMOUNT ON RESTATEMENT EFFECTIVE DATE: $50,000,000
TOTAL AMOUNT DESIGNATED AS ORIGINAL LOANS: $1,500,000
TOTAL AMOUNT DESIGNATED AS NEW LOANS: $48,500,000
<CAPTION>
AMOUNT OF SUCH
TOTAL AMOUNT OF B TERM LOAN SCHEDULED REPAYMENT
B TERM LOAN SCHEDULED REPAYMENT SCHEDULED REPAYMENT AMOUNT OF SUCH SCHEDULED REPAYMENT CONSISTING OF NEW LOANS
DATE IN US DOLLARS CONSISTING OF ORIGINAL LOANS (IN US$) (IN US$)
<S> <C> <C> <C>
last Business Day in August, 1996 $125,000 $125,000 0
last Business Day in November, 1996 $125,000 $125,000 0
last Business Day in February, 1997 $125,000 $125,000 0
last Business Day in May, 1997 $125,000 $125,000 0
last Business Day in August, 1997 $125,000 $125,000 0
last Business Day in November, 1997 $125,000 $125,000 0
last Business Day in February, 1998 $125,000 $125,000 0
last Business Day in May, 1998 $125,000 $125,000 0
last Business Day in August, 1998 $125,000 $125,000 0
last Business Day in November, 1998 $125,000 $125,000 0
last Business Day in February, 1999 $125,000 $125,000 0
last Business Day in May, 1999 $125,000 $125,000 0
</TABLE>
<PAGE> 184
SCHEDULE IV
PAGE 14
<TABLE>
<CAPTION>
AMOUNT OF SUCH
TOTAL AMOUNT OF B TERM LOAN SCHEDULED REPAYMENT
B TERM LOAN SCHEDULED REPAYMENT SCHEDULED REPAYMENT AMOUNT OF SUCH SCHEDULED REPAYMENT CONSISTING OF NEW LOANS
DATE IN US DOLLARS CONSISTING OF ORIGINAL LOANS (IN US$) (IN US$)
<S> <C> <C> <C>
last Business Day in August, 1999 $ 125,000 0 $ 125,000
last Business Day in November, 1999 $ 125,000 0 $ 125,000
last Business Day in February, 2000 $ 125,000 0 $ 125,000
last Business Day in May, 2000 $ 125,000 0 $ 125,000
last Business Day in August, 2000 $ 125,000 0 $ 125,000
last Business Day in November, 2000 $ 125,000 0 $ 125,000
last Business Day in February, 2001 $ 125,000 0 $ 125,000
last Business Day in May, 2001 $ 125,000 0 $ 125,000
last Business Day in August, 2001 $ 125,000 0 $ 125,000
last Business Day in November, 2001 $ 125,000 0 $ 125,000
last Business Day in February, 2002 $ 125,000 0 $ 125,000
last Business Day in May, 2002 $ 125,000 0 $ 125,000
last Business Day in August, 2002 $11,750,000 0 $11,750,000
last Business Day in November, 2002 $11,750,000 0 $11,750,000
last Business Day in February, 2003 $11,750,000 0 $11,750,000
B Term Loan Maturity Date $11,750,000 0 $11,750,000
</TABLE>
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED US PLEDGE AGREEMENT
US PLEDGE AGREEMENT, dated as of July 11, 1995 and amended and
restated as of May 30, 1996 (as amended, modified or supplemented from time to
time, this "Agreement"), made by each of the undersigned (each a "Pledgor" and,
collectively, the "Pledgors"), in favor of BANKERS TRUST COMPANY, as Collateral
Agent (the "Pledgee"), for the benefit of the Secured Creditors (as defined
below). Except as otherwise defined herein, terms used herein and defined in the
Credit Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H :
WHEREAS, Aearo Corporation (f/k/a Cabot Safety Holdings Corporation)
("Holdings"), Cabot Safety Corporation (f/k/a Cabot Safety Acquisition
Corporation) (the "Company"), each Subsidiary Borrower (together with the
Company, each a "Borrower" and, collectively, the "Borrowers"), the Banks party
thereto, from time to time (the "Banks") and Bankers Trust Company, as
Administrative Agent (together with any successor agent, the "Administrative
Agent," and together with the Pledgee and the Banks, the "Bank Creditors"), have
entered into a Credit Agreement, dated as of July 11, 1995 and amended and
restated as of May 30, 1996 (as amended, modified or supplemented from time to
time, the "Credit Agreement"), providing for the making of Loans to the
Borrowers and the issuance of, and participation in, Letters of Credit for the
account of the Company, all as contemplated therein;
WHEREAS, the Borrowers may from time to time be party to (or guaranty
the obligations of one or more of their Subsidiaries under) one or more (i)
interest rate agreements, interest rate cap agreements, interest rate collar
agreements or other similar agreements or arrangements, (ii) foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against the fluctuations in currency values and\or (iii)
other types of hedging agreements from time to time (each such agreement or
arrangement with an Other Creditor (as hereinafter defined), an "Interest Rate
Protection Agreement or Other Hedging Agreement"), with a Bank or an affiliate
of a Bank (each such Bank or affiliate, even if the respective Bank subsequently
ceases to be a Bank under the Credit Agreement for any reason, together with
such Bank's or affiliate's successors and assigns, collectively, the "Other
Creditors," and together with Bank Creditors, the "Secured Creditors");
<PAGE> 2
EXHIBIT 10.2
Page 2
WHEREAS, pursuant to Section 12 of the Credit Agreement, the Company
has guaranteed to the Secured Creditors the payment when due of all obligations
and liabilities of (i) the Subsidiary Borrowers under or with respect to the
Credit Documents and (ii) each of its Subsidiaries under or with respect to the
Interest Rate Protection Agreements or Other Hedging Agreements entered into by
such Subsidiary;
WHEREAS, pursuant to Section 12 of the Credit Agreement, Holdings has
guaranteed to the Secured Creditors the payment when due of all obligations and
liabilities of (i) the Company under or with respect to the Credit Documents and
(ii) the Subsidiary Borrowers under or with respect to the Credit Documents;
WHEREAS, pursuant to the Amended and Restated US Subsidiary Guaranty,
each Pledgor (other than the Company) has jointly and severally guaranteed to
the Secured Creditors the payment when due of all obligations and liabilities of
(i) the Borrowers under or with respect to the Credit Documents, subject to the
limitations contained in the Amended and Restated US Subsidiary Guaranty, and
(ii) the Company and its other Subsidiaries under or with respect to the
Interest Rate Protection Agreements or Other Hedging Agreements entered into by
the Company or such other Subsidiaries;
WHEREAS, the Pledgors have heretofore entered into a US Pledge
Agreement, dated as of July 11, 1995 (as amended, modified or supplemented prior
to the date hereof, the "Original US Pledge Agreement");
WHEREAS, it is a condition precedent to the extensions of credit under
the Credit Agreement that each Pledgor shall have executed and delivered to the
Pledgee this Agreement; and
WHEREAS, each Pledgor desires to execute this Agreement (i) to satisfy
the conditions described in the preceding paragraph and (ii) to amend and
restate the Original US Pledge Agreement;
NOW, THEREFORE, in consideration of the benefits accruing to each
Pledgor, the receipt and sufficiency of which are hereby acknowledged, each
Pledgor hereby makes the following representations and warranties to the Pledgee
and hereby covenants and agrees with the Pledgee as follows:
1. SECURITY FOR OBLIGATIONS. (a) Subject to the limitations contained
in paragraph 1(b), this Agreement is made by each Pledgor for the benefit of the
<PAGE> 3
EXHIBIT 10.2
Page 3
Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations and
liabilities of such Pledgor, now existing or hereafter incurred under,
arising out of or in connection with any Credit Document to which it is
a party and the due performance and compliance by such Pledgor with the
terms of each such Credit Document (all such obligations and liabil-
ities under this clause (i), except to the extent consisting of Other
Obligations (as defined below), being herein collectively called the
"Credit Document Obligations");
(ii) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations and
liabilities of such Pledgor, now existing or hereafter incurred under,
arising out of or in connection with any Interest Rate Protection
Agreement or Other Hedging Agreement including all obligations of such
Pledgor under its Guaranty in respect of Interest Rate Protection
Agreements or Other Hedging Agreements (all such obligations and
liabilities under this clause (ii) being herein collectively called the
"Other Obligations");
(iii) any and all sums advanced by the Pledgee in order to
preserve the Collateral (as hereinafter defined) or preserve its
security interest in the Collateral;
(iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities referred
to in clauses (i), (ii) and (iii) above, after an Event of Default
(such term, as used in this Agreement, shall mean any Event of Default
under, and as defined in, the Credit Agreement, or any payment default
by the Borrowers under any Interest Rate Protection Agreement or Other
Hedging Agreement and shall in any event include, without limitation,
any payment default (after the expiration of any applicable grace
period) on any of the Obligations (as hereinafter defined)) shall have
occurred and be continuing, the reasonable expenses of retaking,
holding, preparing for sale or lease, selling or otherwise disposing or
realizing on the Collateral, or of any exercise by the Pledgee of its
rights hereunder, together with reasonable attorneys' fees and court
costs; and
(v) all amounts paid by any Secured Creditor as to which such
Secured Creditor has the right to reimbursement under Section 11 of
this Agreement;
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section 1 being herein collectively called the
"Obligations."
<PAGE> 4
EXHIBIT 10.2
Page 4
(b) Notwithstanding any other provision of this Amended and Restated US
Pledge Agreement, the aggregate amount of the Obligations of the Pledgors (other
than Holdings and the Company) secured hereby, including without limitation,
obligations for principal, premium, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities and expenses payable by such
Pledgors under any Credit Documents, Interest Rate Protection Agreement or Other
Hedging Agreement, shall in no event exceed the aggregate principal amount of
(i) all Original Term Loans (or the Dollar Equivalent thereof) outstanding from
time to time, as such Original Term Loans have been repaid pursuant to Sections
4.02(b) and (c) of the Credit Agreement plus (ii) all Revolving Loans (or the
Dollar Equivalent thereof.
2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used herein: (i) the
term "Stock" shall mean (x) with respect to corporations incorporated under the
laws of the United States or any State or territory thereof (each a "Domestic
Corpora tion"), all of the issued and outstanding shares of capital stock at any
time owned by any Pledgor of any Domestic Corporation and (y) with respect to
corporations not Domestic Corporations (each a "Foreign Corporation"), all of
the issued and outstanding shares of capital stock at any time owned by any
Pledgor of any Foreign Corporation, provided that, except as provided in the
last sentence of this Section 2, such Pledgor (to the extent that it is the
Company or a Domestic Subsidiary of the Company) shall not be required to pledge
hereunder more than 65% of the total combined voting power of all classes of
capital stock owned by such Pledgor of any Foreign Corporation entitled to vote;
(ii) the term "Notes" shall mean all promissory notes (other than, in the case
of Cabot Safety Intermediate Corporation, the Swedish Note) from time to time
issued to, or held by, each Pledgor having a principal amount of $2,000,000 or
more; and (iii) the term "Securities" shall mean all of the Stock and Notes.
Each Pledgor represents and warrants that on the date hereof (i) the Stock held
by such Pledgor consists of the number and type of shares of the stock of the
corporations as described in Annex A hereto; (ii) such Stock constitutes that
percentage of the issued and outstanding capital stock of the issuing
corporation as is set forth in Annex A hereto; (iii) the Notes held by such
Pledgor (other than, in the case of Cabot Safety Intermediate Corporation, the
Swedish Note) consist of the promissory notes described in Annex B hereto where
such Pledgor is listed as the Lender; and (iv) on the date hereof, such Pledgor
owns no other Securities. In the circumstances and to the extent provided in
Section 8.12 of the Credit Agreement, the 65% limitation set forth in clause
(i)(y) of this Section 2 and in Section 3.2 hereof shall no longer be applicable
and such Pledgor shall duly pledge and deliver to the Pledgee such of the
Securities not theretofore required to be pledged hereunder.
<PAGE> 5
EXHIBIT 10.2
Page 5
3. PLEDGE OF SECURITIES, ETC.
3.1. Pledge. To secure the Obligations of such Pledgor and for the
purposes and subject to the limitations set forth in Section 1 hereof, each
Pledgor hereby: (i) grants to the Pledgee a security interest in all of the
Collateral owned by such Pledgor; (ii) pledges and deposits as security with the
Pledgee the Securities owned by such Pledgor on the date hereof, and delivers to
the Pledgee certificates or instruments therefor, duly endorsed in blank in the
case of Notes and accompanied by undated stock powers duly executed in blank by
such Pledgor in the case of Stock, or such other instruments of transfer as are
acceptable to the Pledgee; and (iii) assigns, transfers, hypothecates,
mortgages, charges and sets over to the Pledgee all of such Pledgor's right,
title and interest in and to such Securities (and in and to all certificates or
instruments evidencing such Securities), to be held by the Pledgee, upon the
terms and conditions set forth in this Agreement.
3.2. Subsequently Acquired Securities. If any Pledgor shall acquire (by
purchase, stock dividend or otherwise) any additional Securities at any time or
from time to time after the date hereof, such Pledgor will forthwith pledge and
deposit such Securities (or certificates or instruments representing such
Securities) as security with the Pledgee and deliver to the Pledgee certificates
therefor or instruments thereof, duly endorsed in blank in the case of Notes and
accompanied by undated stock powers duly executed in blank in the case of Stock,
or such other instruments of transfer as are acceptable to the Pledgee, and will
promptly thereafter deliver to the Pledgee a certificate executed by any
Authorized Officer of such Pledgor describing such Securities and certifying
that the same have been duly pledged with the Pledgee hereunder. Subject to the
last sentence of Section 2 hereof, no Pledgor (to the extent that it is the
Company or a Domestic Subsidiary of the Company) shall be required at any time
to pledge hereunder any Stock which is more than 65% of the total combined
voting power of all classes of capital stock of any Foreign Corporation entitled
to vote.
3.3. Uncertificated Securities. If any Securities (whether now owned or
hereafter acquired) are uncertificated securities, the respective Pledgor shall
promptly notify the Pledgee thereof, and shall promptly take all actions
required to perfect the security interest of the Pledgee under applicable law
(including, in any event, under Sections 8-313 and 8-321 of the New York UCC, if
applicable). Each Pledgor further agrees to take such actions as the Pledgee
deems reasonably necessary or desirable to effect the foregoing and to permit
the Pledgee to exercise any of its rights and remedies hereunder, and agrees to
pro vide an opinion of counsel reasonably satisfactory to the Pledgee with
respect to any such pledge of uncertificated Securities promptly upon request of
the Pledgee.
<PAGE> 6
EXHIBIT 10.2
Page 6
3.4. Definition of Pledged Stock, Pledged Notes, Pledged Securities and
Collateral. All Stock at any time pledged or required to be pledged hereunder is
hereinafter called the "Pledged Stock," all Notes at any time pledged or
required to be pledged hereunder are hereinafter called the "Pledged Notes," all
of the Pledged Stock and Pledged Notes together are hereinafter called the
"Pledged Securities," which together with all proceeds thereof, including any
securities and moneys received and at the time held by the Pledgee hereunder and
all Dividends and Distributions on or with respect to any Pledged Stock, is
hereinafter called the "Collateral". As used herein the term (i) Dividends shall
mean all stock dividends, liquidating dividends, shares of stock resulting from
stock splits, reclassifications, warrants, options, non-cash dividends and other
distributions (whether similar or dissimilar to the foregoing) on or with
respect to any Pledged Stock or other shares of capital stock constituting
collateral, but shall not mean Distributions and (ii) Distributions shall mean
all cash dividends and cash distributions with respect to any Pledged Stock.
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall have
the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the Pledged Securities, which may be held (in the
discretion of the Pledgee) in the name of such Pledgor, endorsed or assigned in
blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a
sub-agent appointed by the Pledgee. The Pledgee agrees to promptly notify the
relevant Pledgor after the appointment of any subagent; provided, however, that
the failure to give such notice shall not affect the validity of such
appointment.
5. VOTING, ETC., WHILE NO NOTICED EVENT OF DEFAULT. Unless and until a
Noticed Event of Default shall have occurred and be continuing, each Pledgor
shall be entitled to exercise any and all voting and other consensual rights
pertaining to the Pledged Securities and to give all consents, waivers or
ratifications in respect thereof; provided, that no vote shall be cast or any
consent, waiver or ratification given or any action taken which would violate or
be inconsistent with any of the terms of this Agreement, any other Credit
Document or any Interest Rate Protection Agreement or Other Hedging Agreement
(collectively, the "Secured Debt Agreements"), or which would have the effect of
impairing the rights, priorities or remedies of the Pledgee or any other Secured
Creditor under this Agreement or any other Secured Debt Agreement. All such
rights of such Pledgor to vote and to give consents, waivers and ratifications
shall cease in case a Noticed Event of Default shall occur and be continuing,
and Section 7 hereof shall become applicable. As used herein, a "Noticed Event
of Default" shall mean (i) an Event of Default with respect to any Pledgor under
Section 9 of the Credit Agreement and (ii) any other Event of Default in respect
of which the Pledgee has given the Company notice that
<PAGE> 7
EXHIBIT 10.2
Page 7
such Event of Default constitutes a "Noticed Event of Default".
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless a Noticed Event
of Default shall have occurred and be continuing, all cash dividends payable in
respect of the Pledged Stock and all payments in respect of the Pledged Notes
shall be paid to the respective Pledgor; provided, that all cash dividends
payable in respect of the Pledged Stock which are determined by the Pledgee to
represent in whole or in part an extraordinary, liquidating or other
distribution in return of capital shall be paid, to the extent so determined to
represent an extraordinary, liquidating or other distribution in return of
capital, to the Pledgee and retained by it as part of the Collateral. The
Pledgee shall also be entitled to receive directly, and to retain as part of the
Collateral:
(i) all other or additional stock or other securities or
property (other than cash) paid or distributed by way of dividend or
otherwise in respect of the Pledged Stock;
(ii) all other or additional stock or other securities or
property (including cash) paid or distributed in respect of the Pledged
Stock by way of stock-split, spin-off, split-up, reclassification,
combination of shares or similar rearrangement; and
(iii) all other or additional stock or other securities or
property (including cash) which may be paid in respect of the
Collateral by reason of any consolidation, merger, exchange of stock,
conveyance of assets, liquidation or similar corporate reorganization.
7. REMEDIES IN CASE OF NOTICED EVENT OF DEFAULT. In case a
Noticed Event of Default shall have occurred and be continuing, the Pledgee
shall be entitled to exercise all of the rights, powers and remedies (whether
vested in it by this Agreement or by any other Secured Debt Agreement or by law)
for the protection and enforcement of its rights in respect of the Collateral,
and the Pledgee shall be entitled, without limitation, to exercise the following
rights, which each Pledgor hereby agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the
Collateral payable to such Pledgor under Section 6 hereof;
(ii) to transfer all or any part of the Pledged Securities
into the Pledgee's name or the name of its nominee or nominees (the
Pledgee agrees to promptly notify the relevant Pledgor after such
transfer; provided, however, that
<PAGE> 8
EXHIBIT 10.2
Page 8
the failure to give such notice shall not affect the validity of such
transfer);
(iii) to accelerate any Pledged Note which may be accelerated
in accor dance with its terms, and take any other action to collect
upon any Pledged Note (including, without limitation, to make any
demand for payment thereon);
(iv) to vote all or any part of the Pledged Stock (whether or
not transferred into the name of the Pledgee) and give all consents,
waivers and ratifications in respect of the Collateral and otherwise
act with respect thereto as though it were the outright owner thereof
(each Pledgor hereby irrevocably constituting and appointing the
Pledgee the proxy and attorney-in-fact of such Pledgor, with full power
of substitution to do so); and
(v) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale,
without demand of performance or advertisement (all of which are hereby
waived by each Pledgor), or to redeem for cash, on credit or for other
property, for immediate or future delivery without any assumption of
credit risk, and for such price or prices and on such terms as the
Pledgee in its reasonable discretion may determine; provided, that at
least 10 days' notice of the time and place of any such sale shall be
given to such Pledgor. Each Pledgor hereby waives and releases to the
fullest extent permitted by law any right or equity of redemption with
respect to the Collateral, whether before or after sale hereunder, and
all rights, if any, of marshalling the Collateral and any other
security for the Obligations or otherwise. At any such sale, unless
prohibited by applicable law, the Pledgee on behalf of the Secured
Creditors may bid for and purchase all or any part of the Collateral so
sold free from any such right or equity of redemption. Neither the
Pledgee nor any Secured Creditor shall be liable for failure to collect
or realize upon any or all of the Collateral or for any delay in so
doing nor shall any of them be under any obligation to take any action
whatsoever with regard thereto.
8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of
the Pledgee provided for in this Agreement or any other Secured Debt Agreement
or now or hereafter existing at law or in equity or by statute shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by the Pledgee or any
other Secured
<PAGE> 9
EXHIBIT 10.2
Page 9
Creditor of any one or more of the rights, powers or remedies provided
for in this Agreement or any other Secured Debt Agreement or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any other Secured Creditor of
all such other rights, powers or remedies, and no failure or delay on the part
of the Pledgee or any other Secured Creditor to exercise any such right, power
or remedy shall operate as a waiver thereof. The Secured Creditors agree that
this Agreement may be enforced only by the action of the Administrative Agent or
the Pledgee, in each case acting upon the instructions of the Required Banks
(or, after the date on which all Credit Document Obligations have been paid in
full, the holders of at least the majority of the outstanding Other Obligations)
and that no other Secured Creditor shall have any right individually to seek to
enforce or to enforce this Agreement or to realize upon the security to be
granted hereby, it being understood and agreed that such rights and remedies may
be exercised by the Administrative Agent or the Pledgee or the holders of at
least a majority of the outstanding Other Obligations, as the case may be, for
the benefit of the Secured Creditors upon the terms of this Agreement.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Pledgee
upon any sale or other disposition of the Collateral pursuant to the terms of
this Agreement, together with all other moneys received by the Pledgee
hereunder, shall be applied in the manner provided in the US Security Agreement.
(b) It is understood and agreed that the Pledgors shall remain jointly
and severally liable to the extent of any deficiency between the amount of the
proceeds of the Collateral hereunder and the aggregate amount of the Obligations
of such Pledgor.
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the
Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.
11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to indem-
nify and hold harmless the Pledgee in such capacity and each other Secured
Creditor from and against any and all claims, demands, losses, judgments and
liabilities of whatsoever kind or nature, and (ii) to reimburse the Pledgee and
each other Secured Creditor for all reasonable costs and expenses, including
reasonable attorneys' fees, in each case to the extent arising out of or
resulting from the exercise by the Pledgee of any right or remedy granted to it
hereunder or under any other Secured Debt Agreement except, with respect to
clauses (i) and (ii) above, for those arising from the Pledgee's or such other
Secured Creditor's gross negligence or willful misconduct. In no event shall the
Pledgee be liable,
<PAGE> 10
EXHIBIT 10.2
Page 10
in the absence of gross negligence or willful misconduct on its part, for any
matter or thing in connection with this Agreement other than to account for
moneys actually received by it in accordance with the terms hereof. If and to
the extent that the obligations of the Pledgors under this Section 11 are
unenforceable for any reason, each Pledgor hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law.
12. FURTHER ASSURANCES. Each Pledgor agrees that it will join with the
Pledgee in executing and, at such Pledgor's own expense, file and refile under
the applicable UCC or other applicable law such financing statements,
continuation statements and other documents in such offices as the Pledgee may
reasonably deem necessary or appropriate and wherever required or permitted by
law in order to perfect and preserve the Pledgee's security interest in the
Collateral and hereby authorizes the Pledgee to file financing statements and
amendments thereto relative to all or any part of the Collateral without the
signature of such Pledgor where permitted by law, and agrees to do such further
acts and things and to execute and deliver to the Pledgee such additional
conveyances, assignments, agreements and instruments as the Pledgee may
reasonably require or reasonably deem advisable to carry into effect the
purposes of this Agreement or to further assure and confirm unto the Pledgee its
rights, powers and remedies hereunder.
13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with this
Agreement all items of the Collateral at any time received under this Agreement.
It is expressly understood and agreed that the obligations of the Pledgee as
holder of the Collateral and interests therein and with respect to the
disposition thereof, and otherwise under this Agreement, are only those
expressly set forth in this Agreement. The Pledgee shall act hereunder on the
terms and conditions set forth herein and in Section 11 of the Credit Agreement.
14. TRANSFER BY PLEDGORS. Except as permitted pursuant to the Credit
Agreement, no Pledgor will sell or otherwise dispose of, grant any option with
respect to, or mortgage, pledge or otherwise encumber any of the Collateral or
any interest therein (except in accordance with the terms of this Agreement).
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Each Pledgor
represents, warrants and covenants that (i) it is the legal, record and
beneficial owner of, and has good and marketable title to, all Securities
pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation,
security interest, charge, option or other encumbrance whatsoever, except the
liens and security interests created by this Agreement and liens permitted under
Section 8.01(i) of the Credit Agreement; (ii) it
<PAGE> 11
EXHIBIT 10.2
Page 11
has the corporate power and authority to pledge all the Securities pledged by it
pursuant to this Agreement; (iii) this Agreement has been duly authorized,
executed and delivered by such Pledgor and constitutes a legal, valid and
binding obligation of such Pledgor enforceable in accordance with its terms,
subject to the effects of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (regardless of whether enforcement is sought in equity or
at law) and an implied covenant of good faith and fair dealing; (iv) no order,
consent, approval, license, authorization or validation of, or filing, recording
or registration with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or is required
in connection with (a) the execution, delivery or performance of this Agreement
by such Pledgor, (b) the legality, validity, binding effect or enforceability of
this Agreement with respect to such Pledgor, except those (A) which have been
obtained or made, (B) the absence of which, either individually or in the
aggregate, could not reasonably be expected to have a material adverse effect on
either (x) the business, operations, property, assets, liabilities and condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole or
(y) the rights or remedies of the Banks or the Administrative Agent or on the
ability of such Pledgor or any of its Subsidiaries to perform its obligations
hereunder or (C) required by laws affecting the offer and sale of securities
generally in connection with the exercise by the Pledgee of certain of its
remedies hereunder; (v) the execution, delivery and performance of this
Agreement by such Pledgor does not (a) contravene any provision of any
applicable law, statute, rule or regulation or any applicable order, writ,
injunction or decree of any court or governmental instrumentality, (b) violate
any provision of the certificate of incorporation or by-laws or other
organizational documents of such Pledgor or (c) conflict with, or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien (except as contemplated by this
Agreement) upon any of the properties or assets of such Pledgor or any of its
Subsidiaries pursuant to the terms of any mortgage, indenture, deed of trust,
credit agreement or loan agreement, or any other material agreement, contract or
instrument to which such Pledgor or any of its Subsidiaries is a party or by
which it or any of its property or assets is bound or to which it may be
subject; (vi) all the shares of Stock have been duly and validly issued, are
fully paid and nonassessable; (vii) each of the Pledged Notes, when executed by
the obligor thereof, will be the legal, valid and binding obligation of such
obligor, enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (regardless of whether enforcement is sought in equity or at law) and
an implied covenant of good faith and fair dealing; and (viii) the pledge and
assignment of the Securities pursuant to this Agreement, together with the
delivery of the Securities pursuant to this Agreement and the filings or
recordings of UCC-1
<PAGE> 12
EXHIBIT 10.2
Page 12
financing statements in respect of any Notes pledged hereunder, creates a valid
and, upon satisfaction of any filing requirements set forth herein, perfected
security interest in such Securities and the proceeds thereof, subject to no
prior lien or encumbrance or to any agreement purporting to grant to any third
party a lien or encumbrance on the property or assets of such Pledgor which
would include the Securities. Each Pledgor covenants and agrees that it will
defend the Pledgee's right, title and security interest in and to the Securities
and the proceeds thereof against the claims and demands of all persons whomso-
ever; and such Pledgor covenants and agrees that it will have like title to and
right to pledge any other property at any time hereafter pledged to the Pledgee
as Collateral hereunder and will likewise defend the right thereto and security
interest therein of the Pledgee and the other Secured Creditors.
16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each
Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation: (i) any renewal,
extension, amendment or modification of or addition or supplement to or deletion
from any Secured Debt Agreement or any other instrument or agreement referred to
therein, or any assignment or transfer of any thereof; (ii) any waiver, consent,
extension, indulgence or other action or inaction under or in respect of any
such agreement or instrument or this Agreement; (iii) any furnishing of any
additional security to the Pledgee or its assignee or any acceptance thereof or
any release of any security by the Pledgee or its assignee; (iv) any limitation
on any party's liability or obligations under any such instrument or agreement
or any invalidity or unenforceability, in whole or in part, of any such
instrument or agreement or any term thereof; or (v) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to such Pledgor or any Subsidiary of such Pledgor, or any
action taken with respect to this Agreement by any trustee or receiver, or by
any court, in any such proceeding, whether or not such Pledgor shall have notice
or knowledge of any of the foregoing.
17. REGISTRATION, ETC. (a) If a Noticed Event of Default shall have
occurred and be continuing and any Pledgor shall have received from the Pledgee
a written request or requests that such Pledgor cause any registration,
qualification or compliance under any Federal or state securities law or laws to
be effected with respect to all or any part of the Pledged Stock, such Pledgor
as soon as practicable and at its expense will use its reasonable efforts to
cause such registration to be effected (and be kept effective) and will use its
reasonable efforts to cause such qualification and compliance to be effected
(and be kept effective) as may be so requested and as would permit or facilitate
the sale and dis-
<PAGE> 13
EXHIBIT 10.2
Page 13
tribution of such Pledged Stock, including, without limitation, registration
under the Securities Act of 1933 as then in effect (or any similar statute then
in effect), appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with any other government
requirements; provided, that the Pledgee shall furnish to such Pledgor such
information regarding the Pledgee as such Pledgor may request in writing and as
shall be required in connection with any such registration, qualification or
compliance. Such Pledgor will cause the Pledgee to be kept reasonably advised in
writing as to the progress of each such registration, qualification or
compliance and as to the completion thereof, will furnish to the Pledgee such
number of prospectuses, offering circulars or other documents incident thereto
as the Pledgee from time to time may reasonably request, and will indemnify the
Pledgee, each other Secured Creditor and all others participating in the
distribution of the Pledged Stock against all claims, losses, damages and
liabilities caused by any untrue statement (or alleged untrue statement) of a
material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) to state
therein (or in any related registration statement, notification or the like) a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same may have been caused by an
untrue statement or omission based upon information furnished in writing to such
Pledgor by the Pledgee or such other Secured Creditor expressly for use therein.
(b) If at any time when the Pledgee shall determine to exercise its
right to sell all or any part of the Pledged Securities pursuant to Section 7
hereof, such Pledged Securities or the part thereof to be sold shall not, for
any reason whatsoever, be effectively registered under the Securities Act of
1933, as then in effect, the Pledgee may, in its sole and absolute discretion,
sell such Pledged Securities or part thereof by private sale in such manner and
under such circumstances as the Pledgee may deem necessary or advisable in order
that such sale may legally be effected without such registration; provided, that
at least 10 days' notice of the time and place of any such sale shall be given
to such Pledgor. Without limiting the generality of the foregoing, in any such
event the Pledgee, in its sole and absolute discretion: (i) may proceed to make
such private sale notwithstanding that a registration statement for the purpose
of registering such Pledged Securities or part thereof shall have been filed
under such Securities Act; (ii) may approach and negotiate with a single
possible purchaser to effect such sale; and (iii) may restrict such sale to a
purchaser who will represent and agree that such purchaser is purchasing for its
own account, for investment, and not with a view to the distribution or sale of
such Pledged Securities or part thereof. In the event of any such sale, the
Pledgee shall incur no responsibility or liability for selling all or any part
of the Pledged Securities at a price which the Pledgee, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might be
realized if the sale
<PAGE> 14
EXHIBIT 10.2
Page 14
were deferred until after registration as aforesaid.
18. TERMINATION, RELEASE. (a) After the Termination Date (as defined
below), this Agreement shall terminate (provided that all indemnities set forth
herein including, without limitation, in Section 11 hereof shall survive any
such termination) and the Pledgee, at the request and expense of the respective
Pledgor, will promptly execute and deliver to such Pledgor a proper instrument
or instruments acknowledging the satisfaction and termination of this Agreement,
and will duly assign, transfer and deliver to such Pledgor (without recourse and
without any representation or warranty) such of the Collateral as may be in the
possession of the Pledgee and has not theretofore been sold or otherwise applied
or released pursuant to this Agreement. As used in this Agreement, "Termination
Date" shall mean the date upon which the Total Commitment and all Interest Rate
Protection Agreements or Other Hedging Agreements have been terminated, no Note
(as defined in the Credit Agreement) or Letter of Credit is outstanding and all
other Obligations then due and payable have been paid in full.
(b) In the event that any part of the Collateral is sold in connection
with a sale permitted by Section 8.02 of the Credit Agreement or is otherwise
released at the direc tion of the Required Banks (or all the Banks if required
by Section 13.12 of the Credit Agreement), the Pledgee, at the request and
expense of the respective Pledgor will duly assign, transfer and deliver to such
Pledgor (without recourse and without any representation or warranty) such of
the Collateral as is then being (or has been) so sold or released and as may be
in possession of the Pledgee and has not theretofore been released pursuant to
this Agreement.
(c) At any time that a Pledgor desires that Collateral be released as
provided in the foregoing Section 18(a) or (b), it shall deliver to the Pledgee
a certificate signed by an Authorized Officer of such Pledgor stating that the
release of the respective Collateral is permitted pursuant to Section 18(a) or
(b).
19. NOTICES, ETC. All notices and other communications hereunder shall
be in writing and shall be delivered or mailed by first class mail, postage
prepaid, addressed:
<PAGE> 15
EXHIBIT 10.2
Page 15
(a) if to any Pledgor, at its address set forth opposite its
signature below;
(b) if to the Pledgee, at:
Bankers Trust Company
One Bankers Trust Plaza
New York, New York 10006
Attention: Christopher Kinslow
Telephone No.: (212) 250-7671
Telecopier o.: (212) 250-7218
(c) if to any Bank (other than the Pledgee), at such address
as such Bank shall have specified in the Credit Agreement;
(d) if to any Other Creditor, at such address as such Other
Creditor shall have specified in writing to each Pledgor and the
Pledgee;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
20. WAIVER; AMENDMENT. None of the terms and conditions of
this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by each Pledgor directly affected
thereby and the Pledgee (with the written consent of either (x) the Required
Banks (or all the Banks if required by Section 13.12 of the Credit Agreement) at
all times prior to the time at which all Credit Document Obligations have been
paid in full or (y) the holders of at least a majority of the outstanding Other
Obligations at all times after the time at which all Credit Document Obligations
have been paid in full; provided, that any change, waiver, modification or
variance affecting the rights and benefits of a single Class (as defined below)
of Secured Creditors (and not all Secured Creditors in a like or similar manner)
shall require the written consent of the Requisite Creditors (as defined below)
of such Class. For the purpose of this Agreement, the term "Class" shall mean
each class of Secured Creditors, i.e., whether (i) the Bank Creditors as holders
of the Credit Document Obligations or (ii) the Other Creditors as holders of the
Other Obligations. For the purpose of this Agreement, the term "Requisite
Creditors" of any Class shall mean each of (i) with respect to the Credit
Document Obligations, the Required Banks and (ii) with respect to the Other
Obligations, the holders of at least a majority of all obligations outstanding
from time to time under the Interest Rate Protection Agreements or Other Hedging
Agreements.
<PAGE> 16
EXHIBIT 10.2
Page 16
21. MISCELLANEOUS. This Agreement shall be binding upon the
successors and assigns of each Pledgor and shall inure to the benefit of and be
enforceable by the Pledgee and its successors and assigns. THIS AGREEMENT SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK. The headings in this Agreement are for purposes of reference
only and shall not limit or define the meaning hereof. This Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which shall constitute one instrument. The Pledgee agrees that it will
not deliver a notice under any other US Pledge Agreement stating that an Event
of Default has occurred thereunder unless such event also constitutes an Event
of Default as defined in this Agreement.
22. ADDITIONAL PLEDGORS. It is understood and agreed that any
Domestic Subsidiary of the Company that is required to execute a counterpart of
this Agreement pursuant to the Credit Agreement shall automatically become a
Pledgor hereunder by executing a counterpart hereof and delivering the same to
the Pledgee.
23. AMENDMENT AND RESTATEMENT. Upon the execution and deliv-
ery of this Agreement by the parties hereto, the Original US Pledge Agreement
shall be amended and restated in its entirety by this Agreement, effective as of
the date hereof, with all rights, obligations and security interests created
under or granted pursuant to the Original Pledge Agreement continuing from the
date thereof.
<PAGE> 17
EXHIBIT 10.2
Page 17
IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as of
the date first above written.
Address:
c/o Cabot Safety Corporation AEARO CORPORATION
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200 By /s/ Bryan Carey
Telecopy No. (617) 371-4233 ------------------------
with a copy to: Title: Vice President & Treasurer
Vestar Equity Partners, L.P.
245 Park Avenue
New York, New York 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
Attention: Norman W. Alpert
c/o Cabot Safety Corporation
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233
with a copy to: CABOT SAFETY CORPORATION
Vestar Equity Partners, L.P.
245 Park Avenue By /s/ Bryan Carey
New York, New York 10167 ------------------------
Telephone No. (212) 949-6500 Title: Vice President & Treasurer
Telecopy No. (212) 808-4922
Attention: Norman W. Alpert
<PAGE> 18
EXHIBIT 10.2
Page 18
c/o Cabot Safety Corporation CABOT SAFETY INTERMEDIATE CORPORATION
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200 By /s/ Bryan Carey
Telecopy No. (617) 371-4233 ------------------------
Title: Treasurer
with a copy to:
Vestar Equity Partners, L.P.
245 Park Avenue
New York, New York 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
Attention: Norman W. Alpert
c/o Cabot Safety Corporation CSC FSC, INC.
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200 By /s/ Bryan Carey
Telecopy No. (617) 371-4233 ------------------------
Title: Treasurer
with a copy to:
Vestar Equity Partners, L.P.
245 Park Avenue
New York, New York 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
Attention: Norman W. Alpert
<PAGE> 19
EXHIBIT 10.2
Page 19
c/o Cabot Safety Corporation EASTERN SAFETY EQUIPMENT CO., INC.
One Washington Mall
Boston, MA 01550 By /s/ Bryan Carey
Telephone No. (617) 371-4200 ------------------------
Telecopy No. (617) 371-4233 Title: Treasurer
with a copy to:
Vestar Equity Partners, L.P.
245 Park Avenue
New York, New York 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
Attention: Norman W. Alpert
BANKERS TRUST COMPANY,
as Collateral Agent
By /s/ Christopher Kinslow
------------------------
Title: Vice President
<PAGE> 20
ANNEX A
to
US PLEDGE
AGREEMENT
LIST OF STOCK
ISSUER: CABOT SAFETY CORPORATION (F/K/A CABOT SAFETY ACQUISITION CORPORATION)
COMMON STOCK
(par value $.01)
<TABLE>
<CAPTION>
PERCENTAGE OF ISSUED AND
HOLDER ON CLOSING DATE NUMBER OF SHARES OUTSTANDING CAPITAL STOCK
- ---------------------- ---------------- -------------------------
<S> <C> <C>
Aearo Corporation 100 100%
</TABLE>
<PAGE> 21
ISSUER: CABOT SAFETY INTERMEDIATE CORPORATION
COMMON STOCK
(par value $.01)
<TABLE>
<CAPTION>
PERCENTAGE OF ISSUED AND
HOLDER ON CLOSING DATE NUMBER OF SHARES OUTSTANDING CAPITAL STOCK
- ---------------------- ---------------- -------------------------
<S> <C> <C>
Aearo Corporation 100 100%
</TABLE>
2
<PAGE> 22
ISSUER: EASTERN SAFETY EQUIPMENT CO., INC.
COMMON STOCK
[Authorized:
12 Class A Voting Common Shares,
988 Class B Non-Voting Common Shares,
9,500 7% Non-Cumulative Preferred Shares]
<TABLE>
<CAPTION>
PERCENTAGE OF ISSUED AND
HOLDER ON CLOSING DATE NUMBER OF SHARES OUTSTANDING CAPITAL STOCK
- ---------------------- ---------------- -------------------------
<S> <C> <C>
Cabot Safety Corporation 3 Class A Voting 100%
Common Shares;
782 Class B
Non-Voting
Common Shares
</TABLE>
3
<PAGE> 23
ISSUER: CABOT SAFETY CANADA CORPORATION (F/K/A CABOT SAFETY CANADA
ACQUISITION LTD.)
COMMON STOCK
(no par value)
<TABLE>
<CAPTION>
PERCENTAGE OF ISSUED AND
HOLDER ON CLOSING DATE NUMBER OF SHARES OUTSTANDING CAPITAL STOCK
- ---------------------- ---------------- -------------------------
<S> <C> <C>
Cabot Safety Intermediate 65 65%
Corporation
</TABLE>
4
<PAGE> 24
ISSUER: CSC FSC, INC.
COMMON STOCK
(no par value)
<TABLE>
<CAPTION>
PERCENTAGE OF ISSUED AND
HOLDER ON CLOSING NUMBER OF SHARES OUTSTANDING CAPITAL STOCK
- ----------------- ---------------- -------------------------
<S> <C> <C>
Cabot Safety Corporation 1000 100%
</TABLE>
5
<PAGE> 25
ISSUER: E-A-R ITALIANA SRL
COMMON STOCK
(uncertificated)
<TABLE>
<CAPTION>
PERCENTAGE OF ISSUED AND
HOLDER ON CLOSING DATE NUMBER OF SHARES OUTSTANDING CAPITAL STOCK
- ---------------------- ---------------- -------------------------
<S> <C> <C>
Cabot Safety Intermediate 45,000 100%
Corporation
</TABLE>
6
<PAGE> 26
ISSUER: EAR IBERICA S.A.
COMMON STOCK
(par value 1.0 PTA)
<TABLE>
<CAPTION>
PERCENTAGE OF ISSUED AND
HOLDER ON CLOSING DATE NUMBER OF SHARES OUTSTANDING CAPITAL STOCK
- ---------------------- ---------------- -------------------------
<S> <C> <C>
Cabot Safety Intermediate 10,000 100%
Corporation
</TABLE>
7
<PAGE> 27
ISSUER: E-A-R ARBEITSSCHUTZ GmbH
COMMON STOCK
(uncertificated)
<TABLE>
<CAPTION>
PERCENTAGE OF ISSUED AND
HOLDER ON CLOSING DATE NUMBER OF SHARES OUTSTANDING CAPITAL STOCK
- ---------------------- ---------------- -------------------------
<S> <C> <C>
Cabot Safety Intermediate Quota 100%
Corporation
</TABLE>
8
<PAGE> 28
ISSUER: E-A-R S.A.R.L.
COMMON STOCK
(uncertificated)
<TABLE>
<CAPTION>
PERCENTAGE OF ISSUED AND
HOLDER ON CLOSING DATE NUMBER OF SHARES OUTSTANDING CAPITAL STOCK
- ---------------------- ---------------- -------------------------
<S> <C> <C>
Cabot Safety Intermediate 1000 100%
Corporation
</TABLE>
9
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED FOREIGN PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of July 11, 1995 and amended and
restated as of May 30, 1996 (as amended, modified or supplemented from time to
time, this "Agreement"), made by each of the undersigned (each a "Pledgor" and,
collectively, the "Pledgors"), in favor of BANKERS TRUST COMPANY, as Collateral
Agent (the "Pledgee"), for the benefit of the Secured Creditors (as defined
below). Except as otherwise defined herein, terms used herein and defined in the
Credit Agreement (as defined below) shall be used herein as therein defined.
W I T N E S S E T H :
WHEREAS, Aearo Corporation (f/k/a Cabot Safety Holdings
Corporation) ("Holdings"), Cabot Safety Corporation (f/k/a Cabot Safety
Acquisition Corporation) (the "Company"), each Subsidiary Borrower (together
with the Company, each a "Borrower" and, collectively, the "Borrower"), the
Banks party thereto from time to time (the "Banks") and Bankers Trust Company,
as Administrative Agent (together with any successor agent, the "Administrative
Agent," and together with the Pledgee and the Banks, the "Bank Creditors"), have
entered into a Credit Agreement, dated as of July 11, 1995 and amended and
restated as May 30, 1996 (as amended, modified or supplemented from time to
time, the "Credit Agreement"), providing, inter alia, for the making of
Alternate Currency Loans to the Subsidiary Borrowers as contemplated therein;
WHEREAS, the Subsidiary Borrowers may from time to time be
party to (or guaranty the obligations of one or more of their Subsidiaries
under) one or more (i) interest rate agreements, interest rate cap agreements,
interest rate collar agreements or other similar agreements or arrangements,
(ii) foreign exchange contracts, currency swap agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values and\or (iii) other types of hedging agreements from time to time
(each such agreement or arrangement with an Other Creditor (as hereinafter
defined), an "Interest Rate Protection Agreement or Other Hedging Agreement"),
with a Bank or an affiliate of a Bank (each such Bank or affiliate, even if the
respective Bank subsequently ceases to be a Bank under the Credit Agreement for
any reason, together with such Bank's or affiliate's successors and assigns,
collectively, the "Other Creditors," and together with Bank Creditors, the
"Secured Creditors");
<PAGE> 2
EXHIBIT 10.3
Page 2
WHEREAS, the Pledgors have heretofore entered into a Foreign
Pledge Agreement, dated as of July 11, 1995 (as amended, modified or
supplemented prior to the date hereof, the "Original Foreign Pledge Agreement");
WHEREAS, it is a condition precedent to the extensions of
credit under the Credit Agreement that each Pledgor shall have executed and
delivered to the Pledgee this Agreement; and
WHEREAS, each Pledgor desires to execute this Agreement (i) to
satisfy the conditions described in the preceding paragraph and (ii) to amend
and restate the Original Foreign Pledge Agreement;
NOW, THEREFORE, in consideration of the benefits accruing to
each Pledgor, the receipt and sufficiency of which are hereby acknowledged, each
Pledgor hereby makes the following representations and warranties to the Pledgee
and hereby covenants and agrees with the Pledgee as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by each
Pledgor for the benefit of the Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations and
liabilities of such Pledgor, now existing or hereafter incurred under,
arising out of or in connection with any Credit Document to which it is
a party and the due performance and compliance by such Pledgor with the
terms of each such Credit Document (all such obligations and
liabilities under this clause (i), except to the extent consisting of
Other Obligations (as defined below), being herein collectively called
the "Credit Document Obligations");
(ii) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations and
liabilities of such Pledgor, now existing or hereafter incurred under,
arising out of or in connection with any Interest Rate Protection
Agreement or Other Hedging Agreement including all obligations of such
Pledgor under the Foreign Subsidiary Guaranty in respect of Interest
Rate Protection Agreements or Other Hedging Agreements (all such
obligations and liabilities under this clause (ii) being herein
collectively called the "Other Obligations");
(iii) any and all sums advanced by the Pledgee in order to
preserve the Collateral (as hereinafter defined) or preserve its
security interest in the Collateral;
(iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities referred
to in clauses (i), (ii) and (iii) above, after an Event of Default
(such term, as used in this Agreement, shall mean any
<PAGE> 3
EXHIBIT 10.3
Page 3
Event of Default under, and as defined in, the Credit Agreement, or any
payment default by the Subsidiary Borrowers under any Interest Rate
Protection Agreement or Other Hedging Agreement and shall in any event
include, without limitation, any payment default (after the expiration
of any applicable grace period) on any of the Obligations (as
hereinafter defined)) shall have occurred and be continuing, the
reasonable expenses of retaking, holding, preparing for sale or lease,
selling or otherwise disposing or realizing on the Collateral, or of
any exercise by the Pledgee of its rights hereunder, together with
reasonable attorneys' fees and court costs; and
(v) all amounts paid by any Secured Creditor as to which such
Secured Creditor has the right to reimbursement under Section 11 of
this Agreement;
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section 1 being herein collectively called the
"Obligations."
2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used
herein: (i) the term "Stock" shall mean all of the issued and outstanding shares
of capital stock at any time owned by any Pledgor of any corporation; (ii) the
term "Notes" shall mean all promissory notes from time to time issued to, or
held by, each Pledgor having a principal amount of $2,000,000 or more; and (iii)
the term "Securities" shall mean all of the Stock and Notes. Each Pledgor
represents and warrants that on the date hereof (i) the Stock held by such
Pledgor consists of the number and type of shares of the stock of the
corporations as described in Annex A hereto; (ii) such Stock constitutes that
percentage of the issued and outstanding capital stock of the issuing
corporation as is set forth in Annex A hereto; (iii) the Notes held by such
Pledgor consist of the promissory notes described in Annex B hereto where such
Pledgor is listed as the Lender; and (iv) on the date hereof, such Pledgor owns
no other Securities.
3. PLEDGE OF SECURITIES, ETC.
3.1. Pledge. To secure the Obligations of such Pledgor and for
the purposes set forth in Section 1 hereof, each Pledgor hereby: (i) grants to
the Pledgee a security interest in all of the Collateral owned by such Pledgor;
(ii) pledges and deposits as security with the Pledgee the Securities owned by
such Pledgor on the date hereof, and delivers to the Pledgee certificates or
instruments therefor, duly endorsed in blank in the case of Notes and
accompanied by undated stock powers duly executed in blank by such Pledgor in
the case of Stock, or such other instruments of transfer as are acceptable to
the Pledgee; and (iii) assigns, transfers, hypothecates, mortgages, charges and
sets over to the Pledgee all of such Pledgor's right, title and interest in and
to such Securities (and in and to all certificates or instruments evidencing
such Securities), to be held by the Pledgee, upon the terms and conditions set
forth in this Agreement.
<PAGE> 4
EXHIBIT 10.3
Page 4
3.2. Subsequently Acquired Securities. If any Pledgor shall
acquire (by purchase, stock dividend or otherwise) any additional Securities at
any time or from time to time after the date hereof, such Pledgor will forthwith
pledge and deposit such Securities (or certificates or instruments representing
such Securities) as security with the Pledgee and deliver to the Pledgee
certificates therefor or instruments thereof, duly endorsed in blank in the case
of Notes and accompanied by undated stock powers duly executed in blank in the
case of Stock, or such other instruments of transfer as are acceptable to the
Pledgee, and will promptly thereafter deliver to the Pledgee a certificate
executed by any Authorized Officer of such Pledgor describing such Securities
and certifying that the same have been duly pledged with the Pledgee hereunder.
3.3. Uncertificated Securities. If any Securities (whether now
owned or hereafter acquired) are uncertificated securities, the respective
Pledgor shall promptly notify the Pledgee thereof, and shall promptly take all
actions required to perfect the security interest of the Pledgee under
applicable law (including, in any event, under Sections 8-313 and 8-321 of the
New York UCC, if applicable). Each Pledgor further agrees to take such actions
as the Pledgee deems reasonably necessary or desirable to effect the foregoing
and to permit the Pledgee to exercise any of its rights and remedies hereunder,
and agrees to provide an opinion of counsel reasonably satisfactory to the
Pledgee with respect to any such pledge of uncertificated Securities promptly
upon request of the Pledgee.
3.4. Definition of Pledged Stock, Pledged Notes, Pledged
Securities and Collateral. All Stock at any time pledged or required to be
pledged hereunder is hereinafter called the "Pledged Stock," all Notes at any
time pledged or required to be pledged hereunder are hereinafter called the
"Pledged Notes," all of the Pledged Stock and Pledged Notes together are
hereinafter called the "Pledged Securities," which together with all proceeds
thereof, including any securities and moneys received and at the time held by
the Pledgee hereunder and all Dividends and Distributions on or with respect to
any Pledged Stock, is hereinafter called the "Collateral". As used herein the
term (i) Dividends shall mean all stock dividends, liquidating dividends, shares
of stock resulting from stock splits, reclassifications, warrants, options,
non-cash dividends and other distributions (whether similar or dissimilar to the
foregoing) on or with respect to any Pledged Stock or other shares of capital
stock constituting Collateral, but shall not mean Distributions and (ii)
Distributions shall mean all cash dividends and cash distributions with respect
to any Pledged Stock.
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee
shall have the right to appoint one or more sub-agents for the purpose of
retaining physical possession of the Pledged Securities, which may be held (in
the discretion of the Pledgee) in the name of such Pledgor, endorsed or assigned
in blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or
a sub-agent appointed by the Pledgee. The Pledgee agrees to promptly notify the
relevant Pledgor after the appointment of any sub-agent; provided, however, that
the failure to give such notice shall not affect the validity of such
appointment.
<PAGE> 5
EXHIBIT 10.3
Page 5
5. VOTING, ETC., WHILE NO NOTICED EVENT OF DEFAULT. Unless and
until a Noticed Event of Default shall have occurred and be continuing, each
Pledgor shall be entitled to exercise any and all voting and other consensual
rights pertaining to the Pledged Securities and to give all consents, waivers or
ratifications in respect thereof; provided, that no vote shall be cast or any
consent, waiver or ratification given or any action taken which would violate or
be inconsistent with any of the terms of this Agreement, any other Credit
Document or any Interest Rate Protection Agreement or Other Hedging Agreement
(collectively, the "Secured Debt Agreements"), or which would have the effect of
impairing the rights, priorities or remedies of the Pledgee or any other Secured
Creditor under this Agreement or any other Secured Debt Agreement. All such
rights of such Pledgor to vote and to give consents, waivers and ratifications
shall cease in case a Noticed Event of Default shall occur and be continuing,
and Section 7 hereof shall become applicable. As used herein, a "Noticed Event
of Default" shall mean (i) an Event of Default with respect to any Pledgor under
Section 9 of the Credit Agreement and (ii) any other Event of Default in respect
of which the Pledgee has given the Company notice that such Event of Default
constitutes a "Noticed Event of Default".
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless a Noticed Event
of Default shall have occurred and be continuing, all cash dividends payable in
respect of the Pledged Stock and all payments in respect of the Pledged Notes
shall be paid to the respective Pledgor; provided, that all cash dividends
payable in respect of the Pledged Stock which are determined by the Pledgee to
represent in whole or in part an extraordinary, liquidating or other
distribution in return of capital shall be paid, to the extent so determined to
represent an extraordinary, liquidating or other distribution in return of
capital, to the Pledgee and retained by it as part of the Collateral. The
Pledgee shall also be entitled to receive directly, and to retain as part of the
Collateral:
(i) all other or additional stock or other securities or
property (other than cash) paid or distributed by way of dividend or
otherwise in respect of the Pledged Stock;
(ii) all other or additional stock or other securities or
property (including cash) paid or distributed in respect of the Pledged
Stock by way of stock-split, spin-off, split-up, reclassification,
combination of shares or similar rearrangement; and
(iii) all other or additional stock or other securities or
property (including cash) which may be paid in respect of the
Collateral by reason of any consolidation, merger, exchange of stock,
conveyance of assets, liquidation or similar corporate reorganization.
7. REMEDIES IN CASE OF NOTICED EVENT OF DEFAULT. In case a
Noticed Event of Default shall have occurred and be continuing, the Pledgee
shall be entitled to exercise all of the rights, powers and remedies (whether
vested in it by this
<PAGE> 6
EXHIBIT 10.3
Page 6
Agreement or by any other Secured Debt Agreement or by law) for the protection
and enforcement of its rights in respect of the Collateral, and the Pledgee
shall be entitled, without limitation, to exercise the following rights, which
each Pledgor hereby agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the
Collateral payable to such Pledgor under Section 6 hereof;
(ii) to transfer all or any part of the Pledged Securities
into the Pledgee's name or the name of its nominee or nominees (the
Pledgee agrees to promptly notify the relevant Pledgor after such
transfer; provided, however, that the failure to give such notice shall
not affect the validity of such transfer);
(iii) to accelerate any Pledged Note which may be accelerated
in accordance with its terms, and take any other action to collect upon
any Pledged Note (including, without limitation, to make any demand for
payment thereon);
(iv) to vote all or any part of the Pledged Stock (whether or
not transferred into the name of the Pledgee) and give all consents,
waivers and ratifications in respect of the Collateral and otherwise
act with respect thereto as though it were the outright owner thereof
(each Pledgor hereby irrevocably constituting and appointing the
Pledgee the proxy and attorney-in-fact of such Pledgor, with full power
of substitution to do so); and
(v) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale,
without demand of performance or advertisement (all of which are hereby
waived by each Pledgor), or to redeem, for cash, on credit or for other
property, for immediate or future delivery without any assumption of
credit risk, and for such price or prices and on such terms as the
Pledgee in its reasonable discretion may determine; provided, that at
least 10 days' notice of the time and place of any such sale shall be
given to such Pledgor. Each Pledgor hereby waives and releases to the
fullest extent permitted by law any right or equity of redemption with
respect to the Collateral, whether before or after sale hereunder, and
all rights, if any, of marshalling the Collateral and any other
security for the Obligations or otherwise. At any such sale, unless
prohibited by applicable law, the Pledgee on behalf of the Secured
Creditors may bid for and purchase all or any part of the Collateral so
sold free from any such right or equity of redemption. Neither the
Pledgee nor any Secured Creditor shall be liable for failure to collect
or realize upon any or all of the Collateral or for any delay in so
doing nor shall any of them be under any obligation to take any action
whatsoever with regard thereto.
<PAGE> 7
EXHIBIT 10.3
Page 7
8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of
the Pledgee provided for in this Agreement or any other Secured Debt Agreement
or now or hereafter existing at law or in equity or by statute shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by the Pledgee or any
other Secured Creditor of any one or more of the rights, powers or remedies
provided for in this Agreement or any other Secured Debt Agreement or now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the Pledgee or any other Secured
Creditor of all such other rights, powers or remedies, and no failure or delay
on the part of the Pledgee or any other Secured Creditor to exercise any such
right, power or remedy shall operate as a waiver thereof. The Secured Creditors
agree that this Agreement may be enforced only by the action of the
Administrative Agent or the Pledgee, in each case acting upon the instructions
of the Required Banks (or, after the date on which all Credit Document
Obligations have been paid in full, the holders of at least the majority of the
outstanding Other Obligations) and that no other Secured Creditor shall have any
right individually to seek to enforce or to enforce this Agreement or to realize
upon the security to be granted hereby, it being understood and agreed that such
rights and remedies may be exercised by the Administrative Agent or the Pledgee
or the holders of at least a majority of the outstanding Other Obligations, as
the case may be, for the benefit of the Secured Creditors upon the terms of this
Agreement.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Pledgee (or, to the extent the Canadian Security Agreement, the English Security
Agreement, any other Foreign Pledge Agreement executed by any Pledgor or any
Mortgage executed by any Pledgor require proceeds of collateral under such
Security Documents to be applied in accordance with the provisions of this
Agreement, the Collateral Agent, the Pledgee or Mortgagee under such other
Security Document) upon any sale or other disposition of the Collateral,
together with all other moneys received by the Collateral Agent hereunder, shall
be applied as follows:
(i) first, to the payment of all Obligations owing the
Collateral Agent of the type provided in clauses (iii) and (iv) of the
definition of Obligations;
(ii) second, to the extent proceeds remain after the
application pursuant to preceding clause (i), an amount equal to the
outstanding Primary Obligations shall be paid to the Secured Creditors
as provided in Section 9(d) hereof, with each Secured Creditor
receiving an amount equal to such outstanding Primary Obligations or,
if the proceeds are insufficient to pay in full all such Primary
Obligations, its Pro Rata Share of the amount remaining to be
distributed; and
(iii) third, to the extent proceeds remain after the
application pursuant to preceding clauses (i) and (ii), an amount equal
to the outstanding Secondary Obligations shall be paid to the Secured
Creditors as provided in Section 9(d) hereof, with each Secured
Creditor receiving an amount equal to its outstanding Secondary
<PAGE> 8
EXHIBIT 10.3
Page 8
Obligations or, if the proceeds are insufficient to pay in full all
such Secondary Obligations, its Pro Rata Share of the amount remaining
to be distributed; and
(iv) fourth, to the extent proceeds remain after the
application pursuant to preceding clauses (i) through (iii), inclusive,
and following the termination of this Agreement pursuant to Section
18(a) hereof, to the relevant Pledgor or to whomever may be lawfully
entitled to receive such surplus.
(b) For purposes of this Agreement (x) "Pro Rata Share" shall
mean, when calculating a Secured Creditor's portion of any distribution or
amount, that amount (expressed as a percentage) equal to a fraction the
numerator of which is the then unpaid amount of such Secured Creditor's Primary
Obligations or Secondary Obligations, as the case may be, and the denominator of
which is the then outstanding amount of all Primary Obligations or Secondary
Obligations, as the case may be, (y) "Primary Obligations" shall mean (i) in the
case of the Credit Document Obligations, all obligations and liabilities of each
Pledgor arising out of or in connection with the principal of, and interest on,
all Alternate Currency Loans and (ii) in the case of the Other Obligations, all
amounts due under the Interest Rate Protection Agreements or Other Hedging
Agreements, (other than indemnities, fees (including, without limitation,
attorneys' fees) and similar obligations and liabilities) and (z) "Secondary
Obligations" shall mean all Obligations other than Primary Obligations.
(c) When payments to Secured Creditors are based upon their
respective Pro Rata Shares, the amounts received by such Secured Creditors
hereunder shall be applied (for purposes of making determinations under this
Section 9 only) (i) first, to their Primary Obligations and (ii) second, to
their Secondary Obligations. If any payment to any Secured Creditor of its Pro
Rata Share of any distribution would result in overpayment to such Secured
Creditor, such excess amount shall instead be distributed in respect of the
unpaid Primary Obligations or Secondary Obligations, as the case may be, of the
other Secured Creditors, with each Secured Creditor whose Primary Obligations or
Secondary Obligations, as the case may be, have not been paid in full to receive
an amount equal to such excess amount multiplied by a fraction the numerator of
which is the unpaid Primary Obligations or Secondary Obligations, as the case
may be, of such Secured Creditor and the denominator of which is the unpaid
Primary Obligations or Secondary Obligations, as the case may be, of all Secured
Creditors entitled to such distribution.
(d) All payments required to be made hereunder shall be made
(x) if to the Bank Creditors, to the Administrative Agent under the Credit
Agreement for the account of the Bank Creditors, and (y) if to the Other
Creditors, to the trustee, paying agent or other similar representative (each a
"Representative") for the Other Creditors or, in the absence of such a
Representative, directly to the Other Creditors.
(e) For purposes of applying payments received in accordance
with this Section 9, the Collateral Agent shall be entitled to rely upon (i) the
Administrative Agent under
<PAGE> 9
EXHIBIT 10.3
Page 9
the Credit Agreement and (ii) the Representative for the Other Creditors or, in
the absence of such a Representative, upon the Other Creditors for a
determination (which the Administrative Agent, each Representative for any Other
Creditors and the Secured Creditors agree (or shall agree) to provide upon
request of the Collateral Agent) of the outstanding Primary Obligations and
Secondary Obligations owed to the Bank Creditors or the Other Creditors, as the
case may be. Unless it has actual knowledge (including by way of written notice
from a Bank Creditor or an Other Creditor) to the contrary, the Administrative
Agent and each Representative, in furnishing information pursuant to the
preceding sentence, and the Collateral Agent, in acting hereunder, shall be
entitled to assume that no Secondary Obligations are outstanding. Unless it has
actual knowledge (including by way of written notice from a Representative for
an Other Creditor or directly from an Other Creditor) to the contrary, the
Collateral Agent, in acting hereunder, shall be entitled to assume that no
Interest Rate Protection or Other Hedging Agreements are in existence.
(f) It is understood and agreed that the Assignors shall
remain jointly and severally liable to the extent of any deficiency between the
amount of the proceeds of the Collateral hereunder and the aggregate amount of
the sums referred to in clauses (i) through (iv), inclusive, of Section 9(a).
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral
by the Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.
11. INDEMNITY. Each Pledgor jointly and severally agrees (i)
to indemnify and hold harmless the Pledgee in such capacity and each other
Secured Creditor from and against any and all claims, demands, losses, judgments
and liabilities of whatsoever kind or nature, and (ii) to reimburse the Pledgee
and each other Secured Creditor for all reasonable costs and expenses, including
reasonable attorneys' fees, in each case to the extent arising out of or
resulting from the exercise by the Pledgee of any right or remedy granted to it
hereunder or under any other Secured Debt Agreement except, with respect to
clauses (i) and (ii) above, for those arising from the Pledgee's or such other
Secured Creditor's gross negligence or willful misconduct. In no event shall the
Pledgee be liable, in the absence of gross negligence or willful misconduct on
its part, for any matter or thing in connection with this Agreement other than
to account for moneys actually received by it in accordance with the terms
hereof. If and to the extent that the obligations of the Pledgors under this
Section 11 are unenforceable for any reason, each Pledgor hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law.
<PAGE> 10
EXHIBIT 10.3
Page 10
12. FURTHER ASSURANCES. Each Pledgor agrees that it will join
with the Pledgee in executing and, at such Pledgor's own expense, file and
refile under the applicable UCC or other applicable law such financing
statements, continuation statements and other documents in such offices as the
Pledgee may reasonably deem necessary or appropriate and wherever required or
permitted by law in order to perfect and preserve the Pledgee's security
interest in the Collateral and hereby authorizes the Pledgee to file financing
statements and amendments thereto relative to all or any part of the Collateral
without the signature of such Pledgor where permitted by law, and agrees to do
such further acts and things and to execute and deliver to the Pledgee such
additional conveyances, assignments, agreements and instruments as the Pledgee
may reasonably require or reasonably deem advisable to carry into effect the
purposes of this Agreement or to further assure and confirm unto the Pledgee its
rights, powers and remedies hereunder.
13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance
with this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed that the obligations of the
Pledgee as holder of the Collateral and interests therein and with respect to
the disposition thereof, and otherwise under this Agreement, are only those
expressly set forth in this Agreement. The Pledgee shall act hereunder on the
terms and conditions set forth herein and in Section 11 of the Credit Agreement.
14. TRANSFER BY PLEDGORS. Except as permitted pursuant to the
Credit Agreement, no Pledgor will sell or otherwise dispose of, grant any option
with respect to, or mortgage, pledge or otherwise encumber any of the Collateral
or any interest therein (except in accordance with the terms of this Agreement).
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Each
Pledgor represents, warrants and covenants that (i) it is the legal, record and
beneficial owner of, and has good and marketable title to, all Securities
pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation,
security interest, charge, option or other encumbrance whatsoever, except the
liens and security interests created by this Agreement and liens permitted under
Section 8.01(i) of the Credit Agreement; (ii) it has the corporate power and
authority to pledge all the Securities pledged by it pursuant to this Agreement;
(iii) this Agreement has been duly authorized, executed and delivered by such
Pledgor and constitutes a legal, valid and binding obligation of such Pledgor
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (regardless
of whether enforcement is sought in equity or at law) and an implied covenant of
good faith and fair dealing; (iv) no order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with (a) the
execution, delivery or performance of this Agreement by such Pledgor, (b) the
legality, validity, binding effect or enforceability of this
<PAGE> 11
EXHIBIT 10.3
Page 11
Agreement with respect to such Pledgor, except those (A) which have been
obtained or made, (B) the absence of which, either individually or in the
aggregate, could not reasonably be expected to have a material adverse effect on
either (x) the business, operations, property, assets, liabilities and condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole or
(y) the rights or remedies of the Banks or the Administrative Agent or on the
ability of such Pledgor or any of its Subsidiaries to perform its obligations
hereunder or (C) required by laws affecting the offer and sale of securities
generally in connection with the exercise by the Pledgee of certain of its
remedies hereunder; (v) the execution, delivery and performance of this
Agreement by such Pledgor does not (a) contravene any provision of any
applicable law, statute, rule or regulation or any applicable order, writ,
injunction or decree of any court or governmental instrumentality, (b) violate
any provision of the certificate of incorporation or by-laws or other
organizational documents of such Pledgor or (c) conflict with, or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien (except as contemplated by this
Agreement) upon any of the properties or assets of such Pledgor or any of its
Subsidiaries pursuant to the terms of any mortgage, indenture, deed of trust,
credit agreement or loan agreement, or any other material agreement, contract or
instrument to which such Pledgor or any of its Subsidiaries is a party or by
which it or any of its property or assets is bound or to which it may be
subject; (vi) all the shares of Stock have been duly and validly issued, are
fully paid and nonassessable; (vii) each of the Pledged Notes, when executed by
the obligor thereof, will be the legal, valid and binding obligation of such
obligor, enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (regardless of whether enforcement is sought in equity or at law) and
an implied covenant of good faith and fair dealing; and (viii) the pledge and
assignment of the Securities pursuant to this Agreement, together with the
delivery of the Securities pursuant to this Agreement and the filings or
recordings of UCC-1 financing statements in respect of any Notes pledged
hereunder, creates a valid and, upon satisfaction of any filing requirements set
forth herein, perfected security interest in such Securities and the proceeds
thereof, subject to no prior lien or encumbrance or to any agreement purporting
to grant to any third party a lien or encumbrance on the property or assets of
such Pledgor which would include the Securities. Each Pledgor covenants and
agrees that it will defend the Pledgee's right, title and security interest in
and to the Securities and the proceeds thereof against the claims and demands of
all persons whomsoever; and such Pledgor covenants and agrees that it will have
like title to and right to pledge any other property at any time hereafter
pledged to the Pledgee as Collateral hereunder and will likewise defend the
right thereto and security interest therein of the Pledgee and the other Secured
Creditors.
16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of
each Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including,
<PAGE> 12
EXHIBIT 10.3
Page 12
without limitation: (i) any renewal, extension, amendment or modification of or
addition or supplement to or deletion from any Secured Debt Agreement or any
other instrument or agreement referred to therein, or any assignment or transfer
of any thereof; (ii) any waiver, consent, extension, indulgence or other action
or inaction under or in respect of any such agreement or instrument or this
Agreement; (iii) any furnishing of any additional security to the Pledgee or its
assignee or any acceptance thereof or any release of any security by the Pledgee
or its assignee; (iv) any limitation on any party's liability or obligations
under any such instrument or agreement or any invalidity or unenforceability, in
whole or in part, of any such instrument or agreement or any term thereof; or
(v) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to such Pledgor or
any Subsidiary of such Pledgor, or any action taken with respect to this
Agreement by any trustee or receiver, or by any court, in any such proceeding,
whether or not such Pledgor shall have notice or knowledge of any of the
foregoing.
17. REGISTRATION, ETC. (a) If a Noticed Event of Default shall
have occurred and be continuing and any Pledgor shall have received from the
Pledgee a written request or requests that such Pledgor cause any registration,
qualification or compliance under any Federal or state securities law or laws to
be effected with respect to all or any part of the Pledged Stock, such Pledgor
as soon as practicable and at its expense will use its reasonable efforts to
cause such registration to be effected (and be kept effective) and will use its
reasonable efforts to cause such qualification and compliance to be effected
(and be kept effective) as may be so requested and as would permit or facilitate
the sale and distribution of such Pledged Stock, including, without limitation,
registration under the Securities Act of 1933 as then in effect (or any similar
statute then in effect), appropriate qualifications under applicable blue sky or
other state securities laws and appropriate compliance with any other government
requirements; provided, that the Pledgee shall furnish to such Pledgor such
information regarding the Pledgee as such Pledgor may request in writing and as
shall be required in connection with any such registration, qualification or
compliance. Such Pledgor will cause the Pledgee to be kept reasonably advised in
writing as to the progress of each such registration, qualification or
compliance and as to the completion thereof, will furnish to the Pledgee such
number of prospectuses, offering circulars or other documents incident thereto
as the Pledgee from time to time may reasonably request, and will indemnify the
Pledgee, each other Secured Creditor and all others participating in the
distribution of the Pledged Stock against all claims, losses, damages and
liabilities caused by any untrue statement (or alleged untrue statement) of a
material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) to state
therein (or in any related registration statement, notification or the like) a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same may have been caused by an
untrue statement or omission based upon information furnished in writing to such
Pledgor by the Pledgee or such other Secured Creditor expressly for use therein.
<PAGE> 13
EXHIBIT 10.3
Page 13
(b) If at any time when the Pledgee shall determine to
exercise its right to sell all or any part of the Pledged Securities pursuant to
Section 7 hereof, such Pledged Securities or the part thereof to be sold shall
not, for any reason whatsoever, be effectively registered under the Securities
Act of 1933, as then in effect, the Pledgee may, in its sole and absolute
discretion, sell such Pledged Securities or part thereof by private sale in such
manner and under such circumstances as the Pledgee may deem necessary or
advisable in order that such sale may legally be effected without such
registration; provided, that at least 10 days' notice of the time and place of
any such sale shall be given to such Pledgor. Without limiting the generality of
the foregoing, in any such event the Pledgee, in its sole and absolute
discretion: (i) may proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Pledged Securities or
part thereof shall have been filed under such Securities Act; (ii) may approach
and negotiate with a single possible purchaser to effect such sale; and (iii)
may restrict such sale to a purchaser who will represent and agree that such
purchaser is purchasing for its own account, for investment, and not with a view
to the distribution or sale of such Pledged Securities or part thereof. In the
event of any such sale, the Pledgee shall incur no responsibility or liability
for selling all or any part of the Pledged Securities at a price which the
Pledgee, in its sole and absolute discretion, may in good faith deem reasonable
under the circumstances, notwithstanding the possibility that a substantially
higher price might be realized if the sale were deferred until after
registration as aforesaid.
18. TERMINATION, RELEASE. (a) After the Termination Date (as
defined below), this Agreement shall terminate (provided that all indemnities
set forth herein including, without limitation, in Section 11 hereof shall
survive any such termination) and the Pledgee, at the request and expense of the
respective Pledgor, will promptly execute and deliver to such Pledgor a proper
instrument or instruments acknowledging the satisfaction and termination of this
Agreement, and will duly assign, transfer and deliver to such Pledgor (without
recourse and without any representation or warranty) such of the Collateral as
may be in the possession of the Pledgee and has not theretofore been sold or
otherwise applied or released pursuant to this Agreement. As used in this
Agreement, "Termination Date" shall mean the date upon which the Total
Commitment and all Interest Rate Protection Agreements or Other Hedging
Agreements have been terminated, no Note (as defined in the Credit Agreement) or
Letter of Credit is outstanding and all other Obligations then due and payable
have been paid in full.
(b) In the event that any part of the Collateral is sold in
connection with a sale permitted by Section 8.02 of the Credit Agreement or is
otherwise released at the direction of the Required Banks (or all the Banks if
required by Section 13.12 of the Credit Agreement), the Pledgee, at the request
and expense of the respective Pledgor will duly assign, transfer and deliver to
such Pledgor (without recourse and without any representation or warranty) such
of the Collateral as is then being (or has been) so sold or released and as may
be in possession of the Pledgee and has not theretofore been released pursuant
to this Agreement.
<PAGE> 14
EXHIBIT 10.3
Page 14
(c) At any time that a Pledgor desires that Collateral be
released as provided in the foregoing Section 18(a) or (b), it shall deliver to
the Pledgee a certificate signed by an Authorized Officer of such Pledgor
stating that the release of the respective Collateral is permitted pursuant to
Section 18(a) or (b).
19. NOTICES, ETC. All notices and other communications
hereunder shall be in writing and shall be delivered or mailed by first class
mail, postage prepaid, addressed:
(a) if to any Pledgor, at its address set forth opposite its
signature below;
(b) if to the Pledgee, at:
Bankers Trust Company
One Bankers Trust Plaza
New York, New York 10006
Attention: Christopher Kinslow
Telephone No.: (212) 250-7671
Telecopier No.: (212) 250-7218
(c) if to any Bank (other than the Pledgee), at such address
as such Bank shall have specified in the Credit Agreement;
(d) if to any Other Creditor, at such address as such Other
Creditor shall have specified in writing to each Pledgor and the
Pledgee;
or at such o her address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
20. WAIVER; AMENDMENT. None of the terms and conditions of
this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by each Pledgor directly affected
thereby and the Pledgee (with the written consent of either (x) the Required
Banks (or all the Banks if required by Section 13.12 of the Credit Agreement) at
all times prior to the time at which all Credit Document Obligations have been
paid in full or (y) the holders of at least a majority of the outstanding Other
Obligations at all times after the time at which all Credit Document Obligations
have been paid in full; provided, that any change, waiver, modification or
variance affecting the rights and benefits of a single Class (as defined below)
of Secured Creditors (and not all Secured Creditors in a like or similar manner)
shall require the written consent of the Requisite Creditors (as defined below)
of such Class. For the purpose of this Agreement, the term "Class" shall mean
each class of Secured Creditors, i.e., whether (i) the Bank Creditors as holders
of the Credit Document Obligations or (ii) the Other Creditors as holders of the
Other Obligations. For the purpose of this Agreement, the term "Requisite
Creditors" of any Class shall mean each of (i) with respect to the Credit
Document Obligations, the
<PAGE> 15
EXHIBIT 10.3
Page 15
Required Banks and (ii) with respect to the Other Obligations, the holders of at
least a majority of all obligations outstanding from time to time under the
Interest Rate Protection Agreements or Other Hedging Agreements.
21. MISCELLANEOUS. This Agreement shall be binding upon the
successors and assigns of each Pledgor and shall inure to the benefit of and be
enforceable by the Pledgee and its successors and assigns. THIS AGREEMENT SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK. The headings in this Agreement are for purposes of reference
only and shall not limit or define the meaning hereof. This Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which shall constitute one instrument. The Pledgee agrees that it will
not deliver a notice under any other Foreign Pledge Agreement stating that an
Event of Default has occurred thereunder unless such event also constitutes an
Event of Default as defined in this Agreement.
22. ADDITIONAL PLEDGORS. It is understood and agreed that any
Foreign Subsidiary of the Company that is required to execute a counterpart of
this Agreement pursuant to the Credit Agreement shall automatically become a
Pledgor hereunder by executing a counterpart hereof and delivering the same to
the Pledgee.
23. AMENDMENT AND RESTATEMENT. Upon the execution and delivery
of this Agreement by the parties hereto, the Original Foreign Pledge Agreement
shall be amended and restated in its entirety by this Agreement, effective as of
the date hereof, with all rights, obligations and security interests created
under or granted pursuant to the Original Pledge Agreement continuing from the
date thereof.
<PAGE> 16
EXHIBIT 10.3
IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused
this Agreement to be executed by their duly elected officers duly authorized as
of the date first above written.
Address:
c/o Cabot Safety Corporation CABOT SAFETY CANADA CORPORATION
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By
---------------------
Title:
Attention: General Counsel
with a copy to:
Vestar Equity Partners, L.P.
245 Park Avenue
New York, NY 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
c/o Cabot Safety Corporation CABOT SAFETY LIMITED
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By
---------------------
Title:
Attention: General Counsel
with a copy to: By
---------------------
Title:
<PAGE> 17
EXHIBIT 10.3
Vestar Equity Partners, L.P.
245 Park Avenue
New York, NY 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
<PAGE> 18
EXHIBIT 10.3
Accepted and Agreed to:
BANKERS TRUST COMPANY,
as Collateral Agent
By
----------------------
Title:
<PAGE> 19
ANNEX A
to
PLEDGE AGREEMENT
LIST OF STOCK
<PAGE> 20
ANNEX B
to
PLEDGE AGREEMENT
LIST OF NOTES
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<PAGE> 1
EXHIBIT 10.5
AMENDED AND RESTATED
US SECURITY AGREEMENT
among
AEARO CORPORATION,
CABOT SAFETY CORPORATION,
CERTAIN OF ITS DOMESTIC SUBSIDIARIES
and
BANKERS TRUST COMPANY,
as Collateral Agent
Dated as of July 11, 1995
and
Amended and Restated
as of
May 30, 1996
05/24/96 1:05am
0000C79M.W51
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I SECURITY INTERESTS...................................................................... 3
1.1. Grant of Security Interests............................................................. 3
1.2. Power of Attorney....................................................................... 3
ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND
COVENANTS............................................................................ 4
2.1. Necessary Filings....................................................................... 4
2.2. No Liens................................................................................ 4
2.3. Other Financing Statements.............................................................. 4
2.4. Chief Executive Office; Records......................................................... 5
2.5. Location of Inventory and Equipment..................................................... 5
2.6. Recourse................................................................................ 5
2.7. Trade Names; Change of Name............................................................. 6
ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES;
CONTRACT RIGHTS; INSTRUMENTS......................................................... 6
3.1. Additional Representations and Warranties............................................... 6
3.2. Maintenance of Records.................................................................. 6
3.3. Direction to Account Debtors; Contracting
Parties; etc......................................................................... 7
3.4. Modification of Terms; etc.............................................................. 7
3.5. Collection.............................................................................. 7
3.6. Instruments............................................................................. 8
ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS................................................ 8
4.1. Additional Representations and Warranties............................................... 8
4.2. Infringements........................................................................... 9
4.3. Preservation of Marks................................................................... 9
4.4. Maintenance of Registration............................................................. 9
4.5. Future Registered Marks................................................................. 9
4.6. Remedies................................................................................ 10
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS,
COPYRIGHTS AND TRADE SECRETS......................................................... 10
5.1. Additional Representations and Warranties............................................... 10
5.2. Infringements........................................................................... 11
5.3. Maintenance of Patents.................................................................. 11
5.4. Prosecution of Patent Application....................................................... 11
5.5. Other Patents and Copyrights............................................................ 12
5.6. Remedies................................................................................ 12
ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL.................................................... 12
6.1. Protection of Collateral Agent's Security............................................... 12
6.2. Further Actions......................................................................... 13
6.3. Financing Statements.................................................................... 13
ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT............................................ 14
7.1. Remedies; Obtaining the Collateral Upon Default......................................... 14
7.2. Remedies; Disposition of the Collateral................................................. 15
7.3. Waiver of Claims........................................................................ 16
7.4. Application of Proceeds................................................................. 17
7.5. Remedies Cumulative..................................................................... 19
7.6. Discontinuance of Proceedings........................................................... 20
ARTICLE VIII INDEMNITY............................................................................... 20
8.1. Indemnity............................................................................... 20
8.2. Indemnity Obligations Secured by Collateral; Survival................................... 21
ARTICLE IX DEFINITIONS............................................................................. 22
ARTICLE X MISCELLANEOUS........................................................................... 28
10.1. Notices................................................................................. 28
10.2. Waiver; Amendment....................................................................... 28
10.3. Obligations Absolute.................................................................... 29
10.4. Successors and Assigns.................................................................. 29
10.5. Headings Descriptive.................................................................... 29
10.6. Governing Law........................................................................... 29
10.7. Assignor's Duties....................................................................... 30
10.8. Termination; Release.................................................................... 30
10.9. Counterparts............................................................................ 31
10.10. The Collateral Agent.................................................................... 31
10.11. Additional Assignors.................................................................... 31
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
10.12. Amendment and Restatement............................................................... 31
ANNEX A Schedule of Chief Executive Offices/Record Locations
ANNEX B Schedule of Inventory and Equipment Locations
ANNEX C Schedule of Trade and Fictitious Names
ANNEX D List of Marks
ANNEX E List of Patents and Applications
ANNEX F List of Copyrights and Applications
ANNEX G Assignment of Security Interest in United
States Trademarks and Patents
ANNEX H Assignment of Security Interest in
United States Copyrights
</TABLE>
(iii)
<PAGE> 5
EXHIBIT 10.5
AMENDED AND RESTATED US SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of July 11, 1995 and amended and
restated as of May 30, 1996, among each of the undersigned (each an "Assignor"
and, collectively, the "Assignors") and Bankers Trust Company, as Collateral
Agent (the "Collateral Agent") for the benefit of the Secured Creditors (as
defined below). Except as otherwise defined herein, capitalized terms used
herein and defined in the Credit Agreement referred to below shall be used
herein as so defined.
W I T N E S S E T H :
WHEREAS, Aearo Corporation (f/k/a Cabot Safety Holdings
Corporation) ("Holdings"), Cabot Safety Corporation (f/k/a Cabot Safety
Acquisition Corporation) (the "Company"), each Subsidiary Borrower (together
with the Company, each a "Borrower" and, collectively, the "Borrowers"), the
Banks party thereto from time to time (the "Banks") and Bankers Trust Company,
as Administrative Agent (together with any successor agent, the "Administrative
Agent," and together with the Collateral Agent and the Banks, the "Bank
Creditors"), have entered into a Credit Agreement, dated as of July 11, 1995 and
amended and restated as of May 30, 1996 (as amended, modified or supplemented
from time to time, the "Credit Agreement"), providing for the making of Loans to
the Borrowers and the issuance of, and participation in, Letters of Credit for
the account of the Company, all as contemplated therein;
WHEREAS, the Borrowers may from time to time be party to (or
guaranty the obligations of one or more of their Subsidiaries under) one or more
(i) interest rate protection agreements, interest rate cap agreements, interest
rate collar agreements or other similar agreements or arrangements, (ii) foreign
exchange contracts, currency swap agreements or other similar agreements or
arrangements designed to protect against the fluctuations in currency values
and/or (iii) other types of hedging agreements from time to time with an Other
Creditor (as hereinafter defined) (collectively, the "Interest Rate Protection
Agreements or Other Hedging Agreements"), with a Bank or an affiliate of a Bank
(each such Bank or affiliate, even if the respective Bank subsequently ceases to
be a Bank under the Credit Agreement for any reason, together with such Bank's
or affiliate's successors and assigns, collectively, the "Other Creditors," and
together with the Bank Creditors, the "Secured Creditors").
<PAGE> 6
EXHIBIT 10.5
Page 2
WHEREAS, pursuant to Section 12 of the Credit Agreement, the
Company has guaranteed to the Secured Creditors the payment when due of all
obligations and liabilities of (i) the Subsidiary Borrowers under or with
respect to the Credit Documents and (ii) each of its Subsidiaries under or with
respect to the Interest Rate Protection Agreements or Other Hedging Agreements
entered into by such Subsidiaries;
WHEREAS, pursuant to Section 12 of the Credit Agreement,
Holdings has guaranteed to the Secured Creditors the payment when due of all
obligations and liabilities of (i) the Company under or with respect to the
Credit Documents and (ii) the Subsidiary Borrowers under or with respect to the
Credit Documents;
WHEREAS, pursuant to the Amended and Restated US Subsidiary
Guaranty, each Domestic Subsidiary of the Company has jointly and severally
guaranteed to the Secured Creditors the payment when due of all obligations and
liabilities of (i) the Borrowers under or with respect to the Credit Documents,
subject to the limitations contained in the Amended and Restated US Subsidiary
Guaranty, and (ii) the Company and each other Subsidiary of the Company under or
with respect to the Interest Rate Protection Agreements or Other Hedging
Agreements entered into by the Company or such other Subsidiaries;
WHEREAS, the Assignors have heretofore entered into a Security
Agreement, dated as of July 11, 1995 (as amended, modified or supplemented prior
to the date hereof, the "Original US Security Agreement");
WHEREAS, it is a condition precedent to the extensions of
credit under the Credit Agreement that each Assignor shall have executed and
delivered to the Collateral Agent this Agreement; and
WHEREAS, each Assignor desires to execute this Agreement (i)
to satisfy the condition described in the preceding paragraph and (ii) to amend
and restate the Original US Security Agreement;
NOW, THEREFORE, in consideration of the benefits accruing to
each Assignor, the receipt and sufficiency of which are hereby acknowledged,
each Assignor hereby makes the following representations and warranties to the
Collateral Agent for the benefit of the Secured Creditors and hereby covenants
and agrees with the Collateral Agent for the benefit of the Secured Creditors as
follows:
<PAGE> 7
EXHIBIT 10.5
Page 3
ARTICLE I
SECURITY INTERESTS
1.1. Grant of Security Interests. (a) Subject to the
limitations contained in paragraph 1.1(c) and as security for the prompt and
complete payment and performance when due of all of the Obligations of such
Assignor, each Assignor does hereby assign and transfer unto the Collateral
Agent, and does hereby pledge and grant to the Collateral Agent for the benefit
of the Secured Creditors, a continuing security interest of first priority in,
all of the right, title and interest of such Assignor in, to and under all of
the following, whether now existing or hereafter from time to time acquired: (i)
each and every Receivable, (ii) all Contracts, together with all Contract Rights
arising thereunder, (iii) all Inventory, (iv) all Equipment, (v) all Marks,
together with the registrations and right to all renewals thereof, and the
goodwill of the business of such Assignor symbolized by the Marks, (vi) all
Patents, (vii) all Copyrights, (viii) all computer programs of such Assignor and
all intellectual property rights therein and all Proprietary Information and
Trade Secrets of such Assignor, (ix) all other Goods, General Intangibles,
Chattel Paper, Documents and Instruments, (x) the Cash Collateral Account and
all monies, securities and instruments deposited or required to be deposited in
such Cash Collateral Account, and (xi) all Proceeds and products of any and all
of the foregoing (all of the above, collectively, the "Collateral").
(b) The security interest of the Collateral Agent under this
Agreement extends to all Collateral of the kind which is the subject of this
Agreement which any Assignor may acquire at any time during the continuation of
this Agreement.
(c) Notwithstanding any other provision of this Amended and
Restated US Security Agreement, the aggregate amount of the Obligations of the
Assignors (other than Holdings and the Company) secured hereby, including
without limitation, obligations for principal, premium, interest, penalties,
fees, indemnifications, reimbursements, damages and other liabilities and
expenses payable by such Assignors under any Credit Documents, Interest Rate
Protection Agreement or Other Hedging Agreement, shall in no event exceed the
aggregate principal amount of (i) all Original Term Loans (or the Dollar
Equivalent thereof) outstanding from time to time, as such Original Term Loans
have been repaid pursuant to Sections 4.02(b) and (c) of the Credit Agreement
plus (ii) all Revolving Loans (or the Dollar Equivalent thereof).
1.2. Power of Attorney. Each Assignor hereby constitutes and
appoints the Collateral Agent its true and lawful attorney, irrevocably, with
full power after the occurrence of and during the continuance of a Noticed Event
of Default (in the name of such
<PAGE> 8
EXHIBIT 10.5
Page 4
Assignor or otherwise) to act, require, demand, receive, compound and give
acquittance for any and all monies and claims for monies due or to become due to
such Assignor under or arising out of the Collateral, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings which the Collateral Agent may deem
to be necessary or advisable to protect the interests of the Secured Creditors,
which appointment as attorney is coupled with an interest.
ARTICLE II
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Assignor represents, warrants and covenants, which
representations, warranties and covenants shall survive execution and delivery
of this Agreement, as follows:
2.1. Necessary Filings. With the exception of Collateral
described in Sections 1.01(a)(vii) and (viii) which must be specially recorded
in a patent, trademark or copyright office (or the equivalent) of an applicable
jurisdiction, all filings, registrations and recordings necessary or appropriate
to create, preserve and perfect the security interest granted by such Assignor
to the Collateral Agent hereby in respect of the Collateral have been
accomplished and the security interest granted to the Collateral Agent pursuant
to this Agreement in and to the Collateral constitutes, upon satisfaction of
such filings, registrations and recordings, a perfected security interest
therein prior to the rights of all other Persons therein (other than any such
rights pursuant to Permitted Liens) and subject to no other Liens (other than
Permitted Liens) and is entitled to all the rights, priorities and benefits
afforded by the Uniform Commercial Code or other relevant law as enacted in any
relevant jurisdiction to perfected security interests.
2.2. No Liens. Such Assignor is, and as to Collateral acquired
by it from time to time after the date hereof such Assignor will be, the owner
of all Collateral pledged by it hereunder free from any Lien, security interest,
encumbrance or other right, title or interest of any Person (other than
Permitted Liens and licenses of Patents, Marks and other intellectual property
to certain Wholly-Owned Subsidiaries, either directly or indirectly, of Cabot
Safety Acquisition Corporation), and such Assignor shall defend the Collateral
against all claims and demands of all Persons at any time claiming the same or
any interest therein (other than in connection with Permitted Liens) adverse to
the Collateral Agent.
2.3. Other Financing Statements. As of the date hereof, there
is no financing statement (or similar statement or instrument of registration
under the law of any juris-
<PAGE> 9
EXHIBIT 10.5
Page 5
diction) covering or purporting to cover any interest of any kind in the
Collateral (other than financing statements filed in respect of Permitted
Liens), and so long as the Termination Date has not occurred, such Assignor will
not execute or authorize to be filed in any public office any financing
statement (or similar statement or instrument of registration under the law of
any jurisdiction) or statements relating to the Collateral, except financing
statements filed or to be filed in respect of and covering the security
interests granted hereby by such Assignor or in connection with Permitted Liens.
2.4. Chief Executive Office; Records. As of the date hereof,
the chief executive office of such Assignor is located at the address indicated
on Annex A hereto for such Assignor. Such Assignor will not move its chief
executive office except to such new location as such Assignor may establish in
accordance with the last sentence of this Section 2.4. A complete set of books
of account and records of such Assignor relating to the Receivables and the
Contract Rights are, and will continue to be, kept at such chief executive
office, at one or more of the other record locations set forth on Annex A hereto
for such Assignor or at such new locations as such Assignor may establish in
accordance with the last sentence of this Section 2.4. All Receivables and
Contract Rights of such Assignor are, and will continue to be, maintained at,
and controlled and directed (including, without limitation, for general
accounting purposes) from, the office locations described above or such new
location established in accordance with the last sentence of this Section 2.4.
No Assignor shall establish new locations for such offices until (i) it shall
have given to the Collateral Agent not less than 15 days' prior written notice
of its intention to do so, clearly describing such new location and providing
such other information in connection therewith as the Collateral Agent may
reasonably request and (ii) with respect to such new location, it shall have
taken all action, reasonably satisfactory to the Collateral Agent, to maintain
the security interest of the Collateral Agent in the Collateral intended to be
granted hereby at all times fully perfected and in full force and effect.
2.5. Location of Inventory and Equipment. As of the date
hereof, all Inventory and Equipment held by each Assignor is located at one of
the locations shown on Annex B hereto for such Assignor. Each Assignor agrees
that all Inventory and Equipment now held or subsequently acquired by it shall
be kept at (or shall be in transport to) any one of the locations shown on Annex
B hereto, or such new location as such Assignor may establish in accordance with
the last sentence of this Section 2.5. Any Assignor may establish a new location
for Inventory and Equipment only if (i) it shall have given to the Collateral
Agent not less than 15 days' prior written notice of its intention so to do,
clearly describing such new location and providing such other information in
connection therewith as the Collateral Agent may reasonably request and (ii)
with respect to such new location, it shall have taken all action reasonably
satisfactory to the Collateral Agent to maintain the security
<PAGE> 10
EXHIBIT 10.5
Page 6
interest of the Collateral Agent in the Collateral intended to be granted hereby
at all times fully perfected and in full force and effect.
2.6. Recourse. This Agreement is made with full recourse to
each Assignor and pursuant to and upon all the warranties, representations,
covenants and agreements on the part of such Assignor contained herein, in the
other Secured Debt Agreements and otherwise in writing in connection herewith or
therewith.
2.7. Trade Names; Change of Name. As of the date hereof, no
Assignor has or operates in any jurisdiction under, or in the preceding 12
months has had or has operated in any jurisdiction under, any trade names,
fictitious names or other names except its legal name and such other trade or
fictitious names as are listed on Annex C hereto for such Assignor. No Assignor
shall change its legal name or assume or operate in any jurisdiction under any
trade, fictitious or other name except those names listed on Annex C hereto for
such Assignor and new names established in accordance with the last sentence of
this Section 2.7. No Assignor shall assume or operate in any jurisdiction under
any new trade, fictitious or other name until (i) it shall have given to the
Collateral Agent not less than 15 days' prior written notice of its intention so
to do, clearly describing such new name and the jurisdictions in which such new
name shall be used and providing such other information in connection therewith
as the Collateral Agent may reasonably request and (ii) with respect to such new
name, it shall have taken all action reasonably requested by the Collateral
Agent, to maintain the security interest of the Collateral Agent in the
Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
ARTICLE III
SPECIAL PROVISIONS CONCERNING
RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS
3.1. Additional Representations and Warranties. As of the time
when each of its Receivables arises, each Assignor shall be deemed to have
represented and warranted that such Receivable, and all records, papers and
documents relating thereto are what they purport to be in all material respects,
and that such Receivable will, to the best knowledge of such Assignor, evidence
true and valid obligations of the account debtor named therein.
3.2. Maintenance of Records. Each Assignor will keep and
maintain at its own cost and expense, records of its Receivables and Contracts
and such Assignor will make the same available on an Assignor's premises to the
Collateral Agent for inspection,
<PAGE> 11
EXHIBIT 10.5
Page 7
at such Assignor's own cost and expense, at any and all reasonable times upon
reasonable prior notice to such Assignor. Upon the occurrence and during the
continuance of an Event of Default and at the reasonable request of the
Collateral Agent, such Assignor shall, at its own cost and expense, deliver all
tangible evidence of its Receivables and Contract Rights (including, without
limitation, all documents evidencing the Receivables and all Contracts) and such
books and records to the Collateral Agent or to its representatives (copies of
which evidence and books and records may be retained by such Assignor). If the
Collateral Agent so directs, upon the occurrence and during the continuance of
an Event of Default such Assignor shall legend, in form and manner satisfactory
to the Collateral Agent, the Receivables and the Contracts, as well as books,
records and documents of such Assignor evidencing or pertaining to such
Receivables and Contracts with an appropriate reference to the fact that such
Receivables and Contracts have been assigned to the Collateral Agent and that
the Collateral Agent has a security interest therein.
3.3. Direction to Account Debtors; Contracting Parties; etc.
Upon the occurrence and during the continuance of a Noticed Event of Default,
and if the Collateral Agent so directs any Assignor, such Assignor agrees (x) to
cause all payments on account of the Receivables and Contracts to be made
directly to the Cash Collateral Account, (y) that the Collateral Agent may, at
its option, directly notify the obligors with respect to any Receivables and/or
under any Contracts to make payments with respect thereto as provided in
preceding clause (x) and (z) that the Collateral Agent may enforce collection of
any such Receivables and Contracts and may adjust, settle or compromise the
amount of payment thereof, in the same manner and to the same extent as such
Assignor. Without notice to or assent by any Assignor, the Collateral Agent may
apply any or all amounts then in, or thereafter deposited in, the Cash
Collateral Account which application shall be effected in the manner provided in
Section 7.4 of this Agreement. The reasonable costs and expenses (including
reasonable attorneys' fees) of collection, whether incurred by the relevant
Assignor or the Collateral Agent, shall be borne by the relevant Assignor. The
Collateral Agent shall deliver a copy of each notice referred to in the
preceding clause (y) to the relevant Assignor; provided, that the failure by the
Collateral Agent to so notify such Assignor shall not affect the effectiveness
of such notice or the other rights of the Collateral Agent created by this
Section 3.3.
3.4. Modification of Terms; etc. No Assignor shall rescind or
cancel any indebtedness evidenced by any Receivable or under any Contract, or
modify any term thereof or make any adjustment with respect thereto, or extend
or renew the same, or compromise or settle any material dispute, claim, suit or
legal proceeding relating thereto, or sell any Receivable or Contract, or
interest therein, without the prior written consent of the Collateral Agent,
except in accordance with such Assignor's reasonable business practices.
<PAGE> 12
EXHIBIT 10.5
Page 8
3.5. Collection. Each Assignor shall endeavor in accordance
with reasonable business practices to cause to be collected from the account
debtor named in each of its Receivables or obligor under any Contract, as and
when due (including, without limitation, amounts which are delinquent, such
amounts to be collected in accordance with generally accepted lawful collection
procedures) any and all amounts owing under or on account of such Receivable or
Contract, and apply forthwith upon receipt thereof all such amounts as are so
collected to the outstanding balance of such Receivable or under such Contract.
The reasonable costs and expenses (including, without limitation, attorneys'
fees) of collection, if incurred by an Assignor or the Collateral Agent, shall
be borne by the relevant Assignor.
3.6. Instruments. If any Assignor owns or acquires any
Instrument (other than, in the case of Cabot Safety Intermediate Corporation,
the Swedish Note) having a principal amount of $2,000,000 or more constituting
Collateral, such Assignor will within 10 Business Days notify the Collateral
Agent thereof, and upon request by the Collateral Agent will promptly deliver
such Instrument to the Collateral Agent appropriately endorsed to the order of
the Collateral Agent as further security hereunder, but only to the extent that
such Instrument has not been delivered pursuant to the US Pledge Agreement.
ARTICLE IV
SPECIAL PROVISIONS CONCERNING TRADEMARKS
4.1. Additional Representations and Warranties. Each Assignor
represents and warrants that, as of the date hereof, it is the true and lawful
owner of all right, title and interest to or otherwise has the right to use the
registered Marks listed in Annex D hereto for such Assignor and that, as of the
date hereof, said listed Marks constitute all the marks and applications for
marks registered in the United States Patent and Trademark Office (or the
equivalent Canadian and United Kingdom offices) that such Assignor presently
owns or uses in connection with its business. Each Assignor represents and
warrants that it owns, is licensed to use or otherwise has the right to use all
material Marks that it uses. Each Assignor further warrants that it has no
knowledge of any third party claim that any aspect of such Assignor's present or
contemplated business operations infringes or will infringe any trademark,
service mark or trade name in any respect which could reasonably be expected to
have a material adverse effect on the business, operations, property, assets,
liabilities or condition (financial or otherwise) of Holdings and its
Subsidiaries taken as a whole. Each Assignor represents and warrants that except
as listed on Annex D, as of the date hereof, it is the beneficial and record
owner of all trademark registrations and applications listed in Annex D hereto
for such Assignor and that said registrations are valid and subsisting, and
<PAGE> 13
EXHIBIT 10.5
Page 9
that such Assignor is not aware of any third-party claim that any of said
registrations in respect of any material Mark is invalid or unenforceable. Each
Assignor hereby grants to the Collateral Agent an absolute power of attorney to
sign, upon the occurrence and during the continuance of a Noticed Event of
Default, any document which may be required by the United States Patent and
Trademark Office (or the equivalent Canadian and United Kingdom offices) in
order to effect an absolute assignment of all right, title and interest in each
Mark, and record the same.
4.2. Infringements. Each Assignor agrees, promptly upon
learning thereof, to notify the Collateral Agent in writing of the name and
address of, and to furnish such pertinent information that may be available with
respect to, any party who such Assignor believes is infringing or diluting or
otherwise violating in any material respect any of such Assignor's rights in and
to any material Mark, or with respect to any party claiming that such Assignor's
use of any material Mark violates in any material respect any property right of
that party. Each Assignor further agrees to prosecute any Person infringing any
material Mark in accordance with reasonable business practices.
4.3. Preservation of Marks. Each Assignor agrees to use its
Marks as required in each of the applicable jurisdictions during the time in
which this Agreement is in effect, sufficiently to preserve such Marks (and any
registrations thereto) as trademarks or service marks under the laws of the
United States and any other applicable law; provided, that no Assignor shall be
obligated to preserve any Mark in the event such Assignor determines, in its
reasonable business judgment, that the preservation of such Mark is no longer
desirable in the conduct of its business.
4.4. Maintenance of Registration. Each Assignor shall, at its
own expense, diligently process all documents required by the Trademark Act of
1946, 15 U.S.C. Sections 1051 et seq. (or the equivalent laws of Canada and the
United Kingdom) to maintain trademark registrations, including but not limited
to affidavits of use and applications for renewals of registration in the United
States Patent and Trademark Office (or the equivalent Canadian and United
Kingdom offices) for all of its registered Marks pursuant to 15 U.S.C. Sections
1058(a), 1059 and 1065 (or the equivalent laws of Canada and the United
Kingdom), and shall pay all fees and disbursements in connection therewith and
shall not abandon any such filing of affidavit of use or any such application of
renewal prior to the exhaustion of all administrative and judicial remedies
without prior written consent of the Collateral Agent; provided, that no
Assignor shall be obligated to maintain any Mark in the event that such Assignor
determines, in its reasonable business judgment, that the maintenance of such
Mark is no longer necessary or desirable in the conduct of its business.
<PAGE> 14
EXHIBIT 10.5
Page 10
4.5. Future Registered Marks. If any Mark registration issues
hereafter to any Assignor as a result of any application now or hereafter
pending before the United States Patent and Trademark Office (or the equivalent
Canadian and United Kingdom offices), within 60 days of receipt of such
certificate, such Assignor shall deliver to the Collateral Agent a copy of such
certificate, and an assignment for security in such Mark, to the Collateral
Agent and at the expense of such Assignor, confirming the assignment for
security in such Mark to the Collateral Agent hereunder, the form of such
security to be substantially the same as the form hereof or in such other form
as may be reasonably satisfactory to the Collateral Agent.
4.6. Remedies. If a Noticed Event of Default shall occur and
be continuing, the Collateral Agent may take any or all of the following
actions: (i) declare the entire right, title and interest of such Assignor in
and to each of the Marks, together with all trademark rights and rights of
protection to the same, vested in the Collateral Agent for the benefit of the
Secured Creditors, in which event such rights, title and interest shall
immediately vest, in the Collateral Agent for the benefit of the Secured
Creditors, and the Collateral Agent shall be entitled to exercise the power of
attorney referred to in Section 4.1 hereof to execute, cause to be acknowledged
and notarized and record said absolute assignment with the applicable agency;
(ii) take and use or sell the Marks and the goodwill of such Assignor's business
symbolized by the Marks and the right to carry on the business and use the
assets of such Assignor in connection with which the Marks have been used; and
(iii) direct such Assignor to refrain, in which event such Assignor shall
refrain, from using the Marks in any manner whatsoever, directly or indirectly,
and, if requested by the Collateral Agent, change such Assignor's corporate name
to eliminate therefrom any use of any Mark and execute such other and further
documents that the Collateral Agent may request to further confirm this and to
transfer ownership of the Marks and registrations and any pending trademark
application in the United States Patent and Trademark Office (or the equivalent
Canadian and United Kingdom offices) to the Collateral Agent.
ARTICLE V
SPECIAL PROVISIONS CONCERNING
PATENTS, COPYRIGHTS AND TRADE SECRETS
5.1. Additional Representations and Warranties. Each Assignor
represents and warrants that, as of the date hereof, it is the true and lawful
owner of all rights in (i) all material Trade Secrets and Proprietary
Information necessary to operate the business of such Assignor, (ii) the Patents
listed in Annex E hereto for such Assignor and that said Patents
<PAGE> 15
EXHIBIT 10.5
Page 11
constitute all the patents and applications for patents that such Assignor owns
on the date hereof and (iii) the Copyrights listed in Annex F hereto for such
Assignor and that said Copyrights constitute all registrations of copyrights and
applications for copyright registrations that such Assignor owns on the date
hereof. Each Assignor further warrants that it has no knowledge of any third
party claim that any aspect of such Assignor's present or contemplated business
operations infringes or will infringe any patent or any copyright or such
Assignor has misappropriated any Trade Secret or Proprietary Information, in
each case in any respect which could reasonably be expected to have a material
adverse effect on the business, operations, property, assets, liabilities or
condition (financial or otherwise) of Holdings and its Subsidiaries taken as a
whole. Each Assignor hereby grants to the Collateral Agent an absolute power of
attorney to sign, upon the occurrence and during the continuance of a Noticed
Event of Default, any document which may be required by the United States Patent
and Trademark Office (or the equivalent Canadian and United Kingdom offices) or
the United States Copyright Office (or the equivalent Canadian and United
Kingdom offices) in order to effect an absolute assignment of all right, title
and interest in each Patent and Copyright, and to record the same.
5.2. Infringements. Each Assignor agrees, promptly upon
learning thereof, to furnish the Collateral Agent in writing with all pertinent
information available to such Assignor with respect to any infringement,
contributing infringement or active inducement to infringe in any material
respect any material Patent or Copyright or to any claim that the practice of
any material Patent or the use of any material Copyright violates in any
material respect any property right of a third party, or with respect to any
misappropriation of any material Trade Secret Right or any claim that practice
of any material Trade Secret Right violates in any material respect any property
right of a third party. Each Assignor further agrees, to the extent consistent
with reasonable business practices, to prosecute any Person infringing any
Patent or Copyright or any Person misappropriating any Trade Secret Right.
5.3. Maintenance of Patents. At its own expense, each Assignor
shall make timely payment of all post-issuance fees required pursuant to 35
U.S.C. Section 41 (or the equivalent laws of Canada and the United Kingdom) to
maintain in force rights under each Patent, absent prior written consent of the
Collateral Agent; provided, that no Assignor shall be obligated to maintain any
Patent in the event such Assignor determines, in its reasonable business
judgment, that the maintenance of such Patent is no longer necessary or
desirable in the conduct of its business.
5.4. Prosecution of Patent Application. At its own expense,
each Assignor shall diligently prosecute all applications for Patents for such
Assignor and shall not abandon any such application prior to exhaustion of all
administrative and judicial remedies, absent
<PAGE> 16
EXHIBIT 10.5
Page 12
written consent of the Collateral Agent; provided, that no Assignor shall be
obligated to prosecute any application in the event such Assignor determines, in
its reasonable business judgment, that the prosecuting of such application is no
longer necessary or desirable in the conduct of its business.
5.5. Other Patents and Copyrights. Within 60 days of the
acquisition or issuance of a Patent, registration of a Copyright, or acquisition
of a registered copyright, the relevant Assignor shall deliver to the Collateral
Agent a copy of said Copyright or certificate or registration of said patents,
as the case may be, with an assignment for security as to such Patent or
Copyright, as the case may be, to the Collateral Agent and at the expense of
such Assignor, confirming the assignment for security, the form of such
assignment for security to be substantially the same as the form hereof or in
such other form as may be reasonably satisfactory to the Collateral Agent.
5.6. Remedies. If a Noticed Event of Default shall occur and
be continuing, the Collateral Agent may take any or all of the following
actions: (i) declare the entire right, title, and interest of such Assignor in
each of the Patents and Copyrights vested in the Collateral Agent for the
benefit of the Secured Creditors, in which event such right, title, and interest
shall immediately vest in the Collateral Agent for the benefit of the Secured
Creditors, in which case the Collateral Agent shall be entitled to exercise the
power of attorney referred to in Section 5.1 hereof to execute, cause to be
acknowledged and notarized and to record said absolute assignment with the
applicable agency; (ii) take and practice or sell the Patents and Copyrights;
and (iii) direct such Assignor to refrain, in which event such Assignor shall
refrain, from practicing the Patents and using the Copyrights directly or
indirectly, and such Assignor shall execute such other and further documents as
the Collateral Agent may request further to confirm this and to transfer
ownership of the Patents and Copyrights to the Collateral Agent for the benefit
of the Secured Creditors.
ARTICLE VI
PROVISIONS CONCERNING ALL COLLATERAL
6.1. Protection of Collateral Agent's Security. Each Assignor
will at all times keep its Inventory and Equipment insured in favor of the
Collateral Agent, at such Assignor's own expense to the extent and in the manner
provided in the Secured Debt Agreements; all policies or certificates with
respect to such insurance (and any other insurance maintained by such Assignor)
(i) shall be endorsed to the Collateral Agent's reasonable satisfaction for the
benefit of the Collateral Agent (including, without limitation, by naming the
<PAGE> 17
EXHIBIT 10.5
Page 13
Collateral Agent as additional insured and loss payee) and (ii) shall state that
such insurance policies shall not be cancelled without 30 days' prior written
notice thereof (or 10 days' in the case of non-payment of premium) by the
insurer to the Collateral Agent; and certified copies of such policies or
certificates with respect thereto shall be deposited with the Collateral Agent.
If any Assignor shall fail to insure its Inventory and Equipment in accordance
with the preceding sentence, or if any Assignor shall fail to so endorse and
deposit all policies or certificates with respect thereto, the Collateral Agent
shall have the right (but shall be under no obligation), upon prior written
notice to such Assignor, to procure such insurance and such Assignor agrees to
promptly reimburse the Collateral Agent for all costs and expenses of procuring
such insurance. The Collateral Agent shall, at the time any proceeds of such
insurance are distributed to the Secured Creditors, apply such proceeds in
accordance with Section 7.4 hereof except as otherwise provided by the Credit
Agreement. Each Assignor assumes all liability and responsibility in connection
with the Collateral acquired by it and the liability of such Assignor to pay the
Obligations shall in no way be affected or diminished by reason of the fact that
such Collateral may be lost, destroyed, stolen, damaged or for any reason
whatsoever unavailable to such Assignor.
6.2. Further Actions. Each Assignor will, at its own expense,
make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent
from time to time such lists, descriptions and designations of its Collateral,
warehouse receipts, receipts in the nature of warehouse receipts, bills of
lading, documents of title, vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, which the Collateral Agent
deems reasonably appropriate or advisable to perfect, preserve or protect its
security interest in the Collateral.
6.3. Financing Statements. Each Assignor agrees to execute and
deliver to the Collateral Agent such financing statements, in form reasonably
acceptable to the Collateral Agent, as the Collateral Agent may from time to
time reasonably request or as are necessary or desirable in the reasonable
opinion of the Collateral Agent to establish and maintain a valid, enforceable,
first priority perfected security interest in the Collateral as provided herein
and the other rights and security contemplated hereby all in accordance with the
UCC as enacted in any and all relevant jurisdictions or any other relevant law.
Each Assignor will pay any applicable filing fees, recordation taxes and related
expenses relating to its Collateral. Each Assignor hereby authorizes the
Collateral Agent to file any such financing statements without the signature of
such Assignor where permitted by law.
<PAGE> 18
EXHIBIT 10.5
Page 14
ARTICLE VII
REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT
7.1. Remedies; Obtaining the Collateral Upon Default. Each
Assignor agrees that, if a Noticed Event of Default shall have occurred and be
continuing, then and in every such case, the Collateral Agent, in addition to
any rights now or hereafter existing under applicable law, shall have all rights
as a secured creditor under the UCC in all relevant jurisdictions and may:
(i) personally, or by agents or attorneys, immediately take
possession of the Collateral or any part thereof, from such Assignor or
any other Person who then has possession of any part thereof with or
without notice or process of law, and for that purpose may enter upon
such Assignor's premises where any of the Collateral is located and
remove the same and use in connection with such removal any and all
services, supplies, aids and other facilities of such Assignor;
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the
Receivables and the Contracts) constituting the Collateral to make any
payment required by the terms of such agreement, instrument or other
obligation directly to the Collateral Agent;
(iii) withdraw all monies, securities and instruments in the
Cash Collateral Account and/or in any other cash collateral account for
application to the Obligations in accordance with Section 7.4 hereof;
(iv) sell, assign or otherwise liquidate any or all of the
Collateral or any part thereof in accordance with Section 7.2 hereof,
or direct the relevant Assignor to sell, assign or otherwise liquidate
any or all of the Collateral or any part thereof, and, in each case,
take possession of the proceeds of any such sale or liquidation;
(v) take possession of the Collateral or any part thereof, by
directing the relevant Assignor in writing to deliver the same to the
Collateral Agent at any place or places reasonably designated by the
Collateral Agent, in which event such Assignor shall at its own
expense:
(x) forthwith cause the same to be moved to the place
or places so designated by the Collateral Agent and there
delivered to the Collateral Agent;
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EXHIBIT 10.5
Page 15
(y) store and keep any Collateral so delivered to the
Collateral Agent at such place or places pending further
action by the Collateral Agent as provided in Section 7.2
hereof; and
(z) while the Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain
them in good condition; and
(vi) license or sublicense, whether on an exclusive or
nonexclusive basis, any Marks, Patents or Copyrights included in the
Collateral for such term and on such conditions and in such manner as
the Collateral Agent shall in its reasonable judgment determine;
it being understood that each Assignor's obligation so to deliver the Collateral
is of the essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Collateral Agent shall be entitled to a
decree requiring specific performance by such Assignor of said obligation. The
Secured Creditors agree that this Agreement may be enforced only by the action
of the Collateral Agent acting upon the instructions of the Required Banks and
that no other Secured Creditor shall have any right individually to seek to
enforce this Agreement or to realize upon the security to be granted hereby, it
being understood and agreed that such rights and remedies may be exercised by
the Collateral Agent for the benefit of the Secured Creditors upon the terms of
this Agreement.
7.2. Remedies; Disposition of the Collateral. Any Collateral
repossessed by the Collateral Agent under or pursuant to Section 7.1 hereof and
any other Collateral whether or not so repossessed by the Collateral Agent, may
be sold, assigned, leased or otherwise disposed of under one or more contracts
or as an entirety, and without the necessity of gathering at the place of sale
the property to be sold, and in general in such manner, at such time or times,
at such place or places and on such terms as the Collateral Agent may, in
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Collateral may be sold, leased or otherwise
disposed of, in the condition in which the same existed when taken by the
Collateral Agent or after any overhaul or repair at the expense of the relevant
Assignor which the Collateral Agent shall determine to be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceedings permitted by such requirements shall be made upon not less than 10
days' written notice to the relevant Assignor specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefor, and shall be subject, for the 10 days after the giving of such notice,
to the right of the relevant Assignor or any nominee of such Assignor to acquire
the Collateral involved at a price or for such other consideration
<PAGE> 20
EXHIBIT 10.5
Page 16
at least equal to the intended sale price or other consideration so specified.
Any such disposition which shall be a public sale permitted by such requirements
shall be made upon not less than 10 days' written notice to the relevant
Assignor specifying the time and place of such sale and, in the absence of
applicable requirements of law, shall be by public auction (which may, at the
Collateral Agent's option, be subject to reserve), after publication of notice
of such auction not less than 10 days prior thereto in two newspapers in general
circulation in the City of New York. To the extent permitted by any such
requirement of law, the Collateral Agent may bid for and become the purchaser of
the Collateral or any item thereof, offered for sale in accordance with this
Section without accountability to the relevant Assignor. If, under mandatory
requirements of applicable law, the Collateral Agent shall be required to make
disposition of the Collateral within a period of time which does not permit the
giving of notice to the relevant Assignor as hereinabove specified, the
Collateral Agent need give such Assignor only such notice of disposition as
shall be reasonably practicable in view of such mandatory requirements of
applicable law.
7.3. Waiver of Claims. Except as otherwise provided in this
Agreement, (i) EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL
AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING
FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH ASSIGNOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
OR OF ANY STATE, and (ii) each Assignor hereby further waives, to the extent
permitted by law:
(a) all damages occasioned by such taking of possession except
any damages which arise from the Collateral Agent's gross negligence or
willful misconduct;
(b) all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of the
Collateral Agent's rights hereunder; and
(c) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable
law in order to prevent or delay the enforcement of this Agreement or
the absolute sale of the Collateral or any portion thereof, and each
Assignor, for itself and all who may claim under it, insofar as it or
they now or hereafter lawfully may, hereby waives the benefit of all
such laws.
<PAGE> 21
EXHIBIT 10.5
Page 17
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the relevant Assignor therein and
thereto, and shall be a perpetual bar both at law and in equity against such
Assignor and against any and all Persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any part thereof, from,
through and under such Assignor.
7.4. Application of Proceeds. (a) All moneys collected by the
Collateral Agent (or, to the extent the US Pledge Agreement or any Mortgage
executed by the Company or any Assignor requires proceeds of collateral under
such Security Documents to be applied in accordance with the provisions of this
Agreement, the Pledgee or Mortgagee under such other Security Document) upon any
sale or other disposition of the Collateral, together with all other moneys
received by the Collateral Agent hereunder, shall be applied as follows:
(i) first, to the payment of all Obligations owing the
Collateral Agent of the type provided in clauses (iii) and (iv) of the
definition of Obligations;
(ii) second, to the extent proceeds remain after the
application pursuant to preceding clause (i), an amount equal to the
outstanding Primary Obligations shall be paid to the Secured Creditors
as provided in Section 7.4(e) hereof, with each Secured Creditor
receiving an amount equal to such outstanding Primary Obligations or,
if the proceeds are insufficient to pay in full all such Primary
Obligations, its Pro Rata Share of the amount remaining to be
distributed;
(iii) third, to the extent proceeds remain after the application
pursuant to preceding clauses (i) and (ii), an amount equal to the
outstanding Secondary Obligations shall be paid to the Secured
Creditors as provided in Section 7.4(e) hereof, with each Secured
Creditor receiving an amount equal to its outstanding Secondary
Obligations or, if the proceeds are insufficient to pay in full all
such Secondary Obligations, its Pro Rata Share of the amount remaining
to be distributed; and
(iv) fourth, to the extent proceeds remain after the
application pursuant to preceding clauses (i) through (iii), inclusive,
and following the termination of this Agreement pursuant to Section
10.8(a) hereof, to the relevant Assignor or to whomever may be lawfully
entitled to receive such surplus.
(b) For purposes of this Agreement (x) "Pro Rata Share" shall
mean, when calculating a Secured Creditor's portion of any distribution or
amount, that amount (expressed as a percentage) equal to a fraction the
numerator of which is the then unpaid
<PAGE> 22
EXHIBIT 10.5
Page 18
amount of such Secured Creditor's Primary Obligations or Secondary Obligations,
as the case may be, and the denominator of which is the then outstanding amount
of all Primary Obligations or Secondary Obligations, as the case may be, (y)
"Primary Obligations" shall mean (i) in the case of the Credit Document
Obligations, all obligations and liabilities of each Assignor arising out of or
in connection with the principal of, and interest on, all Loans, all Unpaid
Drawings theretofore made (together with all interest accrued thereon), and the
aggregate Stated Amounts of all Letters of Credit issued under the Credit
Agreement, and all Fees and (ii) in the case of the Other Obligations, all
amounts due under the Interest Rate Protection Agreements or Other Hedging
Agreements, (other than indemnities, fees (including, without limitation,
attorneys' fees) and similar obligations and liabilities) and (z) "Secondary
Obligations" shall mean all Obligations other than Primary Obligations.
(c) When payments to Secured Creditors are based upon their
respective Pro Rata Shares, the amounts received by such Secured Creditors
hereunder shall be applied (for purposes of making determinations under this
Section 7.4 only) (i) first, to their Primary Obligations and (ii) second, to
their Secondary Obligations. If any payment to any Secured Creditor of its Pro
Rata Share of any distribution would result in overpayment to such Secured
Creditor, such excess amount shall instead be distributed in respect of the
unpaid Primary Obligations or Secondary Obligations, as the case may be, of the
other Secured Creditors, with each Secured Creditor whose Primary Obligations or
Secondary Obligations, as the case may be, have not been paid in full to receive
an amount equal to such excess amount multiplied by a fraction the numerator of
which is the unpaid Primary Obligations or Secondary Obligations, as the case
may be, of such Secured Creditor and the denominator of which is the unpaid
Primary Obligations or Secondary Obligations, as the case may be, of all Secured
Creditors entitled to such distribution.
(d) Each of the Secured Creditors agrees and acknowledges that
if the Bank Creditors are to receive a distribution on account of undrawn
amounts with respect to Letters of Credit issued under the Credit Agreement
(which shall only occur after all outstanding Loans and Unpaid Drawings with
respect to such Letters of Credit have been paid in full), such amounts shall be
paid to the Administrative Agent under the Credit Agreement and held by it, for
the equal and ratable benefit of the Bank Creditors, as cash security for the
repayment of Obligations owing to the Bank Creditors as such. If any amounts are
held as cash security pursuant to the immediately preceding sentence, then upon
the termination of all outstanding Letters of Credit, and after the application
of all such cash security to the repayment of all Obligations owing to the Bank
Creditors after giving effect to the termination of all such Letters of Credit,
if there remains any excess cash, such excess cash shall be returned by the
Administrative Agent to the Collateral Agent for distribution in accordance with
Section 7.4(a) hereof.
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EXHIBIT 10.5
Page 19
(e) Except as set forth in Section 7.4(d) hereof, all payments
required to be made hereunder shall be made (x) if to the Bank Creditors, to the
Administrative Agent under the Credit Agreement for the account of the Bank
Creditors, and (y) if to the Other Creditors, to the trustee, paying agent or
other similar representative (each a "Representative") for the Other Creditors
or, in the absence of such a Representative, directly to the Other Creditors.
(f) For purposes of applying payments received in accordance
with this Section 7.4, the Collateral Agent shall be entitled to rely upon (i)
the Administrative Agent under the Credit Agreement and (ii) the Representative
for the Other Creditors or, in the absence of such a Representative, upon the
Other Creditors for a determination (which the Administrative Agent, each
Representative for any Other Creditors and the Secured Creditors agree (or shall
agree) to provide upon request of the Collateral Agent) of the outstanding
Primary Obligations and Secondary Obligations owed to the Bank Creditors or the
Other Creditors, as the case may be. Unless it has actual knowledge (including
by way of written notice from a Bank Creditor or an Other Creditor) to the
contrary, the Administrative Agent and each Representative, in furnishing
information pursuant to the preceding sentence, and the Collateral Agent, in
acting hereunder, shall be entitled to assume that no Secondary Obligations are
outstanding. Unless it has actual knowledge (including by way of written notice
from a Representative for an Other Creditor or directly from an Other Creditor)
to the contrary, the Collateral Agent, in acting hereunder, shall be entitled to
assume that no Interest Rate Protection or Other Hedging Agreements are in
existence.
(g) It is understood and agreed that the Assignors shall
remain jointly and severally liable to the extent of any deficiency between the
amount of the proceeds of the Collateral hereunder and the aggregate amount of
the sums referred to in clauses (i) through (iv), inclusive, of Section 7.4(a)
hereof.
7.5. Remedies Cumulative. Each and every right, power and
remedy hereby specifically given to the Collateral Agent shall be in addition to
every other right, power and remedy specifically given under this Agreement, the
other Secured Debt Agreements or now or hereafter existing at law, in equity or
by statute and each and every right, power and remedy whether specifically
herein given or otherwise existing may be exercised from time to time or
simultaneously and as often and in such order as may be deemed expedient by the
Collateral Agent. All such rights, powers and remedies shall be cumulative and
the exercise or the beginning of the exercise of one shall not be deemed a
waiver of the right to exercise any other or others. No delay or omission of the
Collateral Agent in the exercise of any such right, power or remedy and no
renewal or extension of any of the Obligations shall impair any such right,
power or remedy or shall be construed to be a waiver of any Default or Event of
Default or an acquiescence therein. No notice to or demand on any Assignor in
any case
<PAGE> 24
EXHIBIT 10.5
Page 20
shall entitle it to any other or further notice or demand in similar or
other circumstances or constitute a waiver of any of the rights of the
Collateral Agent to any other or further action in any circumstances without
notice or demand. In the event that the Collateral Agent shall bring any suit to
enforce any of its rights hereunder and shall be entitled to judgment, then in
such suit the Collateral Agent may recover reasonable expenses, including
reasonable attorneys' fees, and the amounts thereof shall be included in such
judgment.
7.6. Discontinuance of Proceedings. In case the Collateral
Agent shall have instituted any proceeding to enforce any right, power or remedy
under this Agreement by foreclosure, sale, entry or otherwise, and such
proceeding shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Collateral Agent, then and in every such
case the relevant Assignor, the Collateral Agent and each holder of any of the
Obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interest created under
this Agreement, and all rights, remedies and powers of the Collateral Agent
shall continue as if no such proceeding had been instituted.
ARTICLE VIII
INDEMNITY
8.1. Indemnity. (a) Each Assignor jointly and severally agrees
to indemnify, reimburse and hold the Collateral Agent, each other Secured
Creditor and their respective successors, permitted assigns, employees, agents
and servants (hereinafter in this Section 8.1 referred to individually as
"Indemnitee," and collectively as "Indemnitees") harmless from any and all
liabilities, obligations, damages, injuries, penalties, claims, demands,
actions, suits, judgments and any and all reasonable costs, expenses or
disbursements (including reasonable attorneys' fees and expenses) (for the
purposes of this Section 8.1 the foregoing are collectively called "expenses")
of whatsoever kind and nature imposed on, asserted against or incurred by any of
the Indemnitees in any way relating to or arising out of this Agreement, any
other Secured Debt Agreement or any other document executed in connection
herewith or therewith or in any other way connected with the administration of
the transactions contemplated hereby or thereby or the enforcement of any of the
terms of, or the preservation of any rights under any thereof, or in any way
relating to or arising out of the manufacture, ownership, ordering, purchase,
delivery, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition, or use of the Collateral
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort
<PAGE> 25
EXHIBIT 10.5
Page 21
(including, without limitation, claims arising or imposed under the doctrine of
strict liability, or for or on account of injury to or the death of any Person
(including any Indemnitee), or property damage), or contract claim; provided
that no Indemnitee shall be indemnified pursuant to this Section 8.1(a) for
expenses to the extent caused by the gross negligence or willful misconduct of
such Indemnitee. Each Assignor agrees that upon written notice by any Indemnitee
of the assertion of any expenses, the relevant Assignor shall assume full
responsibility for the defense thereof. Each Indemnitee agrees to use its best
efforts to promptly notify the relevant Assignor of any such assertion of which
such Indemnitee has knowledge.
(b) Without limiting the application of Section 8.1(a) hereof, each Assignor
agrees, jointly and severally, to pay, or reimburse the Collateral Agent for any
and all reasonable fees, costs and expenses of whatever kind or nature incurred
in connection with the creation, preservation or protection of the Collateral
Agent's Liens on, and security interest in, the Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payment or discharge of any taxes
or Liens upon or in respect of the Collateral, premiums for insurance with
respect to the Collateral and all other reasonable fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and the
Collateral Agent's interest therein, whether through judicial proceedings or
otherwise, or in defending or prosecuting any actions, suits or proceedings
arising out of or relating to the Collateral.
(c) If and to the extent that the obligations of any Assignor
under this Section 8.1 are unenforceable for any reason, such Assignor hereby
agrees to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
8.2. Indemnity Obligations Secured by Collateral; Survival.
Any amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of each Assignor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment of all of the
other Obligations and notwithstanding the discharge thereof.
ARTICLE IX
DEFINITIONS
The following terms shall have the meanings herein specified.
Such definitions shall be equally applicable to the singular and plural forms of
the terms defined.
<PAGE> 26
EXHIBIT 10.5
Page 22
"Administrative Agent" shall have the meaning provided in the
recitals of this Agreement.
"Agreement" shall mean this Security Agreement as the same may
be modified, supplemented or amended from time to time in accordance with its
terms.
"Assignor" shall have the meaning provided in the first
paragraph of this Agreement.
"Bank Creditors" shall have the meaning provided in the
recitals of this Agreement.
"Banks" shall have the meaning provided in the recitals of
this Agreement.
"Cash Collateral Account" shall mean a non-interest bearing
cash collateral account maintained with, and in the sole dominion and control
of, the Collateral Agent for the benefit of the Secured Creditors.
"Chattel Paper" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Class" shall have the meaning provided in Section 10.2 of
this Agreement.
"Collateral" shall have the meaning provided in Section 1.1(a)
of this Agreement.
"Collateral Agent" shall have the meaning provided in the
first paragraph of this Agreement.
"Company" shall have the meaning provided in the recitals of
this Agreement.
"Contract Rights" shall mean all rights of any Assignor
(including, without limitation, all rights to payment) under each Contract.
"Contracts" shall mean all contracts between any Assignor and
one or more additional parties, in each case to the extent, but only to the
extent, that the grant by such Assignor of a security interest pursuant to this
Agreement in its right, title and interest in such contract is not prohibited by
such contract, does not require the consent of any other party thereto, would
not give any other party to such contract the right to terminate its obli-
<PAGE> 27
EXHIBIT 10.5
Page 23
gations thereunder, or is permitted with consent if all necessary consents to
such grant of a security interest have been obtained from the other parties
thereto (it being understood that the foregoing shall not be deemed to obligate
such Assignor to obtain such consents); provided, that the foregoing limitation
shall not affect, limit, restrict or impair the grant by such Assignor of a
security interest pursuant to this Agreement in any money or other amounts due
or to become due under any such contract.
"Copyrights" shall mean any United States, Canadian and United
Kingdom copyright owned (or subject to the rights of ownership) by any Assignor,
including any registrations of any copyright, in the United States Copyright
Office (or the equivalent Canadian and United Kingdom offices), as well as any
application for a copyright registration now or hereafter made with the United
States Copyright Office (or the equivalent Canadian and United Kingdom offices)
by any Assignor.
"Credit Agreement" shall have the meaning provided in the
recitals of this Agreement.
"Credit Document Obligations" shall have the meaning provided
in the definition of "Obligations" in this Article IX.
"Default" shall mean any event which, with notice or lapse of
time, or both, would constitute an Event of Default.
"Documents" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Equipment" shall mean any "equipment," as such term is
defined in the Uniform Commercial Code as in effect on the date hereof in the
State of New York, now or hereafter owned by any Assignor and, in any event,
shall include, but shall not be limited to, all machinery, equipment,
furnishings, movable trade fixtures and vehicles now or hereafter owned by any
Assignor and any and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
"Event of Default" shall mean any Event of Default under, and
as defined in, the Credit Agreement and shall in any event, without limitation,
include any payment default on any of the Obligations after the expiration of
any applicable grace period.
<PAGE> 28
EXHIBIT 10.5
Page 24
"General Intangibles" shall have the meaning provided in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York.
"Goods" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Indemnitee" shall have the meaning provided in Section 8.1 of
this Agreement.
"Instrument" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Interest Rate Protection Agreements or Other Hedging
Agreements" shall have the meaning provided in the recitals of this Agreement.
"Inventory" shall mean merchandise, inventory and goods, and
all additions, substitutions and replacements thereof, wherever located,
together with all goods, supplies, incidentals, packaging materials, labels,
materials and any other items used or usable in manufacturing, processing,
packaging or shipping same, in all stages of production -- from raw materials
through work-in-process to finished goods -- and all products and proceeds of
whatever sort and wherever located and any portion thereof which may be
returned, rejected, reclaimed or repossessed by the Collateral Agent from any
Assignor's customers, and shall specifically include all "inventory" as such
term is defined in the Uniform Commercial Code as in effect on the date hereof
in the State of New York, now or hereafter owned by any Assignor.
"Liens" shall mean any security interest, mortgage, pledge,
lien, claim, charge, encumbrance, title retention agreement, lessor's interest
in a financing lease or analogous instrument, in, of, or on any Assignor's
property.
"Marks" shall mean any United States, Canadian and United
Kingdom trademarks, service marks and trade names now owned, subject to a right
of ownership or hereafter acquired by any Assignor, including any registration
of, or application for, any trademarks and service marks in the United States
Patent and Trademark Office (or the equivalent Canadian and United Kingdom
offices), and any trade dress including logos and/or designs used by any
Assignor in the United States, Canada and the United Kingdom.
"Noticed Event of Default" shall mean (i) an Event of Default
with respect to any Assignor under Section 9.05 of the Credit Agreement and (ii)
any other Event of
<PAGE> 29
EXHIBIT 10.5
Page 25
Default in respect of which the Collateral Agent has given the Company notice
that such Event of Default constitutes a "Noticed Event of Default."
"Obligations" shall mean (i) the full and prompt payment when
due (whether at the stated maturity, by acceleration or otherwise) of all
obligations and liabilities of each Assignor now existing or hereafter incurred
under, arising out of or in connection with any Credit Document to which such
Assignor is a party and the due performance and compliance by each Assignor with
the terms of each such Credit Document (all such obligations and liabilities
under this clause (i), except to the extent consisting of Other Obligations,
being herein collectively called the "Credit Document Obligations"); (ii) the
full and prompt payment when due (whether at the stated maturity, by
acceleration or otherwise) of all obligations and liabilities of each Assignor
now existing or hereafter incurred under, arising out of or in connection with
any Interest Rate Protection Agreement or Other Hedging Agreement (including,
without limitation, all obligations and liabilities of such Assignor under the
US Subsidiary Guaranty in respect of Interest Rate Protection Agreements or
Other Hedging Agreements) (all such obligations and indebtedness under this
clause (ii) being herein collectively called the "Other Obligations"); (iii) any
and all sums advanced by the Collateral Agent in order to preserve the
Collateral or preserve its security interest in the Collateral; (iv) in the
event of any proceeding for the collection or enforcement of any obligations or
liabilities referred to in clauses (i) and (ii) above, after an Event of Default
shall have occurred and be continuing, the reasonable expenses of re-taking,
holding, preparing for sale or lease, selling or otherwise disposing of or
realizing on the Collateral, or of any exercise by the Collateral Agent of its
rights hereunder, together with reasonable attorneys' fees and court costs; and
(v) all amounts paid by any Indemnitee as to which such Indemnitee has the right
to reimbursement under Section 8.1 of this Agreement.
"Original US Security Agreement" shall have the meaning
provided in the recitals.
"Other Creditors" shall have the meaning provided in the
recitals of this Agreement.
"Other Obligations" shall have the meaning provided in the
definition of "Obligations" in this Article 9.
"Patents" shall mean any United States, Canadian and United
Kingdom patent owned, subject to a right of ownership by or hereafter acquired
by any Assignor and any divisions, continuations, reissues, reexaminations,
extensions or renewals thereof, as well
<PAGE> 30
EXHIBIT 10.5
Page 26
as any application for a United States, Canadian and United Kingdom patent now
or hereafter made by any Assignor or subject to a right of ownership in such
Assignor.
"Primary Obligations" shall have the meaning provided in
Section 7.4(b) of this Agreement.
"Pro Rata Share" shall have the meaning provided in Section
7.4(b) of this Agreement.
"Proceeds" shall have the meaning provided in the Uniform
Commercial Code as in effect in the State of New York on the date hereof or
under other relevant law and, in any event, shall include, but not be limited
to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to the Collateral Agent or any Assignor from time to time with respect
to any of the Collateral, (ii) any and all payments (in any form whatsoever)
made or due and payable to any Assignor from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental authority (or any person
acting under color of governmental authority) and (iii) any and all other
amounts from time to time paid or payable under or in connection with any of the
Collateral.
"Proprietary Information" means all information and know-how
worldwide, including, without limitation, technical data, manufacturing data,
research and development data, manufacturing data, research and development
data, data relating to compositions, processes and formulations, manufacturing
and production know-how and experience, management know-how, training programs,
manufacturing, engineering and other drawings, specifications, performance
criteria, operating instructions, maintenance manuals, technology, technical
information, software, engineering and computer data and databases, design and
engineering specifications, catalogs, promotional literature and financial,
business and marketing plans, inventions and invention disclosures.
"Receivables" shall mean any "account" as such term is defined
in the Uniform Commercial Code as in effect on the date hereof in the State of
New York, now or hereafter owned by any Assignor and, in any event, shall
include, but shall not be limited to, all of such Assignor's rights to payment
for goods sold or leased or services performed by such Assignor, whether now in
existence or arising from time to time hereafter, including, without limitation,
rights evidenced by an account, note, contract, security agreement, chattel
paper, or other evidence of indebtedness or security, together with (a) all
security pledged, assigned, hypothecated or granted to or held by such Assignor
to secure the foregoing, (b) all of any Assignor's right, title and interest in
and to any goods, the sale of which gave rise
<PAGE> 31
EXHIBIT 10.5
Page 27
thereto, (c) all guarantees, endorsements and indemnifications on, or of, any of
the foregoing, (d) all powers of attorney for the execution of any evidence of
indebtedness or security or other writing in connection therewith, (e) all
books, records, ledger cards, and invoices relating thereto, (f) all evidences
of the filing of financing statements and other statements and the registration
of other instruments in connection therewith and amendments thereto, notices to
other creditors or secured parties, and certificates from filing or other
registration officers, (g) all credit information, reports and memoranda
relating thereto and (h) all other writings related in any way to the foregoing.
"Representative" shall have the meaning provided in Section
7.4(e) of this Agreement.
"Requisite Creditors" shall have the meaning provided in
Section 10.2 of this Agreement.
"Secondary Obligations" shall have the meaning provided in
Section 7.4(b) of this Agreement.
"Secured Creditors" shall have the meaning provided in the
recitals of this Agreement.
"Secured Debt Agreements" shall mean and include this
Agreement, the other Credit Documents and the Interest Rate Protection
Agreements or Other Hedging Agreements.
"Termination Date" shall have the meaning provided in Section
10.8(a) of this Agreement.
"Trade Secrets" means any secretly held existing engineering
and other data, information, production procedures and other know-how relating
to the design, manufacture, assembly, installation, use, operation, marketing,
sale and servicing of any products or business of the Assignor worldwide whether
written or not written.
ARTICLE X
MISCELLANEOUS
<PAGE> 32
EXHIBIT 10.5
Page 28
10.1. Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
parties hereto shall be deemed to have been duly given or made when delivered to
the party to which such notice, request, demand or other communication is
required or permitted to be given or made under this Agreement, addressed as
follows:
(a) if to any Assignor, at its address set forth opposite its
signature below;
(b) if to the Collateral Agent:
Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Christopher Kinslow
Telephone No.: (212) 250-7671
Facsimile No.: (212) 250-7218
(c) if to any Bank Creditor, at such address as such Bank
Creditor shall have specified in the Credit Agreement;
(d) if to any Other Creditor, at such address as such Other
Creditor shall have specified in writing to each Assignor and the Collateral
Agent; or at such other address as shall have been furnished in writing by any
Person described above to the party required to give notice hereunder.
10.2. Waiver; Amendment. None of the terms and conditions of
this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by each Assignor directly affected
thereby and the Collateral Agent (with the consent of (x) either the Required
Banks (or, to the extent required by Section 13.12 of the Credit Agreement, all
of the Banks) at all times prior to the time at which all Credit Document
Obligations have been paid in full or (y) the holders of at least a majority of
the outstanding Other Obligations at all times after the time at which all
Credit Document Obligations have been paid in full); provided, that any change,
waiver, modification or variance affecting the rights and benefits of a single
Class of Secured Creditors (and not all Secured Creditors in a like or similar
manner) shall require the written consent of the Requisite Creditors of such
Class of Secured Creditors. For the purpose of this Agreement the term "Class"
shall mean each class of Secured Creditors, i.e., whether (x) the Bank Cred-
<PAGE> 33
EXHIBIT 10.5
Page 29
itors as holders of the Credit Document Obligations or (y) the Other Creditors
fas the holders of the Other Obligations. For the purpose of this Agreement, the
term "Requisite Creditors" of any Class shall mean each of (x) with respect to
the Credit Document Obligations, the Required Banks and (y) with respect to the
Interest Rate Protection Obligations, the holders of at least a majority of all
obligations outstanding from time to time under the Interest Rate Protection
Agreements or Other Hedging Agreements.
10.3. Obligations Absolute. The obligations of each Assignor
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of such Assignor; (b) any
exercise or non-exercise, or any waiver of, any right, remedy, power or
privilege under or in respect of this Agreement or any other Secured Debt
Agreement; or (c) any amendment to or modification of any Secured Debt Agreement
or any security for any of the Obligations whether or not any Assignor shall
have notice or knowledge of any of the foregoing.
10.4. Successors and Assigns. This Agreement shall be binding
upon each Assignor and its successors and assigns and shall inure to the benefit
of the Collateral Agent and the Secured Creditors and their respective
successors and assigns. All agreements, statements, representations and
warranties made by each Assignor herein or in any certificate or other
instrument delivered by such Assignor or on its behalf under this Agreement
shall be considered to have been relied upon by the Secured Creditors and shall
survive the execution and delivery of this Agreement and the other Secured Debt
Agreements regardless of any investigation made by the Secured Creditors or on
their behalf.
10.5. Headings Descriptive. The headings of the several
sections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
10.6. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
10.7. Assignor's Duties. It is expressly agreed, anything
herein contained to the contrary notwithstanding, that each Assignor shall
remain liable to perform all of the obligations, if any, assumed by it with
respect to the Collateral and the Collateral Agent shall not have any
obligations or liabilities with respect to any Collateral by reason of or
arising out of this Agreement, nor shall the Collateral Agent be required or
obligated in any manner
<PAGE> 34
EXHIBIT 10.5
Page 30
to perform or fulfill any of the obligations of each Assignor under or with
respect to any Collateral.
10.8. Termination; Release. (a) After the Termination Date,
this Agreement shall terminate (provided that all indemnities set forth herein
including, without limitation, in Section 8.1 hereof shall survive such
termination) and the Collateral Agent, at the request and expense of the
respective Assignor, will promptly execute and deliver to such Assignor a proper
instrument or instruments (including Uniform Commercial Code termination
statements on form UCC-3) acknowledging the satisfaction and termination of this
Agreement, and will duly assign, transfer and deliver to such Assignor (without
recourse and without any representation or warranty) such of the Collateral as
may be in the possession of the Collateral Agent and has not theretofore been
sold or otherwise applied or released pursuant to this Agreement. As used in
this Agreement, "Termination Date" shall mean the date upon which the Total
Commitment and all Interest Rate Protection Agreements or Other Hedging
Agreements have been terminated, no Note is outstanding (and all Loans have been
repaid in full), all Letters of Credit have been terminated and all other
Obligations then due and payable have been paid in full.
(b) In the event that any part of the Collateral is sold in
connection with a sale permitted by Section 8.02 of the Credit Agreement or is
otherwise released at the direction of the Required Banks (or all the Banks if
required by Section 13.12 of the Credit Agreement), the Collateral Agent, at the
request and expense of such Assignor, will duly assign, transfer and deliver to
such Assignor (without recourse and without any representation or warranty) such
of the Collateral as is then being (or has been) so sold or released and as may
be in the possession of the Collateral Agent and has not been theretofore been
released pursuant to this Agreement.
(c) At any time that the respective Assignor desires that the
Collateral be released as provided in the foregoing Section 10.8(a) or (b), it
shall deliver to the Collateral Agent a certificate signed by an Authorized
Officer of such Assignor stating that the release of the respective Collateral
is permitted pursuant to Section 10.8(a) or (b) hereof.
10.9. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Assignor and the Collateral Agent.
<PAGE> 35
EXHIBIT 10.5
Page 31
10.10. The Collateral Agent. The Collateral Agent will hold in
accordance with this Agreement all items of the Collateral at any time received
under this Agreement. It is expressly understood and agreed that the obligations
of the Collateral Agent as holder of the Collateral and interests therein and
with respect to the disposition thereof, and otherwise under this Agreement, are
only those expressly set forth in this Agreement. The Collateral Agent shall act
hereunder on the terms and conditions set forth in this Agreement and in Section
11 of the Credit Agreement.
10.11. Additional Assignors. It is understood and agreed that
any Subsidiary of the Company that is required to execute a counterpart of this
Agreement pursuant to the Credit Agreement shall automatically become an
Assignor hereunder by executing a counterpart hereof and delivering the same to
the Collateral Agent.
10.12. Amendment and Restatement. Upon the execution and
delivery of this Agreement by the parties hereto, the Original US Security
Agreement shall be amended and restated in its entirety by this Agreement,
effective as of the date hereof, with all rights, obligations and security
interests continuing from the date thereof.
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their duly authorized officers as of
the date first above written.
Address:
c/o Cabot Safety Corporation AEARO CORPORATION
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By_____________________________________
Title:
Attention: General Counsel
with a copy to:
c/o Cabot Safety Corporation CABOT SAFETY CORPORATION
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By______________________________________
Title:
Attention: General Counsel
with a copy to:
Vestar Equity Partners, L.P.
245 Park Avenue
New York, NY 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
<PAGE> 37
c/o Cabot Safety Corporation EASTERN SAFETY EQUIPMENT CO., INC.
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By______________________________________
Title:
Attention: General Counsel
with a copy to:
Vestar Equity Partners, L.P.
245 Park Avenue
New York, NY 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
c/o Cabot Safety Corporation CABOT SAFETY INTERMEDIATE
One Washington Mall CORPORATION
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By______________________________________
Title:
Attention: General Counsel
with a copy to:
Vestar Equity Partners, L.P.
245 Park Avenue
New York, NY 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
<PAGE> 38
c/o Cabot Safety Corporation CSC FSC, INC.
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By______________________________________
Title:
Attention: General Counsel
with a copy to:
Vestar Equity Partners, L.P.
245 Park Avenue
New York, NY 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
BANKERS TRUST COMPANY,
as Collateral Agent
By______________________________________
Title:
<PAGE> 39
ANNEX A
to
SECURITY
AGREEMENT
SCHEDULE OF CHIEF EXECUTIVE OFFICES
AND OTHER RECORD LOCATIONS
COMPANY ADDRESS PRINCIPAL FUNCTION
<PAGE> 40
ANNEX A
Page 36
<PAGE> 41
ANNEX B
to
SECURITY
AGREEMENT
SCHEDULE OF INVENTORY
AND EQUIPMENT LOCATIONS
OWNED/
COMPANY ADDRESS PRINCIPAL FUNCTION LEASED
<PAGE> 42
ANNEX C
to
SECURITY
AGREEMENT
SCHEDULE OF TRADE AND FICTITIOUS NAMES
<PAGE> 43
ANNEX D
to
SECURITY
AGREEMENT
LIST OF MARKS
<PAGE> 44
ANNEX E
to
SECURITY
AGREEMENT
LIST OF PATENTS AND APPLICATIONS
<PAGE> 45
ANNEX F
to
SECURITY
AGREEMENT
LIST OF COPYRIGHTS AND APPLICATIONS
<PAGE> 46
ANNEX G
to
SECURITY
AGREEMENT
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES TRADEMARKS AND PATENTS
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which
are hereby acknowledged, [Name of Assignor], a __________ corporation ("the
Assignor") with principal offices at ____________________________, hereby
assigns and grants to Bankers Trust Company, as Collateral Agent, with principal
offices at 130 Liberty Street, New York, New York 10006 (the "Assignee"), a
security interest in (i) all of the Assignor's right, title and interest in and
to the United States trademarks, trademark registrations and trademark
applications (the "Marks") set forth on Schedule A attached hereto, (ii) all of
the Assignor's rights, title and interest in and to the United States patents
and patent applications (the "Patents") set forth on Schedule B attached, in
each case together with (iii) all Proceeds (as such term is defined in the
Security Agreement referred to below) and products of the Marks and Patents,
(iv) the goodwill of the businesses with which the Marks are associated and (v)
all causes of action arising prior to or after the date hereof for infringement
of any of the Marks and Patents or unfair competition regarding the same.
THIS ASSIGNMENT is made to secure the satisfactory performance and
payment of all the Obligations of the Assignor, as such term is defined in the
Security Agreement among the Assignor, the other assignors from time to time
party thereto and the Assignee, dated as of July 11, 1995 and amended and
restated as of May 30, 1996 (as amended from time to time, the "Security
Agreement"). Upon the occurrence of the
<PAGE> 47
ANNEX G
Page 2
Termination Date (as defined in the Security Agreement), the Assignee shall,
upon such satisfaction, execute, acknowledge, and deliver to the Assignor an
instrument in writing releasing the security interest in the Marks and Patents
acquired under this Assignment.
This Assignment has been granted in conjunction with the security
interest granted to the Assignee under the Security Agreement. The rights and
remedies of the Assignee with respect to the security interest granted herein
are without prejudice to, and are in addition to those set forth in the Security
Agreement, all terms and provisions of which are incorporated herein by
reference. In the event that any provisions of this Assignment are deemed to
conflict with the Security Agreement, the provisions of the Security Agreement
shall govern.
<PAGE> 48
ANNEX G
Page 3
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the ____ day of _________, 199__.
[NAME OF ASSIGNOR],
as Assignor
By
------------------------------------
Title:
BANKERS TRUST COMPANY, as
Collateral Agent, Assignee
By
------------------------------------
Title:
<PAGE> 49
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of _________, 199_, before me personally came ________
_________________ who, being by me duly sworn, did state as follows: that [s]he
is _______________ of [Name of Assignor], that [s]he is authorized to execute
the foregoing Assignment on behalf of said corporation and that [s]he did so by
authority of the Board of Directors of said corporation.
-------------------------
Notary Public
<PAGE> 50
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of _________, 199_, before me personally came ________
_____________________ who, being by me duly sworn, did state as follows: that
[s]he is __________________ of Bankers Trust Company, that [s]he is authorized
to execute the foregoing Assignment on behalf of said corporation and that [s]he
did so by authority of the Board of Directors of said corporation.
----------------------------
Notary Public
<PAGE> 51
SCHEDULE A
MARK REG. NO. REG. DATE
<PAGE> 52
SCHEDULE B
PATENT PATENT NO. ISSUE DATE
<PAGE> 53
ANNEX H
to
SECURITY
AGREEMENT
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES COPYRIGHTS
WHEREAS, [Name of Assignor], a _______________ corporation (the
"Assignor"), having its chief executive office at ____________________________ ,
__________________________, is the owner of all right, title and interest in and
to the United States copyrights and associated United States copyright
registrations and applications for registration set forth in Schedule A attached
hereto;
WHEREAS, BANKERS TRUST COMPANY, as Collateral Agent, having its
principal offices at One Bankers Trust Plaza, New York, NY 10006 (the
"Assignee"), desires to acquire a security interest in said copyrights and
copyright registrations and applications therefor; and
WHEREAS, the Assignor is willing to assign to the Assignee, and to
grant to the Assignee a security interest in and lien upon the copyrights and
copyright registrations and applications therefor described above.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and subject to the terms and conditions of the
Security Agreement, dated as of July 11, 1995 and amended and restated as of May
30, 1996, made by the Assignor, the other assignors from time to time party
thereto and the Assignee (as amended from time to time, the "Security
Agreement"), the Assignor hereby assigns to the Assignee, and grants to the
Assignee a security interest in the copyrights and copyright registrations and
applications therefor set forth in Schedule A attached hereto.
This Assignment has been granted in conjunction with the security
interest granted to the Assignee under the Security Agreement. The rights and
remedies of the Assignee with respect to the security interest granted herein
are without prejudice to, and are in addition to those set forth in the Security
Agreement, all terms and provisions of which are incorporated herein by
reference. In the event that any provisions of this Assignment are deemed to
conflict with the Security Agreement, the provisions of the Security Agreement
shall govern.
<PAGE> 54
ANNEX H
Page 2
Executed at New York, New York, the __ day of _________, 199_.
[NAME OF ASSIGNOR]
By
---------------------------------------
Name:
Title:
BANKERS TRUST COMPANY
By
---------------------------------------
Name:
Title:
<PAGE> 55
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __ day of _________, 199_, before me personally came
_________________________, who being duly sworn, did depose and say that [s]he
is ___________________ of [Name of Assignor], that [s]he is authorized to
execute the foregoing Assignment on behalf of said corporation and that [s]he
did so by authority of the Board of Directors of said corporation.
-------------------------
Notary Public
<PAGE> 56
SCHEDULE A
U.S. COPYRIGHTS
REGISTRATION PUBLICATION
NUMBERS DATE COPYRIGHT TITLE
<PAGE> 1
EXHIBIT 10.6
AMENDED AND RESTATED
SECURITY AGREEMENT
made by
CABOT SAFETY CANADA CORPORATION
in favour of
BANKERS TRUST COMPANY,
as Collateral Agent
Dated as of July 11, 1995
and
Amended and Restated
as of
May 30, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
SECURITY INTERESTS.............................................. 2
1.1. Grant of Security Interests....................................................................... 2
1.2. Power of Attorney................................................................................. 3
1.3. Terms Incorporated by Reference................................................................... 3
ARTICLE II
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS.............................. 3
2.1. Necessary Filings................................................................................. 3
2.2. No Liens ......................................................................................... 4
2.3. Other Financing Statements........................................................................ 4
2.4. Chief Executive Office; Records................................................................... 4
2.5. Location of Inventory and Equipment............................................................... 5
2.6. Recourse ......................................................................................... 5
2.7. Trade Names; Change of Name....................................................................... 5
2.8. Account Debtors of the Assignor................................................................... 5
2.9. Assets of the Assignor............................................................................ 6
ARTICLE III
SPECIAL PROVISIONS CONCERNING
RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS.................................. 6
3.1. Additional Representations and Warranties......................................................... 6
3.2. Maintenance of Records............................................................................ 6
3.3. Direction to Account Debtors; Contracting Parties; etc............................................ 6
3.4. Modification of Terms; etc........................................................................ 7
3.5. Collection........................................................................................ 7
3.6. Instruments....................................................................................... 7
3.7. Assignment of Claims Subject to the Financial Administration Act
(Canada)................................................................................. 7
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV
SPECIAL PROVISIONS CONCERNING TRADEMARKS................................... 8
4.1. Additional Representations and Warranties......................................................... 8
4.2. Infringements..................................................................................... 8
4.3. Preservation of Marks............................................................................. 8
4.4. Maintenance of Registration....................................................................... 9
4.5. Future Registered Marks........................................................................... 9
4.6. Remedies ......................................................................................... 9
ARTICLE V
SPECIAL PROVISIONS CONCERNING
PATENTS, COPYRIGHTS AND TRADE SECRETS.................................... 10
5.1. Additional Representations and Warranties......................................................... 10
5.2. Infringements..................................................................................... 10
5.3. Maintenance of Patents............................................................................ 10
5.4. Prosecution of Patent Application................................................................. 11
5.5. Other Patents and Copyrights...................................................................... 11
5.6. Remedies ......................................................................................... 11
ARTICLE VI
PROVISIONS CONCERNING ALL COLLATERAL..................................... 11
6.1. Protection of Collateral Agent's Security......................................................... 11
6.2. Further Actions................................................................................... 12
6.3. Financing Statements.............................................................................. 12
6.4. Collateral Agent's Care and Custody of Collateral................................................. 12
ARTICLE VII
REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT................................. 13
7.1. Remedies; Obtaining the Collateral Upon Default................................................... 13
7.2. Remedies; Disposition of the Collateral........................................................... 15
7.3. Waiver of Claims.................................................................................. 15
7.4. Application of Proceeds........................................................................... 16
7.5. Remedies Cumulative............................................................................... 18
7.6. Discontinuance of Proceedings..................................................................... 18
ARTICLE VIII
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEMNITY.................................................. 19
8.1. Indemnity......................................................................................... 19
8.2. Indemnity Obligations Secured by Collateral; Survival............................................. 20
ARTICLE IX
DEFINITIONS................................................. 20
ARTICLE X
MISCELLANEOUS................................................ 26
10.1. Notices ......................................................................................... 26
10.2. Waiver; Amendment................................................................................ 26
10.3. Obligations Absolute............................................................................. 27
10.4. Successors and Assigns........................................................................... 27
10.5. Headings Descriptive............................................................................. 27
10.6. Governing Law.................................................................................... 27
10.7. Assignor's Duties................................................................................ 28
10.8. Termination; Release............................................................................. 28
10.9. Counterparts..................................................................................... 29
10.10. The Collateral Agent............................................................................. 29
10.11. Attachment of Security Interest.................................................................. 29
10.12. Amendment and Restatement........................................................................ 29
</TABLE>
ANNEX A Schedule of Chief Executive Office/Record Locations
ANNEX B Schedule of Inventory and Equipment Locations
ANNEX C Schedule of Trade and Fictitious Names
ANNEX D List of Marks
ANNEX E List of Patents and Applications
ANNEX F List of Copyrights and Applications
(iii)
<PAGE> 5
EXHIBIT 10.6
SECURITY AGREEMENT, dated as of July 11, 1995 and amended and
restated as of May 30, 1996, granted by Cabot Safety Canada Corporation (f/k/a
Cabot Safety Canada Acquisition Ltd.) (the "Assignor") in favour of Bankers
Trust Company, as Collateral Agent (the "Collateral Agent") for the benefit of
the Secured Creditors (as defined below). Except as otherwise defined herein,
capitalized terms used herein and defined in the Credit Agreement referred to
below shall be used herein as so defined.
W I T N E S S E T H :
WHEREAS, Aearo Corporation (f/k/a Cabot Safety Holdings
Corporation) ("Holdings"), Cabot Safety Corporation (f/k/a Cabot Safety
Acquisition Corporation) (the "Company"), each Subsidiary Borrower (including
the Assignor), (together with the Company, each a "Borrower" and, collectively,
the "Borrowers"), the Banks party thereto from time to time (the "Banks") and
Bankers Trust Company, as Administrative Agent (together with any successor
agent, the "Administrative Agent", and together with the Collateral Agent and
the Banks, the "Bank Creditors"), have entered into a Credit Agreement, dated as
of July 11, 1995 and amended and restated as of May 30, 1996 (as amended,
modified or supplemented from time to time, the "Credit Agreement"), providing,
inter alia, for the making of Alternate Currency Loans to the Subsidiary
Borrowers as contemplated therein;
WHEREAS, the Subsidiary Borrowers may from time to time be
party to (or guaranty the obligations of one or more of their Subsidiaries
under) one or more (i) interest rate protection agreements, interest rate cap
agreements, interest rate collar agreements or other similar agreements or
arrangements, (ii) foreign exchange contracts, currency swap agreements or other
similar agreements or arrangements designed to protect against the fluctuations
in currency values and/or (iii) other types of hedging agreements from time to
time with an Other Creditor (as hereinafter defined) (collectively, the
"Interest Rate Protection Agreements or Other Hedging Agreements"), with a Bank
or an affiliate of a Bank (each such Bank or affiliate, even if the respective
Bank subsequently ceases to be a Bank under the Credit Agreement for any reason,
together with such Bank's or affiliate's successors and assigns, collectively,
the "Other Creditors", and together with the Bank Creditors, the "Secured
Creditors");
WHEREAS, the Assignor has entered into a Security Agreement,
dated as of July 11, 1995 (as amended, modified or supplemented prior to the
date hereof, the "Original Canadian Security Agreement");
<PAGE> 6
EXHIBIT 10.6
Page 2
WHEREAS, it is a condition precedent to the extensions of
credit under the Credit Agreement that the Assignor shall have executed and
delivered to the Collateral Agent this Agreement; and
WHEREAS, the Assignor desires to execute this Agreement (i) to
satisfy the condition described in the preceding paragraph and (ii) to amend and
restate the Original Canadian Security Agreement;
NOW, THEREFORE, in consideration of the benefits accruing to
the Assignor, the receipt and sufficiency of which are hereby acknowledged, the
Assignor hereby makes the following representations and warranties to the
Collateral Agent for the benefit of the Secured Creditors and hereby covenants
and agrees with the Collateral Agent for the benefit of the Secured Creditors as
follows:
ARTICLE I
SECURITY INTERESTS
1.1. Grant of Security Interests. (a) As security for the
prompt and complete payment and performance when due of all of the Obligations
of the Assignor, the Assignor hereby assigns and transfers unto the Collateral
Agent, and does hereby pledge and grant to the Collateral Agent for the benefit
of the Secured Creditors, a continuing security interest of first priority in,
all of the right, title and interest of the Assignor in and to the personal
property and undertaking of the Assignor whether now existing or hereafter from
time to time acquired, including, without limitation, any and all of the
following, whether now existing or hereafter from time to time acquired: (i)
each and every Receivable, (ii) all Contracts, together with all Contract Rights
arising thereunder, (iii) all Inventory, (iv) all Equipment, (v) all Marks,
together with the registrations and right to all renewals thereof, and the
goodwill of the business of the Assignor symbolized by the Marks, (vi) all
Patents, (vii) all Copyrights, (viii) all computer programs of the Assignor and
all intellectual property rights therein and all Proprietary Information and
Trade Secrets of the Assignor, (ix) all other Goods, General Intangibles,
Chattel Paper, Documents and Instruments, (x) the Cash Collateral Account and
all monies, securities and instruments deposited or required to be deposited in
such Cash Collateral Account, and (xi) all Proceeds and products of any and all
of the foregoing (all of the above, collectively, the "Collateral").
<PAGE> 7
EXHIBIT 10.6
Page 3
(b) The security interest of the Collateral Agent under this
Agreement extends to all Collateral of the kind which is the subject of this
Agreement which the Assignor may acquire at any time during the continuation of
this Agreement.
(c) Notwithstanding the generality of Sections 1.1(a) and (b)
hereof, the security interest of the Collateral Agent under this Agreement shall
not extend to the last day of the term of any lease or agreement therefor but
upon the enforcement of the security interest, the Assignor shall stand
possessed of such last day in trust to assign the same to any Person acquiring
such term.
(d) To the extent that the creation of the security interest
would constitute a breach or permit the acceleration of any agreement, right,
license or permit to which the Assignor is a party the security interest shall
not attach thereto but the Assignor shall hold its interest therein in trust for
the Collateral Agent, and shall assign such agreement, right, license or permit
to the Collateral Agent or as it may direct forthwith upon obtaining the consent
of the other party thereto.
1.2. Power of Attorney. The Assignor hereby constitutes and
appoints the Collateral Agent its true and lawful attorney, irrevocably, with
full power after the occurrence of and during the continuance of a Noticed Event
of Default (in the name of the Assignor or otherwise) to act, require, demand,
receive, compound and give acquittance for any and all monies and claims for
monies due or to become due to the Assignor under or arising out of the
Collateral, to endorse any cheques or other instruments or orders in connection
therewith and to file any claims or take any action or institute any proceedings
which the Collateral Agent may deem to be necessary or advisable to protect the
interests of the Secured Creditors, which appointment as attorney is coupled
with an interest.
1.3. Terms Incorporated by Reference. Terms defined in the
PPSA and used in this Agreement shall have the same meaning herein.
ARTICLE II
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
The Assignor represents, warrants and covenants, which
representations, warranties and covenants shall survive execution and delivery
of this Agreement, as follows:
<PAGE> 8
EXHIBIT 10.6
Page 4
2.1. Necessary Filings. With the exception of Collateral
described in Sections 1.01(a)(vii) and (viii) which must be specially recorded
in a patent, trademark or copyright office (or the equivalent) of an applicable
jurisdiction, all filings, registrations and recordings necessary or appropriate
to create, preserve and perfect the security interest granted by the Assignor to
the Collateral Agent hereby in respect of the Collateral have been accomplished
and the security interest granted to the Collateral Agent pursuant to this
Agreement in and to the Collateral constitutes, upon satisfaction of such
filings, registrations and recordings, a perfected security interest therein
prior to the rights of all other Persons therein (other than any such rights
pursuant to Permitted Liens) and subject to no other Liens (other than Permitted
Liens) and is entitled to all the rights, priorities and benefits afforded by
the PPSA or other relevant law as enacted in any relevant jurisdiction to
perfected security interests.
2.2. No Liens. The Assignor is, and as to Collateral acquired
by it from time to time after the date hereof the Assignor will be, the owner of
all Collateral pledged by it hereunder free from any Lien, security interest,
encumbrance or other right, title or interest of any Person (other than
Permitted Liens and licenses of Patents, Marks and other intellectual property
to certain Wholly-Owned Subsidiaries, either directly or indirectly, of Cabot
Safety Acquisition Corporation), and the Assignor shall defend the Collateral
against all claims and demands of all Persons at any time claiming the same or
any interest therein (other than in connection with Permitted Liens) adverse to
the Collateral Agent.
2.3. Other Financing Statements. As of the date hereof, there
is no financing statement (or similar statement or instrument of registration
under the law of any jurisdiction) covering or purporting to cover any interest
of any kind in the Collateral (other than financing statements filed in respect
of Permitted Liens), and so long as the Termination Date has not occurred, the
Assignor will not execute or authorize to be filed in any public office any
financing statement (or similar statement or instrument of registration under
the law of any jurisdiction) or statements relating to the Collateral, except
financing statements filed or to be filed in respect of and covering the
security interests granted hereby by the Assignor or in connection with
Permitted Liens.
2.4. Chief Executive Office; Records. As of the date hereof,
the chief executive office of the Assignor is located at the address indicated
on Annex A hereto. The Assignor will not move its chief executive office except
to such new location as the Assignor may establish in accordance with the last
sentence of this Section 2.4. A complete set of books of account and records of
the Assignor relating to the Receivables and the Contract Rights are, and will
continue to be, kept at such chief executive office, at one or more of the other
record locations set forth on Annex A hereto or at such new locations as the
Assignor
<PAGE> 9
EXHIBIT 10.6
Page 5
may establish in accordance with the last sentence of this Section 2.4. All
Receivables and Contract Rights of the Assignor are, and will continue to be,
maintained at, and controlled and directed (including, without limitation, for
general accounting purposes) from, the office locations described above or the
new location established in accordance with the last sentence of this Section
2.4. The Assignor shall not establish new locations for such offices until (i)
it shall have given to the Collateral Agent not less than 15 days' prior written
notice of its intention to do so, clearly describing such new location and
providing such other information in connection therewith as the Collateral Agent
may reasonably request and (ii) with respect to such new location, it shall have
taken all action, reasonably satisfactory to the Collateral Agent, to maintain
the security interest of the Collateral Agent in the Collateral intended to be
granted hereby at all times fully perfected and in full force and effect.
2.5. Location of Inventory and Equipment. As of the date
hereof, all Inventory and Equipment held by the Assignor is located at one of
the locations shown on Annex B hereto. The Assignor agrees that all Inventory
and Equipment now held or subsequently acquired by it shall be kept at (or shall
be in transport to) any one of the locations shown on Annex B hereto, or such
new location as the Assignor may establish in accordance with the last sentence
of this Section 2.5. The Assignor may establish a new location for Inventory and
Equipment only if (i) it shall have given to the Collateral Agent not less than
15 days' prior written notice of its intention so to do, clearly describing such
new location and providing such other information in connection therewith as the
Collateral Agent may reasonably request and (ii) with respect to such new
location, it shall have taken all action reasonably satisfactory to the
Collateral Agent to maintain the security interest of the Collateral Agent in
the Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
2.6. Recourse. This Agreement is made with full recourse to
the Assignor and pursuant to and upon all the warranties, representations,
covenants and agreements on the part of the Assignor contained herein, in the
other Secured Debt Agreements and otherwise in writing in connection herewith or
therewith.
2.7. Trade Names; Change of Name. As of the date hereof, the
Assignor does not have or operate in any jurisdiction under, or in the preceding
12 months has not had or operated in any jurisdiction under, any trade names,
fictitious names or other names except its legal name and such other trade or
fictitious names as are listed on Annex C hereto. The Assignor shall not change
its legal name or assume or operate in any jurisdiction under any trade,
fictitious or other name except those names listed on Annex C hereto and new
names established in accordance with the last sentence of this Section 2.7. The
Assignor shall not assume or operate in any jurisdiction under any new trade,
fictitious or other name
<PAGE> 10
EXHIBIT 10.6
Page 6
until (i) it shall have given to the Collateral Agent not less than 15 days'
prior written notice of its intention so to do, clearly describing such new name
and the jurisdictions in which such new name shall be used and providing such
other information in connection therewith as the Collateral Agent may reasonably
request and (ii) with respect to such new name, it shall have taken all action
reasonably requested by the Collateral Agent to maintain the security interest
of the Collateral Agent in the Collateral intended to be granted hereby at all
times fully perfected and in full force and effect.
2.8. Account Debtors of the Assignor. All Accounts due from
the Assignor's account debtors in all jurisdictions where the Assignor currently
carries on business are payable to the Assignor at the chief executive office of
the Assignor in Mississauga, Ontario.
2.9. Assets of the Assignor. The value of assets located at
any location where the Assignor carries on business outside the Province of
Ontario does not exceed, in the aggregate, the amount of 20,000 Canadian
Dollars.
ARTICLE III
SPECIAL PROVISIONS CONCERNING
RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS
3.1. Additional Representations and Warranties. As of the time
when each of its Receivables arises, the Assignor shall be deemed to have
represented and warranted that such Receivable, and all records, papers and
documents relating thereto are what they purport to be in all material respects,
and that such Receivable will, to the best knowledge of the Assignor, evidence
true and valid obligations of the account debtor named therein.
3.2. Maintenance of Records. The Assignor will keep and
maintain at its own cost and expense, records of its Receivables and Contracts
and the Assignor will make the same available on its premises to the Collateral
Agent for inspection, at the Assignor's own cost and expense, at any and all
reasonable times upon reasonable prior notice to the Assignor. Upon the
occurrence and during the continuance of an Event of Default and at the
reasonable request of the Collateral Agent, the Assignor shall, at its own cost
and expense, deliver all tangible evidence of its Receivables and Contract
Rights (including, without limitation, all documents evidencing the Receivables
and all Contracts) and such books and records to the Collateral Agent or to its
representatives (copies of which evidence and books and records may be retained
by the Assignor). If the Collateral Agent so directs, upon the occurrence and
during the continuance of an Event of Default, the Assignor shall legend, in
<PAGE> 11
EXHIBIT 10.6
Page 7
form and manner satisfactory to the Collateral Agent, the Receivables and the
Contracts, as well as books, records and documents of the Assignor evidencing or
pertaining to such Receivables and Contracts with an appropriate reference to
the fact that such Receivables and Contracts have been assigned to the
Collateral Agent and that the Collateral Agent has a security interest therein.
3.3. Direction to Account Debtors; Contracting Parties; etc.
Upon the occurrence and during the continuance of a Noticed Event of Default,
and if the Collateral Agent so directs the Assignor, the Assignor agrees (x) to
cause all payments on account of the Receivables and Contracts to be made
directly to the Cash Collateral Account, (y) that the Collateral Agent may, at
its option, directly notify the obligors with respect to any Receivables and/or
under any Contracts to make payments with respect thereto as provided in
preceding clause (x) and (z) that the Collateral Agent may enforce collection of
any such Receivables and Contracts and may adjust, settle or compromise the
amount of payment thereof, in the same manner and to the same extent as the
Assignor. Without notice to or assent by the Assignor, the Collateral Agent may
apply any or all amounts then in, or thereafter deposited in, the Cash
Collateral Account which application shall be effected in the manner provided in
Section 7.4 of this Agreement. The reasonable costs and expenses (including
reasonable solicitors' fees) of collection, whether incurred by the Assignor or
the Collateral Agent, shall be borne by the Assignor. The Collateral Agent shall
deliver a copy of each notice to an obligor referred to in the preceding clause
(y) to the Assignor; provided, that the failure by the Collateral Agent to so
notify the Assignor shall not affect the effectiveness of any notice to an
obligor or the other rights of the Collateral Agent created by this Section 3.3.
3.4. Modification of Terms; etc. The Assignor shall not
rescind or cancel any indebtedness evidenced by any Receivable or under any
Contract, or modify any term thereof or make any adjustment with respect
thereto, or extend or renew the same, or compromise or settle any material
dispute, claim, suit or legal proceeding relating thereto, or sell any
Receivable or Contract, or interest therein, without the prior written consent
of the Collateral Agent, except in accordance with the Assignor's reasonable
business practices.
3.5. Collection. The Assignor shall endeavor in accordance
with reasonable business practices to cause to be collected from the account
debtor named in each of its Receivables or obligor under any Contract, as and
when due (including, without limitation, amounts which are delinquent, such
amounts to be collected in accordance with generally accepted lawful collection
procedures) any and all amounts owing under or on account of such Receivable or
Contract, and apply forthwith upon receipt thereof all such amounts as are so
collected to the outstanding balance of such Receivable or under such Contract.
The
<PAGE> 12
EXHIBIT 10.6
Page 8
reasonable costs and expenses (including, without limitation, solicitors' fees)
of collection, if incurred by the Assignor or the Collateral Agent, shall be
borne by the Assignor.
3.6. Instruments. If the Assignor owns or acquires any
Instrument, documents of title or chattel paper having, alone or in the
aggregate, a principal amount of $1,000,000 or more constituting Collateral, the
Assignor will within 10 Business Days notify the Collateral Agent thereof, and
upon request by the Collateral Agent will promptly deliver such Instrument to
the Collateral Agent appropriately endorsed to the order of the Collateral Agent
as further security hereunder, but only to the extent that such Instrument has
not been delivered pursuant to the Foreign Pledge Agreement.
3.7. Assignment of Claims Subject to the Financial
Administration Act (Canada). The Assignor hereby assigns absolutely to the
Collateral Agent all its present and future Receivables which are subject to
Sections 67 and 68 of the Financial Administration Act (Canada). The Collateral
Agent may, upon the occurrence and during the continuance of an Event of
Default, complete the formalities required by law to render such assignment
enforceable.
ARTICLE IV
SPECIAL PROVISIONS CONCERNING TRADEMARKS
4.1. Additional Representations and Warranties. The Assignor
represents and warrants that, as of the date hereof, it is the true and lawful
owner of all right, title and interest to or otherwise has the right to use the
registered Marks listed in Annex D hereto and that, as of the date hereof, said
listed Marks constitute all the marks and applications for marks registered in
the Canadian Register of Trade-marks that the Assignor presently owns or uses in
connection with its business. The Assignor represents and warrants that it owns,
is licensed to use or otherwise has the right to use all material Marks that it
uses. The Assignor further warrants that it has no knowledge of any third party
claim that any aspect of the Assignor's present or contemplated business
operations infringes or will infringe any trademark, service mark or trade name
in any respect which could reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities or condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole. The
Assignor represents and warrants that except as listed on Annex D, as of the
date hereof, it is the beneficial and record owner of all trademark
registrations and applications listed in Annex D hereto and that said
registrations are valid and subsisting, and that the Assignor is not aware of
any third-party claim that any of said registrations in respect of any material
<PAGE> 13
EXHIBIT 10.6
Page 9
Mark is invalid or unenforceable. The Assignor hereby grants to the Collateral
Agent an absolute power of attorney to sign, upon the occurrence and during the
continuance of a Noticed Event of Default, any document which may be required by
the Canadian Register of Trade-marks in order to effect an absolute assignment
of all right, title and interest in each Mark, and record the same.
4.2. Infringements. The Assignor agrees, promptly upon
learning thereof, to notify the Collateral Agent in writing of the name and
address of, and to furnish such pertinent information that may be available with
respect to, any party who the Assignor believes is infringing or diluting or
otherwise violating in any material respect any of the Assignor's rights in and
to any material Mark, or with respect to any party claiming that the Assignor's
use of any material Mark violates in any material respect any property right of
that party. The Assignor further agrees to prosecute any Person infringing any
material Mark in accordance with reasonable business practices.
4.3. Preservation of Marks. The Assignor agrees to use its
Marks as required in each of the applicable jurisdictions during the time in
which this Agreement is in effect, sufficiently to preserve such Marks (and any
registrations thereto) as trademarks or service marks under the laws of Canada
and any other applicable law; provided, that the Assignor shall not be obligated
to preserve any Mark in the event the Assignor determines, in its reasonable
business judgment, that the preservation of such Mark is no longer desirable in
the conduct of its business.
4.4. Maintenance of Registration. The Assignor shall, at its
own expense, diligently process all documents required by the Trade-marks Act,
R.S.C. c. T-13 to maintain trademark registrations, including but not limited to
affidavits or statutory declarations of use and applications for renewals of
registration in the Canadian Register of Trade-marks for all of its registered
Marks, and shall pay all fees and disbursements in connection therewith and
shall not abandon any such filing of affidavit or statutory declarations of use
or any such application of renewal prior to the exhaustion of all administrative
and judicial remedies without prior written consent of the Collateral Agent;
provided, that the Assignor shall not be obligated to maintain any Mark in the
event that the Assignor determines, in its reasonable business judgment, that
the maintenance of such Mark is no longer necessary or desirable in the conduct
of its business.
4.5. Future Registered Marks. If any Mark registration issues
hereafter to the Assignor as a result of any application now or hereafter
pending before the Canadian Registrar of Trade-marks within 60 days of receipt
of such certificate, the Assignor shall deliver to the Collateral Agent a copy
of such certificate.
<PAGE> 14
EXHIBIT 10.6
Page 10
4.6. Remedies. If a Noticed Event of Default shall occur and
be continuing, the Collateral Agent may, to the extent permitted and in the
manner prescribed by law, take any or all of the following actions: (i) declare
the entire right, title and interest of the Assignor in and to each of the
Marks, together with all trademark rights and rights of protection to the same,
vested in the Collateral Agent for the benefit of the Secured Creditors, in
which event such rights, title and interest shall immediately vest, in the
Collateral Agent for the benefit of the Secured Creditors, and the Collateral
Agent shall be entitled to exercise the power of attorney referred to in Section
4.1 hereof to execute, cause to be acknowledged and notarized and record said
absolute assignment with the applicable agency; (ii) take and use or sell the
Marks and the goodwill of the Assignor's business symbolized by the Marks and
the right to carry on the business and use the assets of the Assignor in
connection with which the Marks have been used; and (iii) direct the Assignor to
refrain, in which event the Assignor shall refrain, from using the Marks in any
manner whatsoever, directly or indirectly, and, if requested by the Collateral
Agent, change the Assignor's corporate name to eliminate therefrom any use of
any Mark and execute such other and further documents that the Collateral Agent
may request to further confirm this and to transfer ownership of the Marks and
registrations and any pending trademark application in the Canadian Register of
Trade-marks to the Collateral Agent.
ARTICLE V
SPECIAL PROVISIONS CONCERNING
PATENTS, COPYRIGHTS AND TRADE SECRETS
5.1. Additional Representations and Warranties. The Assignor
represents and warrants that, as of the date hereof, it is the true and lawful
owner of all rights in (i) all material Trade Secrets and Proprietary
Information necessary to operate the business of the Assignor, (ii) the Patents
listed in Annex E hereto and that said Patents constitute all the patents and
applications for patents that the Assignor owns on the date hereof and (iii) the
Copyrights listed in Annex F hereto and that said Copyrights constitute all
registrations of copyrights and applications for copyright registrations that
the Assignor owns on the date hereof. The Assignor further warrants that it has
no knowledge of any third party claim that any aspect of the Assignor's present
or contemplated business operations infringes or will infringe any patent or any
copyright or the Assignor has misappropriated any Trade Secret or Proprietary
Information, in each case in any respect which could reasonably be expected to
have a material adverse effect on the business, operations, property, assets,
liabilities or condition (financial or otherwise) of Holdings and its
Subsidiaries taken as a whole. The Assignor hereby grants to the Collateral
Agent an absolute power of attorney to sign, upon
<PAGE> 15
EXHIBIT 10.6
Page 11
the occurrence and during the continuance of a Noticed Event of Default, any
document which may be required by the Canadian Patent Office or the Canadian
Registrar of Copyrights in order to effect an absolute assignment of all right,
title and interest in each Patent and Copyright, and to record the same.
5.2. Infringements. The Assignor agrees, promptly upon
learning thereof, to furnish the Collateral Agent in writing with all pertinent
information available to the Assignor with respect to any infringement,
contributing infringement or active inducement to infringe in any material
respect any material Patent or Copyright or to any claim that the practice of
any material Patent or the use of any material Copyright violates in any
material respect any property right of a third party, or with respect to any
misappropriation of any material Trade Secret Right or any claim that practice
of any material Trade Secret Right violates in any material respect any property
right of a third party. The Assignor further agrees, to the extent consistent
with reasonable business practices, to prosecute any Person infringing any
Patent or Copyright or any Person misappropriating any Trade Secret Right.
5.3. Maintenance of Patents. At its own expense, the Assignor
shall make timely payment of all post-issuance fees required pursuant to the
Patent Act, R.S.C. c. P-4 to maintain in force rights under each Patent, absent
prior written consent of the Collateral Agent; provided, that the Assignor shall
not be obligated to maintain any Patent in the event the Assignor determines, in
its reasonable business judgment, that the maintenance of such Patent is no
longer necessary or desirable in the conduct of its business.
5.4. Prosecution of Patent Application. At its own expense,
the Assignor shall diligently prosecute all applications for Patents and shall
not abandon any such application prior to exhaustion of all administrative and
judicial remedies, absent written consent of the Collateral Agent; provided,
that the Assignor shall not be obligated to prosecute any application in the
event the Assignor determines, in its reasonable business judgment, that the
prosecuting of such application is no longer necessary or desirable in the
conduct of its business.
5.5. Other Patents and Copyrights. Within 60 days of the
acquisition or issuance of a Patent, registration of a Copyright, or acquisition
of a registered copyright, the Assignor shall deliver to the Collateral Agent a
copy of said Copyright or certificate or registration of said patents, as the
case may be.
5.6. Remedies. If a Noticed Event of Default shall occur and
be continuing, the Collateral Agent may, to the extent permitted and in the
manner prescribed by law, take any or all of the following actions: (i) declare
the entire right, title, and interest of the
<PAGE> 16
EXHIBIT 10.6
Page 12
Assignor in each of the Patents and Copyrights vested in the Collateral Agent
for the benefit of the Secured Creditors, in which event such right, title, and
interest shall immediately vest in the Collateral Agent for the benefit of the
Secured Creditors, in which case the Collateral Agent shall be entitled to
exercise the power of attorney referred to in Section 5.1 hereof to execute,
cause to be acknowledged and notarized and to record said absolute assignment
with the applicable agency; (ii) take and practice or sell the Patents and
Copyrights; and (iii) direct the Assignor to refrain, in which event the
Assignor shall refrain, from practicing the Patents and using the Copyrights
directly or indirectly, and the Assignor shall execute such other and further
documents as the Collateral Agent may request further to confirm this and to
transfer ownership of the Patents and Copyrights to the Collateral Agent for the
benefit of the Secured Creditors.
ARTICLE VI
PROVISIONS CONCERNING ALL COLLATERAL
6.1. Protection of Collateral Agent's Security. The Assignor
will at all times keep its Inventory and Equipment insured in favor of the
Collateral Agent, at the Assignor's own expense to the extent and in the manner
provided in the Secured Debt Agreements; all policies or certificates with
respect to such insurance (and any other insurance maintained by the Assignor)
(i) shall be endorsed to the Collateral Agent's reasonable satisfaction for the
benefit of the Collateral Agent (including, without limitation, by naming the
Collateral Agent as additional insured and loss payee) and (ii) shall state that
such insurance policies shall not be cancelled without 30 days' prior written
notice thereof (or 10 days' in the case of non-payment of premium) by the
insurer to the Collateral Agent; and certified copies of such policies or
certificates with respect thereto shall be deposited with the Collateral Agent.
If the Assignor shall fail to insure its Inventory and Equipment in accordance
with the preceding sentence, or if the Assignor shall fail to so endorse and
deposit all policies or certificates with respect thereto, the Collateral Agent
shall have the right (but shall be under no obligation), upon prior written
notice to the Assignor, to procure such insurance and the Assignor agrees to
promptly reimburse the Collateral Agent for all costs and expenses of procuring
such insurance. Each Collateral Agent shall, at the time any proceeds of such
insurance are distributed to the Secured Creditors, apply such proceeds in
accordance with Section 7.4 hereof except as otherwise provided by the Credit
Agreement. The Assignor assumes all liability and responsibility in connection
with the Collateral acquired by it and the liability of the Assignor to pay the
Obligations shall in no way be affected or diminished by reason of the fact that
such Collateral may be lost, destroyed, stolen, damaged or for any reason
whatsoever unavailable to the Assignor.
<PAGE> 17
EXHIBIT 10.6
Page 13
6.2. Further Actions. The Assignor will, at its own expense,
make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent
from time to time such lists, descriptions and designations of its Collateral,
warehouse receipts, receipts in the nature of warehouse receipts, bills of
lading, documents of title, vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, which the Collateral Agent
deems reasonably appropriate or advisable to perfect, preserve or protect its
security interest in the Collateral.
6.3. Financing Statements. The Assignor agrees to execute and
deliver to the Collateral Agent such financing statements, in form reasonably
acceptable to the Collateral Agent, as the Collateral Agent may from time to
time reasonably request or as are necessary or desirable in the reasonable
opinion of the Collateral Agent to establish and maintain a valid, enforceable,
first priority perfected security interest in the Collateral as provided herein
and the other rights and security contemplated hereby all in accordance with the
PPSA as enacted in any and all relevant jurisdictions or any other relevant law.
The Assignor will pay any applicable filing fees, recordation taxes and related
expenses relating to its Collateral. The Assignor hereby authorizes the
Collateral Agent to file any such financing statements without the signature of
the Assignor where permitted by law.
6.4. Collateral Agent's Care and Custody of Collateral. (a)
The Collateral Agent shall not be bound to collect, dispose of, realize,
protect, or enforce any of the Assignor's right, title and interest in and to
the Collateral or to institute proceedings for the purpose thereof, and, without
limiting the generality of the foregoing, the Collateral Agent shall not be
required to take any steps necessary to preserve the rights against prior
parties in respect of the Collateral consisting of chattel paper, instruments,
securities or negotiable documents of title.
(b) The Collateral Agent shall have no obligation to keep the
Collateral in its possession identifiable.
ARTICLE VII
REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT
7.1. Remedies; Obtaining the Collateral Upon Default. The
Assignor agrees that, if a Noticed Event of Default shall have occurred and be
continuing, then and in every
<PAGE> 18
EXHIBIT 10.6
Page 14
such case, the Collateral Agent, in addition to any rights now or hereafter
existing under applicable law, shall have all rights as a secured creditor under
the PPSA in all relevant jurisdictions and may:
(i) personally or by agents or attorneys, immediately take
possession of the Collateral or any part thereof from the Assignor or
any other Person who then has possession of any part thereof with or
without notice or process of law, and for that purpose may enter upon
the Assignor's premises where any of the Collateral is located and
remove the same and use in connection with such removal any and all
services, supplies, aids and other facilities of the Assignor;
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the
Receivables and the Contracts) constituting the Collateral to make any
payment required by the terms of such agreement, instrument or other
obligation directly to the Collateral Agent;
(iii) withdraw all monies, securities and instruments in the
Cash Collateral Account and/or in any other cash collateral account for
application to the Obligations in accordance with Section 7.4 hereof;
(iv) sell, assign or otherwise liquidate any or all of the
Collateral or any part thereof in accordance with Section 7.2 hereof,
or direct the Assignor to sell, assign or otherwise liquidate any or
all of the Collateral or any part thereof, and, in each case, take
possession of the proceeds of any such sale or liquidation;
(v) take possession of the Collateral or any part thereof, by
directing the Assignor in writing to deliver the same to the Collateral
Agent at any place or places reasonably designated by the Collateral
Agent, in which event the Assignor shall at its own expense:
(x) forthwith cause the same to be moved to the place
or places so designated by the Collateral Agent and there
delivered to the Collateral Agent;
(y) store and keep any Collateral so delivered to the
Collateral Agent at such place or places pending further
action by the Collateral Agent as provided in Section 7.2
hereof; and
<PAGE> 19
EXHIBIT 10.6
Page 15
(z) while the Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain
them in good condition; and
(vi) license or sublicense, whether on an exclusive or
nonexclusive basis, any Marks, Patents or Copyrights included in the
Collateral for such term and on such conditions and in such manner as
the Collateral Agent shall in its reasonable judgment determine;
it being understood that the Assignor's obligation so to deliver the Collateral
is of the essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Collateral Agent shall be entitled to a
decree requiring specific performance by the Assignor of said obligation.
Furthermore, the Collateral Agent may appoint or reappoint, by instrument in
writing, any person or persons, including any officer or officers, employee or
employees of the Collateral Agent, to act as receiver or receiver manager
(hereinafter called a "Receiver") of the Collateral (including any interest,
income or profits therefrom) and may remove any Receiver so appointed and
appoint another in his stead. So far as concerns the responsibility for his
acts, the Receiver shall be deemed to be the agent of the Assignor and not of
the Collateral Agent, and the Collateral Agent shall not be in any way
responsible for any misconduct, negligence, or non-feasance on the part of the
Receiver, his servants, agents or employees. Subject to the provisions of the
instrument appointing the Receiver, the Receiver shall have the rights, powers
and duties of the Collateral Agent hereunder and shall have the power to carry
on or concur in carrying on all or any part of the business of the Assignor,
provided that, except as may be otherwise directed by the Collateral Agent, all
monies received from time to time by the Receiver in carrying out his
appointment shall be received in trust for and paid over to the Collateral
Agent. The Secured Creditors agree that this Agreement may be enforced only by
the action of the Collateral Agent acting upon the instructions of the Required
Banks and that no other Secured Creditor shall have any right individually to
seek to enforce this Agreement or to realize upon the security to be granted
hereby, it being understood and agreed that such rights and remedies may be
exercised by the Collateral Agent for the benefit of the Secured Creditors upon
the terms of this Agreement.
7.2. Remedies; Disposition of the Collateral. Any Collateral
repossessed by the Collateral Agent under or pursuant to Section 7.1 hereof and
any other Collateral whether or not so repossessed by the Collateral Agent, may
be sold, assigned, leased or otherwise disposed of under one or more contracts
or as an entirety, and without the necessity of gathering at the place of sale
the property to be sold, and in general in such manner, at such time or times,
at such place or places and on such terms as the Collateral Agent may, in
<PAGE> 20
EXHIBIT 10.6
Page 16
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Collateral may be sold, leased or otherwise
disposed of, in the condition in which the same existed when taken by the
Collateral Agent or after any overhaul or repair at the expense of the Assignor
which the Collateral Agent shall determine to be commercially reasonable. To the
extent permitted by law, any such disposition which shall be a private sale or
other private proceedings permitted by such requirements shall be made upon not
less than 10 days' written notice to the Assignor specifying the time at which
such disposition is to be made and the intended sale price or other
consideration therefor, and shall be subject, for the 10 days after the giving
of such notice, to the right of the Assignor or any nominee of the Assignor to
acquire the Collateral involved at a price or for such other consideration at
least equal to the intended sale price or other consideration so specified. To
the extent permitted by law, any such disposition which shall be a public sale
permitted by such requirements shall be made upon not less than 10 days' written
notice to the Assignor specifying the time and place of such sale and, in the
absence of applicable requirements of law, shall be by public auction (which
may, at the Collateral Agent's option, be subject to reserve), after publication
of notice of such auction not less than 10 days prior thereto in two newspapers.
To the extent permitted by any such requirement of law, the Collateral Agent may
bid for and become the purchaser of the Collateral or any item thereof, offered
for sale in accordance with this Section without accountability to the Assignor.
If, under mandatory requirements of applicable law, the Collateral Agent shall
be required to make disposition of the Collateral within a period of time which
does not permit the giving of notice to the Assignor as hereinabove specified,
the Collateral Agent need give the Assignor only such notice of disposition as
shall be reasonably practicable in view of such mandatory requirements of
applicable law.
7.3. Waiver of Claims. Except as otherwise provided in this
Agreement, (I) THE ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S
TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING
FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH THE ASSIGNOR
WOULD OTHERWISE HAVE UNDER THE LAWS OF THE PROVINCE OF ONTARIO, and (ii) the
Assignor hereby further waives, to the extent permitted by law:
(a) all damages occasioned by such taking of possession except
any damages which arise from the Collateral Agent's gross negligence or
willful misconduct;
<PAGE> 21
EXHIBIT 10.6
Page 17
(b) all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of the
Collateral Agent's rights hereunder; and
(c) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable
law in order to prevent or delay the enforcement of this Agreement or
the absolute sale of the Collateral or any portion thereof, and the
Assignor, for itself and all who may claim under it, insofar as it or
they now or hereafter lawfully may, hereby waives the benefit of all
such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Assignor therein and thereto, and
shall be a perpetual bar both at law and in equity against the Assignor and
against any and all Persons claiming or attempting to claim the Collateral so
sold, optioned or realized upon, or any part thereof, from, through and under
the Assignor.
7.4. Application of Proceeds. (a) All moneys collected by the
Collateral Agent upon any sale or other disposition of the Collateral, together
with all other moneys received by the Collateral Agent hereunder, shall be
applied as follows:
(i) first, to the payment of all Obligations owing the
Collateral Agent of the type provided in clauses (iii) and (iv) of the
definition of Obligations;
(ii) second, to the extent proceeds remain after the
application pursuant to preceding clause (i), an amount equal to the
outstanding Primary Obligations shall be paid to the Secured Creditors
as provided in Section 7.4(d) hereof, with each Secured Creditor
receiving an amount equal to such outstanding Primary Obligations or,
if the proceeds are insufficient to pay in full all such Primary
Obligations, its Pro Rata Share of the amount remaining to be
distributed;
(iii) third, to the extent proceeds remain after the application
pursuant to preceding clauses (i) and (ii), an amount equal to the
outstanding Secondary Obligations shall be paid to the Secured
Creditors as provided in Section 7.4(d) hereof, with each Secured
Creditor receiving an amount equal to its outstanding Secondary
Obligations or, if the proceeds are insufficient to pay in full all
such Secondary Obligations, its Pro Rata Share of the amount remaining
to be distributed; and
<PAGE> 22
EXHIBIT 10.6
Page 18
(iv) fourth, to the extent proceeds remain after the
application pursuant to preceding clauses (i) through (iii), inclusive,
and following the termination of this Agreement pursuant to Section
10.8(a) hereof, to the Assignor or to whomever may be lawfully entitled
to receive such surplus.
(b) For purposes of this Agreement (x) "Pro Rata Share" shall
mean, when calculating a Secured Creditor's portion of any distribution or
amount, that amount (expressed as a percentage) equal to a fraction the
numerator of which is the then unpaid amount of such Secured Creditor's Primary
Obligations or Secondary Obligations, as the case may be, and the denominator of
which is the then outstanding amount of all Primary Obligations or Secondary
Obligations, as the case may be, (y) "Primary Obligations" shall mean (i) in the
case of the Credit Document Obligations, all obligations and liabilities of the
Assignor arising out of or in connection with the principal of, and interest on,
all Loans and (ii) in the case of the Other Obligations, all amounts due under
the Interest Rate Protection Agreements or Other Hedging Agreements, (other than
indemnities, fees (including, without limitation, solicitors' fees) and similar
obligations and liabilities) and (z) "Secondary Obligations" shall mean all
Obligations other than Primary Obligations.
(c) When payments to Secured Creditors are based upon their
respective Pro Rata Shares, the amounts received by such Secured Creditors
hereunder shall be applied (for purposes of making determinations under this
Section 7.4 only) (i) first, to their Primary Obligations and (ii) second, to
their Secondary Obligations. If any payment to any Secured Creditor of its Pro
Rata Share of any distribution would result in overpayment to such Secured
Creditor, such excess amount shall instead be distributed in respect of the
unpaid Primary Obligations or Secondary Obligations, as the case may be, of the
other Secured Creditors, with each Secured Creditor whose Primary Obligations or
Secondary Obligations, as the case may be, have not been paid in full to receive
an amount equal to such excess amount multiplied by a fraction the numerator of
which is the unpaid Primary Obligations or Secondary Obligations, as the case
may be, of such Secured Creditor and the denominator of which is the unpaid
Primary Obligations or Secondary Obligations, as the case may be, of all Secured
Creditors entitled to such distribution.
(d) All payments required to be made hereunder shall be made
(x) if to the Bank Creditors, to the Administrative Agent under the Credit
Agreement for the account of the Bank Creditors, and (y) if to the Other
Creditors, to the trustee, paying agent or other similar representative (each a
"Representative") for the Other Creditors or, in the absence of such a
Representative, directly to the Other Creditors.
<PAGE> 23
EXHIBIT 10.6
Page 19
(e) For purposes of applying payments received in accordance
with this Section 7.4, the Collateral Agent shall be entitled to rely upon (i)
the Administrative Agent under the Credit Agreement and (ii) the Representative
for the Other Creditors or, in the absence of such a Representative, upon the
Other Creditors for a determination (which the Administrative Agent, each
Representative for any Other Creditors and the Secured Creditors agree (or shall
agree) to provide upon request of the Collateral Agent) of the outstanding
Primary Obligations and Secondary Obligations owed to the Bank Creditors or the
Other Creditors, as the case may be. Unless it has actual knowledge (including
by way of written notice from a Bank Creditor or an Other Creditor) to the
contrary, the Administrative Agent and each Representative, in furnishing
information pursuant to the preceding sentence, and the Collateral Agent, in
acting hereunder, shall be entitled to assume that no Secondary Obligations are
outstanding. Unless it has actual knowledge (including by way of written notice
from a Representative for an Other Creditor or directly from an Other Creditor)
to the contrary, the Collateral Agent, in acting hereunder, shall be entitled to
assume that no Interest Rate Protection or Other Hedging Agreements are in
existence.
(f) It is understood and agreed that the Assignor shall remain
liable to the extent of any deficiency between the amount of the proceeds of the
Collateral hereunder and the aggregate amount of the sums referred to in clauses
(i) through (iv), inclusive, of Section 7.4(a) hereof.
7.5. Remedies Cumulative. Each and every right, power and
remedy hereby specifically given to the Collateral Agent shall be in addition to
every other right, power and remedy specifically given under this Agreement, the
other Secured Debt Agreements or now or hereafter existing at law, in equity or
by statute and each and every right, power and remedy whether specifically
herein given or otherwise existing may be exercised from time to time or
simultaneously and as often and in such order as may be deemed expedient by the
Collateral Agent. All such rights, powers and remedies shall be cumulative and
the exercise or the beginning of the exercise of one shall not be deemed a
waiver of the right to exercise any other or others. No delay or omission of the
Collateral Agent in the exercise of any such right, power or remedy and no
renewal or extension of any of the Obligations shall impair any such right,
power or remedy or shall be construed to be a waiver of any Default or Event of
Default or an acquiescence therein. No notice to or demand on the Assignor in
any case shall entitle it to any other or further notice or demand in similar or
other circumstances or constitute a waiver of any of the rights of the
Collateral Agent to any other or further action in any circumstances without
notice or demand. In the event that the Collateral Agent shall bring any suit to
enforce any of its rights hereunder and shall be entitled to judgment, then in
such suit the Collateral Agent may recover reasonable expenses, including
reasonable solicitors' fees, and the amounts thereof shall be included in such
judgment.
<PAGE> 24
EXHIBIT 10.6
Page 20
7.6. Discontinuance of Proceedings. In case the Collateral
Agent shall have instituted any proceeding to enforce any right, power or remedy
under this Agreement by foreclosure, sale, entry or otherwise, and such
proceeding shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Collateral Agent, then and in every such
case the Assignor, the Collateral Agent and each holder of any of the
Obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interest created under
this Agreement, and all rights, remedies and powers of the Collateral Agent
shall continue as if no such proceeding had been instituted.
ARTICLE VIII
INDEMNITY
8.1. Indemnity. (a) The Assignor agrees to indemnify,
reimburse and hold the Collateral Agent, each other Secured Creditor and their
respective successors, permitted assigns, employees, agents and servants
(hereinafter in this Section 8.1 referred to individually as "Indemnitee," and
collectively as "Indemnitees") harmless from any and all liabilities,
obligations, damages, injuries, penalties, claims, demands, actions, suits,
judgments and any and all reasonable costs, expenses or disbursements (including
reasonable attorneys' fees and expenses) (for the purposes of this Section 8.1
the foregoing are collectively called "expenses") of whatsoever kind and nature
imposed on, asserted against or incurred by any of the Indemnitees in any way
relating to or arising out of this Agreement, any other Secured Debt Agreement
to which the Assignor is a party or any other document executed in connection
herewith or therewith or in any other way connected with the administration of
the transactions contemplated hereby or thereby or the enforcement of any of the
terms of, or the preservation of any rights under any thereof, or in any way
relating to or arising out of the manufacture, ownership, ordering, purchase,
delivery, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition, or use of the Collateral
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the laws of any country, state, province or
other governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or property
damage), or contract claim; provided that no Indemnitee shall be indemnified
pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent
caused by the gross negligence or willful misconduct of such Indemnitee. The
Assignor agrees that upon written notice by any Indemnitee of the assertion of
such a liability, obligation, damage, injury, penalty, claim, demand, action,
suit or judgment, the Assignor
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EXHIBIT 10.6
Page 21
shall assume full responsibility for the defense thereof. Each Indemnitee agrees
to use its best efforts to promptly notify the Assignor of any such assertion of
which such Indemnitee has knowledge.
(b) Without limiting the application of Section 8.1(a) hereof,
the Assignor agrees to pay or reimburse the Collateral Agent for any and all
reasonable fees, costs and expenses of whatever kind or nature incurred in
connection with the creation, preservation or protection of the Collateral
Agent's Liens on, and security interest in, the Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payment or discharge of any taxes
or Liens upon or in respect of the Collateral, premiums for insurance with
respect to the Collateral and all other reasonable fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and the
Collateral Agent's interest therein, whether through judicial proceedings or
otherwise, or in defending or prosecuting any actions, suits or proceedings
arising out of or relating to the Collateral.
(c) If and to the extent that the obligations of the Assignor
under this Section 8.1 are unenforceable for any reason, the Assignor hereby
agrees to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
8.2. Indemnity Obligations Secured by Collateral; Survival.
Any amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of the Assignor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment of all of the
other Obligations and notwithstanding the discharge thereof.
ARTICLE IX
DEFINITIONS
The following terms shall have the meanings herein specified.
Such definitions shall be equally applicable to the singular and plural forms of
the terms defined.
"Administrative Agent" shall have the meaning provided in the
recitals of this Agreement.
<PAGE> 26
EXHIBIT 10.6
Page 22
"Agreement" shall mean this Security Agreement as the same may
be modified, supplemented or amended from time to time in accordance with its
terms.
"Assignor" shall have the meaning provided in the first
paragraph of this Agreement.
"Bank Creditors" shall have the meaning provided in the
recitals of this Agreement.
"Banks" shall have the meaning provided in the recitals of
this Agreement.
"Cash Collateral Account" shall mean a non-interest bearing
cash collateral account maintained with, and in the sole dominion and control
of, the Collateral Agent for the benefit of the Secured Creditors.
"Chattel Paper" shall have the meaning ascribed to the term
"chattel paper" in the PPSA as in effect on the date hereof in the Province of
Ontario.
"Class" shall have the meaning provided in Section 10.2 of
this Agreement.
"Collateral" shall have the meaning provided in Section 1.1(a)
of this Agreement.
"Collateral Agent" shall have the meaning provided in the
first paragraph of this Agreement.
"Company" shall have the meaning provided in the recitals of
this Agreement.
"Contract Rights" shall mean all rights of the Assignor
(including, without limitation, all rights to payment) under each Contract.
"Contracts" shall mean all contracts between the Assignor and
one or more additional parties, in each case to the extent, but only to the
extent, that the grant by the Assignor of a security interest pursuant to this
Agreement in its right, title and interest in such contract is not prohibited by
such contract without the consent of any other party thereto, would not give any
other party to such contract the right to terminate its obligations thereunder,
or is permitted with consent if all necessary consents to such grant of a
security interest have been obtained from the other parties thereto (it being
understood that the foregoing shall not be deemed to obligate the Assignor to
obtain such consents); provided, that
<PAGE> 27
EXHIBIT 10.6
Page 23
the foregoing limitation shall not affect, limit, restrict or impair the grant
by the Assignor of a security interest pursuant to this Agreement in any money
or other amounts due or to become due under any such contract.
"Copyrights" shall mean any Canadian copyright owned (or
subject to the rights of ownership) by the Assignor, including any registrations
of any copyrights in the Canadian Register of Copyrights, as well as any
application for a copyright registration now or hereafter made with the Canadian
Registrar of Copyrights by the Assignor.
"Credit Agreement" shall have the meaning provided in the
recitals of this Agreement.
"Credit Document Obligations" shall have the meaning provided
in the definition of "Obligations" in this Article IX.
"Default" shall mean any event which, with notice or lapse of
time, or both, would constitute an Event of Default.
"Documents" shall have the meaning ascribed to the term
"documents of title" in the PPSA as in effect on the date hereof in the Province
of Ontario.
"Equipment" shall mean any "equipment", as such term is
defined in the PPSA as in effect on the date hereof in the Province of Ontario,
now or hereafter owned by the Assignor and, in any event, shall include, but
shall not be limited to, all machinery, equipment, furnishings, movable trade
fixtures and vehicles now or hereafter owned by the Assignor and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.
"Event of Default" shall mean any Event of Default under, and
as defined in, the Credit Agreement and shall in any event, without limitation,
include any payment default on any of the Obligations after the expiration of
any applicable grace period.
"General Intangibles" shall have the meaning ascribed to the
term "intangibles" in the PPSA as in effect on the date hereof in the Province
of Ontario.
"Goods" shall have the meaning ascribed to the term "goods" in
the PPSA as in effect on the date hereof in the Province of Ontario.
<PAGE> 28
EXHIBIT 10.6
Page 24
"Indemnitee" shall have the meaning provided in Section 8.1 of
this Agreement.
"Instrument" shall have the meaning ascribed to the terms
"instrument" and "securities" in the PPSA as in effect on the date hereof in the
Province of Ontario.
"Interest Rate Protection Agreements or Other Hedging
Agreements" shall have the meaning provided in the recitals of this Agreement.
"Inventory" shall mean merchandise, inventory and goods, and
all additions, substitutions and replacements thereof, wherever located,
together with all goods, supplies, incidentals, packaging materials, labels,
materials and any other items used or usable in manufacturing, processing,
packaging or shipping same, in all stages of production -- from raw materials
through work-in-process to finished goods -- and all products and proceeds of
whatever sort and wherever located and any portion thereof which may be
returned, rejected, reclaimed or repossessed by the Collateral Agent from the
Assignor's customers, and shall specifically include all "inventory" as such
term is defined in the PPSA as in effect on the date hereof in the Province of
Ontario, now or hereafter owned by the Assignor.
"Liens" shall mean any security interest, mortgage, pledge,
lien, claim, charge, encumbrance, title retention agreement, lessor's interest
in a financing lease or analogous instrument, in, of, or on the Assignor's
property.
"Marks" shall mean any Canadian trademarks, service marks and
trade names now owned, subject to a right of ownership or hereafter acquired by
the Assignor, including any registration of any trademarks and service marks in
the Canadian Register of Trademarks, and any trade dress including logos and/or
designs used by the Assignor in Canada.
"Noticed Event of Default" shall mean (i) an Event of Default
with respect to the Assignor under Section 9.05 of the Credit Agreement and (ii)
any other Event of Default in respect of which the Collateral Agent has given
the Company notice that such Event of Default constitutes a "Noticed Event of
Default".
"Obligations" shall mean (i) the full and prompt payment when
due (whether at the stated maturity, by acceleration or otherwise) of all
obligations and liabilities of the Assignor now existing or hereafter incurred
under, arising out of or in connection with the Credit Document to which the
Assignor is a party and the due performance and compliance by the Assignor with
the terms of each such Credit Document (all such obligations and liabil-
<PAGE> 29
EXHIBIT 10.6
Page 25
ities under this clause (i), except to the extent consisting of Other
Obligations, being herein collectively called the "Credit Document
Obligations"); (ii) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations and liabilities of
the Assignor now existing or hereafter incurred under, arising out of or in
connection with any Interest Rate Protection Agreement or Other Hedging
Agreement to which it may be a party from time to time and the due performance
and compliance by the Assignor with the terms contained in each such Interest
Rate Protection Agreement or Other Hedging Agreement (all such obligations and
indebtedness under this clause (ii) being herein collectively called the "Other
Obligations"); (iii) any and all sums advanced by the Collateral Agent in order
to preserve the Collateral or preserve its security interest in the Collateral;
(iv) in the event of any proceeding for the collection or enforcement of any
obligations or liabilities referred to in clauses (i) and (ii) above, after an
Event of Default shall have occurred and be continuing, the reasonable expenses
of re-taking, holding, preparing for sale or lease, selling or otherwise
disposing of or realizing on the Collateral, or of any exercise by the
Collateral Agent of its rights hereunder, together with reasonable solicitors'
fees and court costs; and (v) all amounts paid by any Indemnitee as to which
such Indemnitee has the right to reimbursement under Section 8.1 of this
Agreement.
"Original Canadian Security Agreement" shall have the meaning
provided in the recitals of this Agreement.
"Other Creditors" shall have the meaning provided in the
recitals of this Agreement.
"Other Obligations" shall have the meaning provided in the
definition of "Obligations" in this Article IX.
"Patents" shall mean any Canadian patent owned, subject to a
right of ownership by or hereafter acquired by the Assignor and any divisions,
continuations, reissues, reexaminations, extensions or renewals thereof, as well
as any application for a Canadian patent now or hereafter made by the Assignor
or subject to a right of ownership in the Assignor.
"PPSA" shall mean the Personal Property Security Act
(Ontario), as in effect in the subject jurisdiction.
"Primary Obligations" shall have the meaning provided in
Section 7.4(b) of this Agreement.
<PAGE> 30
EXHIBIT 10.6
Page 26
"Pro Rata Share" shall have the meaning provided in Section
7.4(b) of this Agreement.
"Proceeds" shall have the meaning provided in the PPSA as in
effect in the Province of Ontario on the date hereof or under other relevant law
and, in any event, shall include, but not be limited to, (i) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to the
Collateral Agent or the Assignor from time to time with respect to any of the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to the Assignor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any person acting under color of
governmental authority) and (iii) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Proprietary Information" means all information and know-how
worldwide, including, without limitation, technical data, manufacturing data,
research and development data, manufacturing data, research and development
data, data relating to compositions, processes and formulations, manufacturing
and production know-how and experience, management know-how, training programs,
manufacturing, engineering and other drawings, specifications, performance
criteria, operating instructions, maintenance manuals, technology, technical
information, software, engineering and computer data and databases, design and
engineering specifications, catalogs, promotional literature and financial,
business and marketing plans, inventions and invention disclosures.
"Receivables" shall mean any "account" as such term is defined
in the PPSA as in effect on the date hereof in the Province of Ontario, now or
hereafter owned by the Assignor and, in any event, shall include, but shall not
be limited to, all of the Assignor's rights to payment for goods sold or leased
or services performed by the Assignor, whether now in existence or arising from
time to time hereafter, including, without limitation, rights evidenced by an
account, note, contract, security agreement, chattel paper, or other evidence of
indebtedness or security, together with (a) all security pledged, assigned,
hypothecated or granted to or held by the Assignor to secure the foregoing, (b)
all of the Assignor's right, title and interest in and to any goods, the sale of
which gave rise thereto, (c) all guarantees, endorsements and indemnifications
on, or of, any of the foregoing, (d) all powers of attorney for the execution of
any evidence of indebtedness or security or other writing in connection
therewith, (e) all books, records, ledger cards, and invoices relating thereto,
(f) all evidences of the filing of financing statements and other statements and
the registration of other instruments in connection therewith and amendments
thereto, notices to other creditors or secured parties, and certificates from
filing or other registration officers, (g) all credit infor-
<PAGE> 31
EXHIBIT 10.6
Page 27
mation, reports and memoranda relating thereto and (h) all other writings
related in any way to the foregoing.
"Receiver" shall have the meaning provided in Section 7.1
hereof.
"Representative" shall have the meaning provided in Section
7.4(d) of this Agreement.
"Requisite Creditors" shall have the meaning provided in
Section 10.2 of this Agreement.
"Secondary Obligations" shall have the meaning provided in
Section 7.4(b) of this Agreement.
"Secured Creditors" shall have the meaning provided in the
recitals of this Agreement.
"Secured Debt Agreements" shall mean and include this
Agreement, the other Credit Documents and the Interest Rate Protection
Agreements or Other Hedging Agreements.
"Termination Date" shall have the meaning provided in Section
10.8(a) of this Agreement.
"Trade Secrets" means any secretly held existing engineering
and other data, information, production procedures and other know-how relating
to the design, manufacture, assembly, installation, use, operation, marketing,
sale and servicing of any products or business of the Assignor worldwide whether
written or not written.
ARTICLE X
MISCELLANEOUS
10.1. Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
parties hereto shall be deemed to have been duly given or made when delivered to
the party to which such notice, request, demand or other communication is
required or permitted to be given or made under this Agreement, addressed as
follows:
<PAGE> 32
EXHIBIT 10.6
Page 28
(a) if to the Assignor, at its address set forth opposite its
signature below;
(b) if to the Collateral Agent:
Bankers Trust Company
130 Liberty Street
New York, New York 10006
Attention: Christopher Kinslow
Telephone No.: (212) 250-7671
Facsimile No.: (212) 250-7218
(c) if to any Bank Creditor, at such address as such Bank
Creditor shall have specified in the Credit Agreement; and
(d) if to any Other Creditor, at such address as such Other
Creditor shall have specified in writing to the Assignor and the
Collateral Agent;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
10.2. Waiver; Amendment. None of the terms and conditions of
this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by the Assignor and the Collateral
Agent (with the consent of (x) either the Required Banks (or, to the extent
required by Section 13.12 of the Credit Agreement, all of the Banks) at all
times prior to the time at which all Credit Document Obligations have been paid
in full or (y) the holders of at least a majority of the outstanding Other
Obligations at all times after the time at which all Credit Document Obligations
have been paid in full); provided, that any change, waiver, modification or
variance affecting the rights and benefits of a single Class of Secured
Creditors (and not all Secured Creditors in a like or similar manner) shall
require the written consent of the Requisite Creditors of such Class of Secured
Creditors. For the purpose of this Agreement the term "Class" shall mean each
class of Secured Creditors, i.e., whether (x) the Bank Creditors as holders of
the Credit Document Obligations or (y) the Other Creditors as the holders of the
Other Obligations. For the purpose of this Agreement, the term "Requisite
Creditors" of any Class shall mean each of (x) with respect to the Credit
Document Obligations, the Required Banks and (y) with respect to the Interest
Rate Protection Obligations, the holders of at least a majority of all
obligations outstanding from time to time under the Interest Rate Protection
Agreements or Other Hedging Agreements.
<PAGE> 33
EXHIBIT 10.6
Page 29
10.3. Obligations Absolute. The obligations of the Assignor
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of the Assignor; (b) any
exercise or non-exercise, or any waiver of, any right, remedy, power or
privilege under or in respect of this Agreement or any other Secured Debt
Agreement; or (c) any amendment to or modification of any Secured Debt Agreement
or any security for any of the Obligations, whether or not the Assignor shall
have notice or knowledge of any of the foregoing.
10.4. Successors and Assigns. This Agreement shall be binding
upon the Assignor and its successors and assigns and shall inure to the benefit
of the Collateral Agent and the Secured Creditors and their respective
successors and assigns. All agreements, statements, representations and
warranties made by the Assignor herein or in any certificate or other instrument
delivered by the Assignor or on its behalf under this Agreement shall be
considered to have been relied upon by the Secured Creditors and shall survive
the execution and delivery of this Agreement and the other Secured Debt
Agreements regardless of any investigation made by the Secured Creditors or on
their behalf.
10.5. Headings Descriptive. The headings of the several
sections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
10.6. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAWS OF THE PROVINCE OF ONTARIO.
10.7. Assignor's Duties. It is expressly agreed, anything
herein contained to the contrary notwithstanding, that the Assignor shall remain
liable to perform all of the obligations, if any, assumed by it with respect to
the Collateral and the Collateral Agent shall not have any obligations or
liabilities with respect to any Collateral by reason of or arising out of this
Agreement, nor shall the Collateral Agent be required or obligated in any manner
to perform or fulfill any of the obligations of the Assignor under or with
respect to any Collateral.
10.8. Termination; Release. (a) After the Termination Date,
this Agreement shall terminate (provided that all indemnities set forth herein
including, without limitation, in Section 8.1 hereof shall survive such
termination) and the Collateral Agent, at the request and expense of the
Assignor, will promptly execute and deliver to the Assignor
<PAGE> 34
EXHIBIT 10.6
Page 30
a proper instrument or instruments (including PPSA financing change statements)
acknowledging the satisfaction and termination of this Agreement and discharging
the security interest granted hereunder and to record such discharge in all
appropriate offices of public record, and will duly assign, transfer and deliver
to the Assignor (without recourse and without any representation or warranty)
such of the Collateral as may be in the possession of the Collateral Agent and
has not theretofore been sold or otherwise applied or released pursuant to this
Agreement. As used in this Agreement, "Termination Date" shall mean the date
upon which the Total Commitment and all Interest Rate Protection Agreements or
Other Hedging Agreements have been terminated, no Note is outstanding (and all
Loans have been repaid in full), all Letters of Credit have been terminated and
all other Obligations then due and payable have been paid in full.
(b) In the event that any part of the Collateral is sold in
connection with a sale permitted by Section 8.02 of the Credit Agreement or is
otherwise released at the direction of the Required Banks (or all the Banks if
required by Section 13.12 of the Credit Agreement), the Collateral Agent, at the
request and expense of the Assignor, will duly assign, transfer and deliver to
the Assignor (without recourse and without any representation or warranty) such
of the Collateral as is then being (or has been) so sold or released and as may
be in the possession of the Collateral Agent and has not been theretofore
released pursuant to this Agreement.
(c) At any time that the respective Assignor desires that the
Collateral be released as provided in the foregoing Section 10.8(a) or (b), it
shall deliver to the Collateral Agent a certificate signed by an Authorized
Officer of the Assignor stating that the release of the respective Collateral is
permitted pursuant to Section 10.8(a) or (b) hereof.
10.9. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Assignor and the Collateral Agent.
10.10. The Collateral Agent. The Collateral Agent will hold in
accordance with this Agreement all items of the Collateral at any time received
under this Agreement. It is expressly understood and agreed that the obligations
of the Collateral Agent as holder of the Collateral and interests therein and
with respect to the disposition thereof, and otherwise under this Agreement, are
only those expressly set forth in this Agreement. The Collateral Agent shall act
hereunder on the terms and conditions set forth in this Agreement and in Section
11 of the Credit Agreement.
<PAGE> 35
EXHIBIT 10.6
Page 31
10.11. Attachment of Security Interest. The Assignor covenants
and agrees with and acknowledges to the Collateral Agent that:
(a) the Assignor intends the security interest granted hereby to
attach to the Assignor's existing property immediately upon
the execution and delivery of this Agreement;
(b) the Assignor intends the security interest granted hereby to
attach to the Assignor's after-acquired property immediately
upon the Assignor acquiring ownership rights in such
after-acquired property; and
(c) value has been given for the security interest granted hereby.
10.12. Amendment and Restatement. Upon the execution and
delivery of this Agreement by the parties hereto, the Original Canadian Security
Agreement shall be amended and restated in its entirety by this Agreement,
effective as of the date hereof, with all rights, obligations and security
interests continuing from the date thereof.
<PAGE> 36
EXHIBIT 10.6
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their duly authorized officers as of
the date first above written.
Address:
c/o Cabot Safety Corporation CABOT SAFETY CANADA CORPORATION
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By
--------------------------
Title:
Attention: General Counsel
with a copy to:
Vestar Equity Partners, L.P.
245 Park Avenue
New York, NY 10167
Telephone No. (212) 949-6500
Telecopy No. (212) 808-4922
BANKERS TRUST COMPANY,
as Administrative Agent
By
--------------------------
Title:
<PAGE> 37
ANNEX A
to
SECURITY
AGREEMENT
SCHEDULE OF CHIEF EXECUTIVE OFFICE
AND OTHER RECORD LOCATIONS
7115 Tomken Road
Mississauga, Ontario
L55 1R8
<PAGE> 38
ANNEX B
to
SECURITY
AGREEMENT
SCHEDULE OF INVENTORY AND EQUIPMENT LOCATIONS
<TABLE>
<CAPTION>
COMPANY ADDRESS PRINCIPAL FUNCTION
- ------- ------- ------------------
<S> <C> <C>
Cabot Safety Canada 7115 Tomken Road Manufacturing.
Corporation Mississauga, Ontario
L55 1R8
101 Rue Murray Satellite Office (less
2nd Floor than 0.5% inventory ware-
Montreal, Quebec housed) - customer service
office.
</TABLE>
<PAGE> 39
ANNEX C
to
SECURITY
AGREEMENT
SCHEDULE OF TRADE AND FICTITIOUS NAMES
Cabot Safety Division
<PAGE> 40
ANNEX D
to
SECURITY
AGREEMENT
LIST OF MARKS
NONE*
* In Canada, the registered owners of all
marks and patents are in the name of the
U.S. companies.
<PAGE> 41
ANNEX E
to
SECURITY
AGREEMENT
LIST OF PATENTS AND APPLICATIONS
NONE*
* In Canada, the registered owners
of all marks and patents are the
U.S. companies.
<PAGE> 42
ANNEX F
to
SECURITY
AGREEMENT
LIST OF COPYRIGHTS AND APPLICATIONS
NONE
<PAGE> 1
Exhibit 10.16
CABOT SAFETY HOLDINGS CORPORATION
AMENDED AND RESTATED
1995 EMPLOYEE AND NON-EMPLOYEE DIRECTOR STOCK PURCHASE PLAN
-----------------------------------------------------------
This Amended and Restated 1995 Employee and Non-Employee Director Stock
Purchase Plan (the "Plan") is intended to encourage ownership by selected
employees and non-employee members of the Board of Directors of Cabot Safety
Holdings Corporation (the "Company") and its majority owned subsidiaries of the
$0.01 par value Common Stock (the "Stock") of the Company by providing such
employees and directors with opportunities to purchase Stock as compensation for
past and/or future services. The Company believes that the creation of
opportunities to purchase Stock pursuant to the Plan will enhance its employees'
and non-employee directors' loyalty and commitment to the Company.
The following is a brief general description of the basic terms of the
Plan. For specific details, please refer to both the Stockholders' Agreement
dated as of July 11, 1995, by and among the Company, Vestar Equity Partners,
L.P., Cabot Safety Corporation, the Management Investors listed therein, and the
other parties thereto, which is attached hereto as EXHIBIT A (the "Stockholders'
Agreement") and the forms of Executive Security Purchase Agreement (the
"Subscription Agreement") to be executed by each Offeree (as defined below) who
exercises purchase opportunities pursuant to the Plan (the "Purchasers") and the
Company, which are attached hereto as EXHIBITS B-1 AND B-2.
I. Persons Eligible to Participate in the Plan
-------------------------------------------
Employees of the Company or of any of its direct and indirect majority
owned subsidiaries (collectively, the "Business") and non-employee directors of
the Company who are determined by the Board of Directors of the Company to be in
a position to promote the long-term success of the Company and to whom the Board
of Directors seeks to offer additional opportunities for compensation, as well
as trusts for the benefit of such employees or directors, their spouse or
children and any individual retirement account or other qualified retirement
plan of such employee or director, the funds of which may be invested in Stock
under applicable law and the terms of such plan, shall be eligible to be offered
opportunities to purchase Stock pursuant to the Plan. The foregoing persons
eligible to be offered opportunities to purchase Stock pursuant to the Plan,
including non-employee directors of the Company with respect to the eligibility
and purchase provisions of this Plan, are collectively referred to herein as
"Offerees".
II. Purchase Opportunities
----------------------
The Board of Directors of the Company will, from time to time, make
determinations as to which Offerees should be offered an opportunity to purchase
Stock pursuant to the Plan, the amount of Stock to be offered for sale to such
Offerees (the amount offered to different Offerees need not be identical) and
the purchase price of such Stock. After such determinations are made, the Board
of Directors shall notify each Offeree so selected of the terms of the offer to
that Offeree.
<PAGE> 2
III. Stock to be Offered Pursuant to the Plan
----------------------------------------
The Company will grant Offerees opportunities to purchase 15,000 shares,
in the aggregate, of its Stock under the Plan for an aggregate purchase price of
less than $5 million. In addition, upon its repurchase of any shares of Stock
from a Purchaser in accordance with the provisions of the Stockholders'
Agreement or the applicable Subscription Agreement, the Company may make such
repurchased Stock immediately available to the Board of Directors so that
additional Offerees may be offered opportunities to purchase Stock pursuant to
the Plan, to the extent and in the manner determined by the Board of Directors.
IV. Price of the Stock to be Offered
--------------------------------
The purchase price for the Stock shall be equal to the fair value of such
Stock on the offer date, as determined by the Board of Directors from time to
time.
V. Mechanics of Purchase of the Stock
----------------------------------
Each Offeree who accepts an offer to purchase Stock shall be required to
execute a Subscription Agreement for the number of shares of Stock to be
purchased. The terms of the Subscription Agreement shall provide for the sale of
the Stock as follows: (i) a Purchaser shall deliver the purchase price of the
Stock to the Company and (ii) the Company shall issue Stock certificates to the
Purchaser. Each Purchaser, other than non-employee directors, as a pre-condition
to any purchase of Stock hereunder or otherwise, shall have entered into a
non-competition agreement with the Company substantially in the form of EXHIBIT
C attached hereto. In addition, each Purchaser shall also become a party to the
Stockholders' Agreement before purchasing any Stock pursuant to the Plan.
VI. Restrictions on the Stock Purchased by the Offerees Pursuant to the Plan
------------------------------------------------------------------------
Certain restrictions on the transfer of Stock purchased pursuant to the
Plan and related vesting and repurchase provisions are set forth in detail in
the Subscription Agreement and are summarized in the chart attached hereto as
EXHIBIT D. These provisions are designed to encourage each Offeree's continued
relationship with the Business.
Certain voting restrictions on Stock purchased pursuant to the Plan are
described in the Stockholders' Agreement and are intended to facilitate the
Company's ability to act on matters which require stockholder approval.
VII. Section 83(b) Election
- ----------------------------
The Board of Directors has determined that each Purchaser purchasing Stock
pursuant to this Plan shall be required to file an 83(b) election pursuant to
Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code").
Ordinarily, property transferred in connection
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with services rendered (such as Stock under this Plan) as to which there is a "a
substantial risk of forfeiture" (due to provisions like the restrictions and
repurchase rights summarized above) is taxed under Section 83 of the Code at the
time the restrictions on such property lapse. In order to accelerate the taxable
event to the time when the property is transferred (I.E., when the Stock is
purchased), a Section 83(b) election may be filed with the Internal Revenue
Service. By accelerating the taxable event, an Offeree defers taxation on any
appreciation in value of the Stock from the time of purchase to the time the
restrictions lapse, until such time as the Offeree sells the stock. Upon making
the Section 83(b) election, the Offeree would be taxed upon the income realized
from any excess of the fair value of the Stock at the time of purchase over the
purchase price. However, since the Offeree's purchase price is intended to be
equal to the "fair value" of the Stock at the time of purchase, no tax liability
should result from the election.
Further information on how to make such an election will be provided upon
the request of a Purchaser.
* * *
Offerees should realize that the Stock to be offered pursuant to the Plan
is subject to complex restrictions including restrictions under federal and
state securities laws. If an Offeree has any questions concerning the Plan or
the agreements described herein we encourage him/her to ask questions of
management. The basic intent of the Plan is to reward the Offerees for their
past services and future efforts with additional compensation in the form of the
opportunity to purchase Stock pursuant to this Plan, and to provide Offerees
with an additional incentive to remain with the Company and work toward its
future growth and success.
261711.c2
3
<PAGE> 1
Exhibit 10.17
EXECUTIVE SECURITY PURCHASE AGREEMENT
-------------------------------------
This Executive Security Purchase Agreement (this "Agreement"), dated
as of June __, 1996, is made by and between Cabot Safety Holdings Corporation
(the "Company"), a Delaware corporation, and the executive or non-employee
director of the Company or its subsidiary whose name appears on the signature
page hereof, hereinafter referred to as the "Executive", pursuant to the terms
of the Amended and Restated 1995 Employee and Non- Employee Director Stock
Purchase Plan.
In order to provide additional compensation to the Executive and to
provide the Executive with incentives to work for the financial success of the
Company, the Company is willing to make available to the Executive and the
Executive is willing to purchase the number of shares of Common Stock (the
"Purchased Shares") set forth on Schedule 1 for the aggregate price set forth on
Schedule 1.
As an element of the compensatory nature of these arrangements, the
Company is not requiring the Executive to purchase Preferred Stock of the
Company for purposes of raising capital.
The majority of the restrictions and conditions set forth herein
with respect to Purchased Shares shall apply to shares of common stock purchased
pursuant to options to be granted to the Executive by the Company from time to
time.
In consideration of the mutual covenants herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever capitalized terms are used in this Agreement as defined
terms, they shall have the meaning set forth below unless the context clearly
indicates to the contrary.
SECTION 1.1 - APPLICABLE PERCENTAGE. "Applicable Percentage" shall
mean twenty percent multiplied by the number of full years from May 27, 1996
which have elapsed when a Termination of Employment or Service other than for
Cause, death or Permanent Disability or Retirement occurs, up to a maximum of
100%, provided that in the event a Realization of the Vestar Return has
occurred, the applicable Percentage shall be 100%.
SECTION 1.2 - BOARD. "Board" shall mean the Board of Directors of
the company.
<PAGE> 2
SECTION 1.3 - CAUSE. "Cause" shall mean (a) the commission of an act
of fraud or embezzlement, (b) the unauthorized disclosure of confidential or
proprietary information of the Company or any of its subsidiaries which results
in material financial loss to the Company or any of its subsidiaries, (c) the
commission of a felony, (d) wilful misconduct as an employee or non-employee
director of the Company or any of its subsidiaries which is reasonably likely to
result in material injury or financial loss to the Company or any of its
subsidiaries or (e) the wilful failure to render services to the Company or any
of its subsidiaries in accordance with his employment or service as a director
which failure amounts to a material neglect of duties to the Company or any of
its subsidiaries.
SECTION 1.4 - COMMON STOCK. "Common Stock" shall mean the common
stock, par value $0.01 per share, of Cabot Safety Holdings Corporation.
SECTION 1.5 - COST. "Cost" shall mean the price per share paid by
the Executive for Purchased Shares on the Closing Date (as defined in the
Stockholders' Agreement), as appropriately adjusted for stock splits,
subdivisions, combinations, Common Stock dividends and similar transactions.
SECTION 1.6 - FAIR MARKET VALUE. "Fair Market Value" shall mean with
respect to the Common Stock of the Company, (A) if on the date as of which Fair
Market Value is being determined such class of capital stock is listed on a
national securities exchange or is quoted in the NASDAQ System or the
over-the-counter market, the last sale price, regular way, of such security on
the principal national securities exchange on which such security is at the time
listed, or (B) if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on such exchange at the end
of such day, or (C) if on any day such security is not so listed, the average of
the representative bid and asked prices quoted in the NASDAQ System as of 4:00
P.M., New York time, or (D) if on any day such security is not quoted in the
NASDAQ System, the average of the highest bid and lowest asked prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case of clauses (A)-(D) averaged over a period of 20 days consisting of the
day as of which Fair Market Value is being determined and the latest 19
consecutive trading days prior to such day, or (E) if the Common Stock is not
publicly traded the fair market value of the Common Stock as determined in good
faith by the Board.
SECTION 1.7 - PERMANENT DISABILITY. The Executive shall be deemed to
have a "Permanent Disability" when the Board of Directors of the Company, in
good faith, so determines.
SECTION 1.8 - PERMITTED TRANSFEREE. "Permitted Transferee" shall
have the meaning set forth in the Stockholders' Agreement.
SECTION 1.9 - RETIREMENT. "Retirement" shall mean voluntary
termination of employment or service as a director on the Board by the
Executive after attainment of age
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<PAGE> 3
sixty-five (65); PROVIDED, HOWEVER, that the Executive has served the Company
for at least three years after the Closing Date (as defined in Section 2.1).
SECTION 1.10 - SEASONED SHARES. "Seasoned Shares" shall mean those
Purchased Shares which are not Unseasoned Shares, PROVIDED, that if the
Realization of the Vestar Return has occurred, all Purchased Shares held by the
Executive shall be Seasoned Shares.
SECTION 1.11 - STOCKHOLDERS' AGREEMENT. "Stockholders' Agreement"
shall mean that certain Stockholders' Agreement, dated as of July 11, 1995 by
and among Vestar Equity Partners, L.P., Cabot Safety Holdings Corporation, Cabot
Safety Corporation and the Management Investors (as defined therein).
SECTION 1.12 - TERMINATION OF EMPLOYMENT OR SERVICE. "Termination of
Employment or Service" shall mean the time when the Executive's employment with
the Company or the non-employee director's service on the Board is terminated
for any reason whatsoever. The Board, in its absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Employment or Service, including, but not by way of limitation, all questions of
whether particular leaves of absence constitute Terminations of Employment or
Service and the question of whether any reemployment by or renewal of service
for the Company is simultaneous with termination.
SECTION 1.13 - UNSEASONED SHARES "Unseasoned Shares" shall mean the
number of Purchased Shares determined in accordance with Schedule 1 hereof.
SECTION 1.14 - REALIZATION OF THE VESTAR RETURN. "Realization of
Vestar Return" shall have the meaning set forth in Exhibit A.
ARTICLE II
PURCHASE AND SALE OF PURCHASED SHARES
-------------------------------------
SECTION 2.1 - PURCHASE AND SALE OF PURCHASED SHARES.
(A) THE CLOSING. The closing of the purchase and sale of the
Purchased Shares (the "CLOSING") shall take place at the offices of Simpson
Thacher & Bartlett, located at 425 Lexington Avenue, New York, New York
10017-3954, on July 11, 1995 or at such other place or at such other time as may
be agreeable to the parties (the "CLOSING DATE"). At the Closing, Executive
shall purchase, and the Company shall sell the number of Purchased Shares set
forth on Schedule 1 set forth thereon at a purchase price of $200 per share. At
the Closing, the Company shall deliver to Executive a certificate or
certificates representing the number of Purchased Shares set forth on Schedule 1
and Executive shall deliver to the Company a check in the aggregate amount of
cash consideration to be paid at Closing set forth
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<PAGE> 4
on Schedule 1. Such certificates shall carry the legend described in the
Stockholders' Agreement.
(b) SECTION 83(b) ELECTION. Executive hereby covenants and agrees to
file a timely Section 83(b) election with respect to the Purchased Shares
pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder (or similar provision then in effect).
(c) REPRESENTATIONS OF EXECUTIVE. In connection with the purchase
and sale of the Purchased Shares hereunder, Executive hereby represents and
warrants to the Company that:
(i) The Purchased Shares shall be acquired for Executive's own
account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), or any applicable state securities laws, and the Purchased Shares
shall not be disposed of in contravention of the Securities Act, or any
applicable state securities laws.
(ii) Executive is an executive officer or non-employee director of
the Company and (a) is an "ACCREDITED INVESTOR" as defined in Rule 501(a)
under the Securities Act or (b) by reason of Executive's business and
financial experience, and the business and financial experience of those
retained by Executive to advise Executive with respect to Executive's
investment in the Purchased Shares, Executive, together with such
advisors, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the risks and
benefits of the investment in the Purchased Shares.
(iii) Executive is able to bear the economic risk of the investment
in the Purchased Shares, including the complete loss of such investment in
the Purchased Shares.
(iv) Executive understands that he may have to hold the Purchased
Shares for an indefinite period of time because of the various transfer
restrictions and because the Purchased Shares have not been registered
under the Securities Act and, therefore, cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available.
(v) Executive has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Purchased
Shares and has had full access to such other information concerning the
Company as Executive has requested.
(vi) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable against Executive in accordance with
its terms, except as
4
<PAGE> 5
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, by general equitable principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law) or
by an implied covenant of good faith and fair dealing. The execution,
delivery and performance of this Agreement by Executive does not and will
not conflict with, violate or cause a breach of any agreement, contract or
instrument to which Executive is a party or any judgment, order or decree
to which Executive is subject.
(d) EXECUTIVE ACKNOWLEDGMENT. As an inducement to the Company to
issue Purchased Shares to Executive, and as a condition thereto, Executive
acknowledges and agrees that:
(i) neither the issuance of the Purchased Shares to Executive nor
any provision contained herein shall entitle Executive to remain in the
employment of the Company or, in the case of a non-employee director, to
serve as a director of the Company or affect the right of the Company to
terminate Executive's employment at any time for any reason; and
(ii) the Company shall have no duty or obligation (other than those
duties and obligations to all stockholders as required under applicable
law) to disclose to Executive, and Executive shall have no right to be
advised of, any material information regarding the Company or the Company
at any time prior to, upon or in connection with the repurchase of
Purchased Shares upon the termination of Executive's employment with the
Company or as otherwise provided hereunder.
(e) COMPANY AND EXECUTIVE ACKNOWLEDGEMENT. The Company and Executive
acknowledge and agree that this Agreement has been executed and delivered, and
the Purchased Shares have been issued hereunder, in connection with and as a
part of the compensation and incentive arrangements between the Company and
Executive.
(f) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In connection
with the purchase and sale of Purchased Shares, the Company hereby represents
and warrants to Executive that:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of Delaware.
(ii) The execution, delivery and performance of this Agreement has
been duly authorized by the Company. This Agreement constitutes a valid
and binding obligation of the Company enforceable against it in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally, by general equitable principles
(regardless of whether such enforceability is considered in a
5
<PAGE> 6
proceeding in equity or at law) or by an implied covenant of good faith
and fair dealing.
(iii) Any shares of the Company's capital stock acquired hereunder
shall, upon payment of the purchase price therefor by Executive as
provided herein, be fully paid and nonassessable.
(g) The Purchased Shares shall be subject to the rights and
obligations set forth in the Stockholders' Agreement it being understood that
Executive shall execute a counterpart of such agreement on the Closing Date;
PROVIDED, HOWEVER, that for purposes of the restrictions on transfer set forth
in the Stockholders' Agreement applicable to the Purchased Shares, for purposes
of determining whether the Executive may sell shares pursuant to Rule 144 of the
Securities Act of 1933, as amended (the "Securities Act") as contemplated by the
Stockholders' Agreement, the Executive shall comply with paragraphs (c), (d),
(e) and (h) of Rule 144 to the extent otherwise applicable notwithstanding the
provisions of subparagraph (c)(3) of Rule 701 of the Securities Act.
ARTICLE III
PUTS AND CALLS
--------------
SECTION 3.1 - COMPANY'S RIGHT TO PURCHASE PURCHASED SHARES .
(a) Following any Termination of Employment or Service due to death,
Permanent Disability or Retirement, the Company shall have the right and option
to purchase (either in cash or, if the Board determines that payment in cash
would conflict with the Company's existing contractual obligations or could
reasonably be anticipated to cause a default under applicable financing
agreements, by note, which note shall be repaid in cash upon determination by
the Board that the conditions described in this parenthetical no longer exist),
and the Executive and his or her Permitted Transferees (hereinafter collectively
referred to as the "Executive's Group") shall be required upon exercise by the
Company of such right and option to sell to the Company, all of the Purchased
Shares held by such Executive at a price equal to (x) the Fair Market Value of a
share of Common Stock multiplied by (y) the number of Purchased Shares held by
such Executive.
(b) Following any Termination of Employment or Service other than
for Cause, death, Permanent Disability or Retirement, the Company shall have the
right and option to purchase (either in cash or, if the Board determines that
payment in cash would conflict with the Company's existing contractual
obligations or could reasonably be anticipated to cause a default under
applicable financing agreements, by note, which note shall be repaid in cash
upon determination by the Board that the conditions described in this
parenthetical no longer exist), and the Executive's Group shall be required upon
exercise by the Company of such right and option to sell to the Company, all of
the Purchased Shares which are Seasoned
6
<PAGE> 7
Shares held by such Executive at a price equal to (X) the product of (i) the
Applicable Percentage multiplied by (ii) the number of Seasoned Shares held by
the Executive multiplied by (iii) the Fair Market Value of a share of Common
Stock, plus (Y) the product of (i) one minus the Applicable Percentage
multiplied by (ii) the number of Seasoned Shares held by the Executive
multiplied by (iii) the lesser of (a) the Fair Market Value of a share of Common
Stock and (b) Cost. Following any such termination, the Company shall have the
right and option to purchase (either in cash or, if the Board determines that
payment in cash would conflict with the Company's existing contractual
obligations or could reasonably be anticipated to cause a default under
applicable financing agreements, by note, which note shall be repaid in cash
upon determination by the Board that the conditions described in this
parenthetical no longer exist), and the Executive's Group shall be required upon
exercise by the Company of such right and option to sell to the Company, all of
the Purchased Shares which are Unseasoned Shares held by such Executive at an
aggregate price equal to $1.
(c) Following any Termination of Employment or Service for Cause,
the Company shall have the right and option to purchase (either in cash or, if
the Board determines that payment in cash would conflict with the Company's
existing contractual obligations or could reasonably be anticipated to cause a
default under applicable financing agreements, by note, which note shall be
repaid in cash upon determination by the Board that the conditions described in
this parenthetical no longer exist), and the Executive's Group shall be required
upon exercise by the Company of such right and option to sell to the Company,
all of the Purchased Shares which are Seasoned Shares held by such Executive at
a price equal to (x) the lesser of (i) the Fair Market Value of a share of
Common Stock, or (ii) Cost, multiplied by (y) the number of Purchased Shares
which are Seasoned Shares then held by such Executive. Following any such
termination, the Company shall have the right and option to purchase (either in
cash or, if the Board determines that payment in cash would conflict with the
Company's existing contractual obligations or could reasonably be anticipated to
cause a default under applicable financing agreements, by note, which note shall
be repaid in cash upon determination by the Board that the conditions described
in this parenthetical no longer exist), and the Executive's Group shall be
required to sell to the Company, all of the Purchased Shares which are
Unseasoned Shares held by such Executive at an aggregate price equal to $1.
(d) If, pursuant to this Section 3.1, the Company desires to
exercise its right to purchase any Purchased Shares following any Termination of
Employment or Service, the Company shall send written notice to the Executive or
such member of the Executive's Group not later than 30 days after Termination of
Employment or Service of its intention to purchase such Purchased Shares. The
closing of such purchase shall take place at the principal office of the Company
within ten days after the giving of such written notice by the Company.
(e) Notwithstanding the foregoing, the Company shall not have the
right to purchase any Purchased Shares pursuant to this Section 3.1 if the
Company has made an initial public offering of its Common Stock, the Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, and either (i) the
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<PAGE> 8
Realization of the Vestar Return has occurred or (ii) five years have elapsed
since December 6, 1995.
SECTION 3.2 - EXECUTIVE'S RIGHT TO PUT PURCHASED SHARES.
(a) Following any Termination of Employment or Service due to death,
Permanent Disability or Retirement, the Executive's Group shall have the right
and option to put to the Company, and the Company shall be required upon
exercise by the Executive of such right and option to purchase (either in cash
or, if the Board determines that payment in cash would conflict with the
Company's existing contractual obligations or could reasonably be anticipated to
cause a default under applicable financing agreements, by note, which note shall
be repaid in cash upon determination by the Board that the conditions described
in this parenthetical no longer exist), all of the Purchased Shares held by such
Executive at a price equal to (x) the Fair Market Value of a share of Common
Stock multiplied by (y) the number of shares of Purchased Shares held by such
Executive. Notwithstanding the foregoing, the Executive's Group shall have no
such put right with respect to those Purchased Shares which may then be sold
pursuant to Rule 144 under the Securities Act of 1933, provided the Common Stock
is then registered pursuant to Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, as amended.
(b) If, pursuant to this Section 3.2, the Executive's Group desires
to exercise its right to put any Purchased Shares following such a Termination
of Employment or Service, the Executive's Group shall send written notice to the
Company not later than 30 days after Termination of Employment or Service of its
intention to put such Purchased Shares. The closing of such purchase shall take
place at the principal office of the Company within ten days after the giving of
such written notice by the Company.
SECTION 3.3 - SECONDARY SALES. The put and call rights and
obligations set forth in this Article III shall lapse with respect to Purchased
Shares sold by the Executive's Group in a secondary public offering effected
pursuant to a registration statement under the Securities Act of 1933, as
amended, in which Vestar would be allowed to sell shares of Common Stock
(whether or not Vestar chooses to sell) and the Executive's Group sells
Purchased Shares.
8
<PAGE> 9
ARTICLE IV
MISCELLANEOUS
-------------
SECTION 4.1 - LEGEND. In addition to the legend described in the
Stockholders' Agreement, all certificates representing Purchased Shares shall
bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
EXECUTIVE SECURITY PURCHASE AGREEMENT BETWEEN CABOT SAFETY HOLDINGS
CORPORATION (THE "COMPANY") AND AN EMPLOYEE OR DIRECTOR OF THE
COMPANY (COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE
COMPANY). THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL THE PROVISIONS OF SUCH
EXECUTIVE SECURITY PURCHASE AGREEMENT, INCLUDING, BUT NOT LIMITED
TO, THE COMPANY'S RIGHTS TO CALL THE PURCHASED SHARES SET FORTH
THEREIN.
The above legend may be removed at the request of the Executive's
Group with respect to those Purchased Shares as to which neither the put nor
call rights and obligations set forth in Article III remains applicable.
SECTION 4.2 - EXECUTION BY PERMITTED TRANSFEREES. The parties hereby
agree that Executive's Permitted Transferees shall be required to execute a
counterpart to this Agreement in order to be subject to the terms hereof.
SECTION 4.3 - NOTICES. Any notice to be given under the terms of
this Agreement to the Company shall be addressed to the Company in care of its
Secretary, and any notice to be given to the Executive shall be addressed to him
at the address given beneath his signature hereto. By a notice given pursuant to
this Section 4.3, either party may hereafter designate a different address for
notices to be given to him. Any notice which is required to be given to the
Executive shall, if the Executive is then deceased, be given to the Executive's
personal representative if such representative has previously informed the
Company of his status and address by written notice under this Section 4.3. Any
notice shall have been deemed duly given when enclosed in a properly sealed
envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in
a post office or branch post office regularly maintained by the United States
Postal Service.
SECTION 4.4 - TITLES. Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.
SECTION 4.5 - AMENDMENT. This Agreement may be amended only by a
writing executed by the parties hereto which specifically states that it is
amending this Agreement.
9
<PAGE> 10
SECTION 4.6 - NO RIGHT TO EMPLOYMENT. Nothing in this Agreement or
in the Plan shall confer upon the Executive any right to continue in the employ
or service of the Company or serve as a director of the Company or shall
interfere with or restrict in any way the rights of the Company, which are
hereby expressly reserved, to discharge the Executive at any time for any reason
whatsoever.
SECTION 4.7 - GOVERNING LAW. The laws of the State of New York shall
govern the interpretation, validity and performance of the terms of this
Agreement regardless of the law that might be applied under principles of
conflicts of laws.
SECTION 4.8 - JURISDICTION. Any suit, action or proceeding against
the Executive with respect to this Agreement, or any judgment entered by any
court in respect of any thereof, may be brought in any court of competent
jurisdiction in the Commonwealth of Massachusetts, as the Company may elect in
its sole discretion, and the Executive hereby submits to the non-exclusive
jurisdiction of such courts for the purpose of any such suit, action, proceeding
or judgment. Nothing herein shall in any way be deemed to limit the ability of
the Company to serve any such writs, process or summonses in any other manner
permitted by applicable law or to obtain jurisdiction over the Executive, in
such other jurisdictions, and in such manner, as may be permitted by applicable
law. The Executive hereby irrevocably waives any objections which he may now or
hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to this Agreement brought in any court of competent
jurisdiction in the Commonwealth of Massachusetts, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in any inconvenient forum. No suit, action or
proceeding against the Company with respect to this Agreement may be brought in
any court, domestic or foreign, or before any similar domestic or foreign
authority other than in a court of competent jurisdiction in the Commonwealth of
Massachusetts, and the Executive hereby irrevocably waives any right which he
may otherwise have had to bring such an action in any other court, domestic or
foreign, or before any similar domestic or foreign authority. The Company hereby
submits to the jurisdiction of such courts for the purpose of any such suit,
action or proceeding.
10
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IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties hereto.
Cabot Safety Holdings Corporation
By:_______________________________
Name:
Title:
By:______________________________
Name:
Title:
Executive's Taxpayer
Identification Number:
264225.c1
11
<PAGE> 1
Exhibit 10.18
AEARO CORPORATION
EXECUTIVE STOCK OPTION PLAN
---------------------------
June __, 1996
The purpose of this Executive Stock Option Plan (the "Plan") is to
encourage and enable certain senior officers and key employees of Aearo
Corporation (the "Company") and of any subsidiary corporation of which 50% or
more of the total combined voting power of all classes of stock is directly or
indirectly owned by the Company (a "Subsidiary") to acquire or increase their
proprietary interest in the Company through the granting of options as herein
provided. By encouraging such individuals to acquire or increase their ownership
of its stock, the Company seeks to retain the services of persons of exceptional
competence and to furnish additional incentives for them to increase their
efforts on behalf of the Company. The Options that may be granted hereunder are
not to be incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), (i.e. are not to be qualified
under the Code) and are referred to herein as the "Options."
1. Shares of Stock Subject to the Plan
-----------------------------------
The stock that may be issued and sold pursuant to Options granted under
the Plan shall not exceed, in the aggregate, 400,000 shares of the Common Stock,
$0.01 par value, of the Company (the "Common Stock"), which may be either (i)
authorized but unissued shares or treasury shares, or (ii) shares previously
reserved for issue upon exercise of Options under the Plan, which Options have
expired or been terminated; provided, however, that the number of shares subject
to the Plan gives effect to an 80 for 1 stock split approved by the Company's
Board of Directors on June __, 1996, which is expected to be approved by the
Company's stockholders at a special meeting to be convened prior to the
Corporation's initial public offering as if such stock split had been effected
immediately prior to the date of the Plan and shall be adjusted as provided in
Section 8.
2. Eligibility
-----------
Options may be granted to persons who are officers or key employees of the
Company or a Subsidiary.
3. Administration
--------------
A committee of the Board of Directors of the Company consisting of at
least two of its disinterested members (the "Committee") shall determine the
persons to be granted Options ("Optionees"), the number of shares of Common
Stock subject to each Option and the exercise price, vesting requirements, if
any, and other terms of each Option, consistently with the provisions of the
Plan. All Options shall be embodied in written option agreements signed by the
Optionee and an authorized officer of the Company. The Committee shall have
exclusive
<PAGE> 2
authority to grant Options under the Plan, make determinations under the Plan
and any Option, interpret any provision of the Plan and any Option, resolve
disputes arising under the Plan and any Option and supervise the administration
of the Plan. The Committee may also amend the terms of outstanding Options,
subject to the consent of the Optionee if the amendment adversely affects any of
his or her substantive rights under the Option. Any of the foregoing actions
taken by the Committee shall be final and conclusive and shall be binding on the
Company and each Optionee.
4. Price and Terms.
---------------
The purchase price of shares under an Option shall be whatever price is
determined by the Committee in its sole discretion. Each Option shall be
exercisable at such time or times as the Committee shall from time to time
determine, but in no event after the expiration of ten years from the date such
Option is granted.
5. Limitations on Right to Exercise, Shareholder Rights
----------------------------------------------------
The Committee may establish one or more events upon which an Option
becomes exercisable, or provide that an Option is exercisable in such
installments (which need not be equal) at such times as is determined by the
Committee. The Committee may also establish whether Options not exercised within
specified periods may accumulate and become exercisable, in whole or in part, on
any later date(s), and it may provide for the acceleration of the vesting or
exercise dates of Options, or if permitted by the Option terms, acceleration of
the expiration dates of Options in certain events. Options may not be exercised
to purchase fractional shares unless the Committee otherwise provides. The
delivery of certificates representing shares under any Option will be contingent
upon receipt by the Company from the Optionee (or a substitute purchaser
permitted by the terms of the Option) of the full purchase price for such shares
and the fulfillment of any other requirements specified in the Option or
applicable provisions of law. No Optionee or other person entitled to exercise
an Option shall be, or shall be deemed to be, a holder of any shares of Common
Stock subject to the Option for any purpose unless and until certificates for
such shares are issued to such Optionee under the terms of the Plan and the
Option.
6. Non-transferability of Option
-----------------------------
Options granted under the Plan shall not be transferable by the Optionee,
other than by will or the laws of descent or distribution or pursuant to a
qualified domestic relations order as defined in the Code, and are exercisable
during the Optionee's lifetime only by the Optionee. In addition, the Committee
may permit Options to be exercised by the guardian or conservator of the
Optionee in the event of his or her legal incapacity.
2
<PAGE> 3
7. Dilution or Other Adjustments
-----------------------------
If the Company effects a stock split, consolidation of shares or other
recapitalization of its stock, the payment of a stock dividend, or any other
increase or reduction in the number of shares of Common Stock outstanding
without receiving compensation therefor in money, services or property, then (i)
the number, class, and price of shares of Common Stock subject to outstanding
Options hereunder shall be appropriately adjusted by the Committee in such a
manner as to entitle each Optionee to receive upon exercise of an Option in
full, for the same aggregate consideration, that number and class of shares
which the Optionee would have received as a result of the event requiring the
adjustment had the Optionee exercised the Option in full immediately prior to
such event; and (ii) the number and class of shares reserved for issuance under
the Plan shall be appropriately adjusted by the Committee by substituting that
number and class of shares of stock which stockholders of the Company would have
been received as a result of such event if they held all of the reserved shares
immediately prior to such event; provided, however, that outstanding Options and
Options to be issued under the Plan shall not be issued or exercisable for
fractional shares, and the Committee may determine in its discretion to adjust
outstanding Options or shares reserved under the Plan to the nearest whole
number of shares, or it may require payment of cash to an Optionee who exercises
an Option for a fractional share in an amount reflecting the fair value of the
fractional share as determined by the Committee.
8. Tax Withholding
---------------
Each Optionee shall, no later than the date as of which the value of an
Option or of any Common Stock or other security received thereunder first
becomes includable in the gross income of such Optionee for federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Company
regarding payment of, any federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the Optionee. If the Committee so determines, an Optionee may
elect to have such tax withholding obligation satisfied, in whole or in part, by
(i) authorizing the Company to withhold from shares of Common Stock to be issued
upon exercise of the Option a number of shares with an aggregate fair market
value that would satisfy the withholding amount due, or (ii) transferring to the
Company shares of Common Stock owned by the Optionee with an aggregate fair
market value that would satisfy the withholding amount due.
9. Stockholder Approval; Amendment of the Plan
-------------------------------------------
This Plan shall be subject to the approval of the stockholders of the
Company within 12 months after the date hereof, and if Options are issued
pending such approval, they may not be exercised until such approval is
obtained. If such approval is not obtained, this Plan and all
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<PAGE> 4
Options granted hereunder shall terminate and be null and void. The Committee
may amend this Plan at any time or times, provided that any such amendment must
also be approved by the stockholders of the Company if the amendment would
increase the number of shares subject to the Plan (except as provided in Section
7) or expand the class of employees eligible to receive Options under the Plan,
or to the extent stockholder approval is required by law. An amendment shall be
binding upon Options previously granted under the Plan unless the amendment
adversely affects the rights of an Optionee, in which event the consent of the
Optionee shall be required.
10. Expiration and Termination of the Plan
--------------------------------------
Options may be granted under the Plan at any time, or from time to time,
prior to the tenth anniversary of the date of the Plan. The Plan may be
abandoned or terminated at any time by the Committee, except with respect to any
Options then outstanding under the Plan.
11. Governing Law
-------------
This Plan and all Options granted hereunder shall be governed by Delaware
law except to the extent that it is preempted by federal law.
230501.c6
4
<PAGE> 1
Exhibit 10.19
NON-QUALIFIED OPTION TO PURCHASE SHARES OF COMMON
STOCK UNDER THE
AEARO CORPORATION
EXECUTIVE STOCK OPTION PLAN
- ----------------------
No. of Shares [DATE]
Pursuant to the Aearo Corporation Executive Stock Option Plan (the
"Plan"), Aearo Corporation (including its successors, the "Company") hereby
grants to [NAME OF PERSON TO WHOM OPTION IS BEING GRANTED] (the "Optionee") an
option to purchase (the "Option"), in accordance with the terms and conditions
set forth herein and in the Plan, prior to June , 2006 (the "Expiration
Date"), at an exercise price per share of $7.50, all or any of [TOTAL
NUMBER OF OPTIONS GRANTED] shares of Common Stock, $0.01 par value ("Common
Stock"), of the Company (the "Shares"), which exercise price per share and
number of shares give effect to an 80 for 1 stock split approved by the
Company's Board of Directors on June , 1996, which is expected to be approved
by the Company's stockholders at a special meeting to be convened prior to the
Corporation's initial public offering, as if such stock split had been effected
immediately prior to the grant of the Option. The Option is intended not to be
an incentive stock option as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), (i.e. is intended to be a non-qualified option
under the Code) and is granted under the Plan.
1. VESTING SCHEDULE. Subject to the provisions of Section 3 hereof and to
the determination of the Board of Directors of the Company or a designated
committee thereof (collectively, the "Board") to accelerate the vesting schedule
hereunder due to other circumstances, the Option shall become vested and
exercisable with respect to the entire number of shares granted hereunder on
June , 2006; provided, however, that vesting and exercisability shall be
accelerated such that the Option shall become vested and exercisable with
respect to the entire number of Shares on the date on which the Vestar/Cabot
Return (as defined in EXHIBIT A) has been achieved. Once vested, the Option
shall continue to be exercisable to purchase Shares at any time or times prior
to the Expiration Date, subject to Sections 3 and 4 hereof.
2. MANNER OF EXERCISE.
(a) The Optionee may exercise the Option only in the following manner:
From time to time during the period beginning on the date the Option becomes
vested and exercisable pursuant to Section 1 hereof (the "Vesting Date") and
ending on the Expiration Date, the Optionee may give written notice to the
Company of an election to purchase some or all of the Shares purchasable at the
time of such notice. Said notice shall specify the number of Shares to be
purchased.
<PAGE> 2
(b) Payment of the purchase price for the Shares may be made by one or
more of the following methods: (i) in cash, by certified or bank check or other
instrument acceptable to the Company; (ii) in the form of shares of Common Stock
that are not then subject to restrictions under any agreement or Company plan
and that have been held by the Optionee for at least six months; (iii) by the
Optionee delivering to the Company a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company to pay the option purchase
price, provided that in the event the Optionee chooses to pay the option
purchase price as so provided, the Optionee and the broker shall comply with
such procedures and enter into such agreements of indemnity and other agreements
as the Committee shall prescribe as a condition of such payment procedure; or
(iv) a combination of (i), (ii) and (iii) above. Payment instruments will be
received subject to collection. The delivery of certificates representing the
Shares will be contingent upon the Company's receipt from the Optionee of full
payment for the Shares, as set forth above and any agreement, statement or other
evidence that the Company may require to satisfy itself that the issuance of the
Shares to be purchased pursuant to the exercise of the Option and any subsequent
resale of such Shares will be in compliance with applicable laws and
regulations, including without limitation the Securities Act of 1933, as
amended.
(c) Certificates for Shares purchased upon exercise of this Option
shall be issued and delivered to the Optionee upon compliance to the
satisfaction of the Company with all requirements under applicable laws or
regulations in connection with such issuance and with the requirements hereof
and of the Plan. The determination of the Board as to such compliance shall be
final and binding on the Optionee. The Optionee shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to this Option unless and until this Option shall have
been exercised pursuant to the terms hereof, the Company shall have issued and
delivered the Shares to the Optionee, and the Optionee's name shall have been
entered as the stockholder of record on the books of the Company. Thereupon, the
Optionee shall have full voting, dividend and other ownership rights with
respect to such shares of Common Stock.
3. TERMINATION OF EMPLOYMENT. Unless otherwise determined by the Board:
(a) Upon any Termination of Employment for Cause (as such terms are
defined in Section 8 hereof), the Option, whether or not vested and exercisable,
shall terminate immediately as of such termination.
(b) Upon any Termination of Employment other than for Cause, death,
Permanent Disability or Retirement (as such terms are defined in Section 8
hereof), the Option shall (i) to the extent vested and exercisable as of the
date of such termination be exercisable for a period of 30 days after such
termination, at which time any unexercised portion of the Option shall
terminate, or until the Expiration Date, if earlier, and (ii) to the extent
unvested and
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<PAGE> 3
unexercisable as of the date of such termination terminate immediately as of
such termination and be of no further force or effect, unless the Board
otherwise determines at the time.
(c) Upon any Termination of Employment for death, Permanent Disability or
Retirement, the Option shall (i) to the extent vested and exercisable as of the
date of such termination be exercisable for a period of twelve months after such
termination, at which time any unexercised portion of the Option shall
terminate, or until the Expiration Date, if earlier, and (ii) to the extent
unvested and unexercisable as of the date of such termination terminate
immediately as of such termination and be of no further force or effect, unless
the Board otherwise determines at the time.
(d) If the Optionee shall die before the termination of the Option, the
Option may be exercised by the Optionee's executors, administrators, personal
representatives, or any person or persons to whom the Option may be transferred
by will or by the laws of descent and distribution, at any time prior to the
date of such termination.
4. EFFECT OF CERTAIN TRANSACTIONS. If (i) the Company is acquired by
another person or entity in a merger, consolidation or reorganization or is
merged into or consolidated with another corporation and the Company is not the
surviving corporation, (ii) shares of Common Stock of the Company are converted
into cash, securities or property other than shares of Common Stock of the
Company, (iii) the Company is liquidated, dissolved, or (iv) the Company sells
or otherwise disposes of all or substantially all of its assets to another
entity while any portion of the Option remains unexercised and unexpired (any
transaction described in clauses (i), (ii) or (iii) above is referred to herein
as a "Transaction"), the Option shall be assumed as of the effective date of
such Transaction by the acquiring or surviving entity, if any, with appropriate
adjustment to the number and kind of shares or other securities subject to the
Option and, if appropriate, the per share exercise price of the Option;
provided, however, that in connection with any of such Transaction the Board may
also take one or more of the following actions:
(a) The Board may terminate the Option as of the effective date of such
Transaction, provided that notice of such termination is given to the Optionee
at least 10 days prior to the effective date of such Transaction, and the
Optionee shall have the right to exercise so much of the Option as is then
vested and exercisable during said 10-day period, including if the Option
becomes exercisable (i) due to the Realization of the Vestar/Cabot Return as a
result of and after giving effect to the consummation of such Transaction or
(ii) due to acceleration of exercisability by the Board as provided in Section
4(b) below, except that in such cases, the exercise of the Option shall be
conditioned upon the effectiveness of such Transaction;
3
<PAGE> 4
(b) The Board may accelerate the date of vesting and exercisability of any
unexercised and unexpired portion of the Option to a date specified by the Board
prior to the effective date of such Transaction and shall promptly notify the
Optionee of such action;
(c) The Board may provide for the repurchase of the unvested and
unexercised portion of the Option by the Company on the effective date of such
Transaction for a cash price per Share equivalent to the value, as determined by
the Board, of the cash, securities or other property received with respect to
each outstanding Share in such Transaction by the stockholders of the Company,
less the exercise price of the Option;
(d) The Board may provide that after the effective date of such
Transaction, the Optionee shall be entitled upon exercise of the Option to
receive in lieu of each Share purchasable under the Option the same cash,
securities or other property received with respect to each outstanding Share in
such Transaction by the stockholders of the Company, with or without deduction
for the exercise price of the Option.
5. INCORPORATION OF PLAN. Notwithstanding anything herein to the contrary,
the Option shall be subject to and governed by all the terms and conditions of
the Plan. Capitalized terms in this Agreement shall have the meaning specified
in the Plan, unless a different meaning is specified herein.
6. TRANSFERABILITY. This Option is personal to the Optionee, is
non-assignable and is not transferable in any manner, by operation of law or
otherwise, other than by will or the laws of descent and distribution. This
Option is exercisable, during the Optionee's lifetime, only by the Optionee, and
thereafter, only by the Optionee's legal representative or legatee.
7. TAX WITHHOLDING. The Optionee shall, not later than the date as of
which the exercise of this Option becomes a taxable event for Federal income tax
purposes, pay to the Company or make arrangements satisfactory to the Company
for payment of any Federal, state, and local taxes required by law to be
withheld on account of such taxable event. The Optionee may elect to have such
tax withholding obligation satisfied, in whole or in part, by (i) authorizing
the Company to withhold from Shares to be issued, or (ii) transferring to the
Company a number of shares of Common Stock with an aggregate fair market value
that would satisfy the withholding amount due.
8. CERTAIN DEFINITIONS. Whenever capitalized terms are used in this
Agreement as defined terms, they shall have the meaning set forth below unless
the context clearly indicates to the contrary.
(a) "Applicable Percentage" shall mean twenty percent multiplied by the
number of full years from July 11, 1995 which have elapsed when a Termination of
Employment other than for Cause, death or Permanent Disability or Retirement
occurs, up to a maximum of
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<PAGE> 5
100%, provided that in the event a Realization of the Vestar/Cabot Return has
occurred, the Applicable Percentage shall be 100%.
(b) "Cause" shall mean (a) the commission of an act of fraud or
embezzlement, (b) the unauthorized disclosure of confidential or proprietary
information of the Company or any of its subsidiaries which results in material
financial loss to the Company or any of its subsidiaries, (c) the commission of
a felony, (d) willful misconduct as an employee of the Company or any of its
subsidiaries which is reasonably likely to result in material injury or
financial loss to the Company or any of its subsidiaries or (e) the willful
failure to render services to the Company or any of its subsidiaries in
accordance with his employment which failure amounts to a material neglect of
duties to the Company or any of its subsidiaries.
(c) "Cost" shall mean the exercise price per share paid by the Optionee to
exercise the Option, as adjusted for stock splits, subdivisions, combinations,
Common Stock dividends and similar transactions.
(d) "Fair Market Value" shall mean with respect to the Common Stock of the
Company, (A) if on the date as of which Fair Market Value is being determined
such class of capital stock is listed on a national securities exchange or is
quoted in the NASDAQ system or the over-the-counter market, the last sale price,
regular way, of such security on the principal national securities exchange on
which such security is at the time listed, or (B) if there have been no sales on
any such exchange on any day, the average of the highest bid and lowest asked
prices on such exchange at the end of such day, or (C) if on any day such
security is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or (D) if on
any day such security is not quoted in the NASDAQ System, the average of the
highest bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case of clauses (A)-(D) averaged
over a period of 20 days consisting of the day as of which Fair Market Value is
being determined and the latest 19 consecutive trading days prior to such day,
or (E) if the Common Stock is not publicly traded the fair market value of the
Common Stock as determined in good faith by the Board.
(e) The Optionee shall be deemed to have a "Permanent Disability" when the
Board in good faith so determines.
(f) "Retirement" shall mean voluntary termination of employment by the
Optionee after attainment of age sixty-five (65); provided, however, that the
Optionee has served the Company as an officer on a full time basis for at least
three years after July 11, 1995.
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<PAGE> 6
(g) "Stockholders' Agreement" shall mean that certain Stockholders'
Agreement, dated as of July 11, 1995 by and among Vestar Equity Partners, L.P.,
Cabot Safety Holdings Corporation, Cabot Safety Corporation and the Management
Investors (as defined therein).
(h) "Termination of Employment" shall mean the time when the Optionee's
employment with the Company is terminated for any reason whatsoever. The Board,
in its absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Employment, including, but not by way of
limitation, all questions of whether particular leaves of absence constitute
Terminations of Employment and the question of whether any reemployment by or
renewal of service for the Company is simultaneous with termination.
(i) "Realization of Vestar/Cabot Return" shall have the meaning set
forth in EXHIBIT A.
9. COMPANY'S RIGHT TO PURCHASE SHARES.
(a) Following any Termination of Employment due to death, Permanent
Disability or Retirement, the Company shall have the right and option to
purchase (either in cash or, if the Board determines that payment in cash would
conflict with the Company's existing contractual obligations or could reasonably
be anticipated to cause a default under applicable financing agreements, by
note, which note shall be repaid in cash upon determination by the Board that
the conditions described in this parenthetical no longer exist), and the
Optionee shall be required upon exercise by the Company of such right and option
to sell to the Company, all of the Shares held by such Optionee at a price equal
to (x) the Fair Market Value of a share of Common Stock multiplied by (y) the
number of Shares held by such Optionee.
(b) Following any Termination of Employment other than for Cause, death,
Permanent Disability or Retirement, the Company shall have the right and option
to purchase (either in cash or, if the Board determines that payment in cash
would conflict with the Company's existing contractual obligations or could
reasonably be anticipated to cause a default under applicable financing
agreements, by note, which note shall be repaid in cash upon determination by
the Board that the conditions described in this parenthetical no longer exist),
and the Optionee shall be required upon exercise by the Company of such right
and option to sell to the Company, all of the Shares at a price equal to (X) the
product of (i) the Applicable Percentage multiplied by (ii) the number of Shares
purchased by the Optionee upon exercise of the Option multiplied by (iii) the
Fair Market Value of a share of Common Stock, plus (Y) the product of (i) one
minus the Applicable Percentage multiplied by (ii) the number of Shares
purchased by the Optionee upon exercise of the Option multiplied by (iii) the
lesser of the Fair Market Value of a share of Common Stock and Cost.
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<PAGE> 7
(c) Following any Termination of Employment for Cause, the Company shall
have the right and option to purchase (either in cash or, if the Board
determines that payment in cash would conflict with the Company's existing
contractual obligations or could reasonably be anticipated to cause a default
under applicable financing agreements, by note, which note shall be repaid in
cash upon determination by the Board that the conditions described in this
parenthetical no longer exist), and the Optionee shall be required upon exercise
by the Company of such right and option to sell to the Company, all of the
Shares purchased by the Optionee upon exercise of the Option at a price equal to
(x) the lesser of (i) the Fair Market Value of a share of Common Stock, or (ii)
Cost, multiplied by (y) the number of Shares then held by such Optionee.
(d) If, pursuant to this Section 9, the Company desires to exercise its
right to purchase any Shares following any Termination of Employment, the
Company shall send written notice to the Optionee not later than 45 days after
Termination of Employment of its intention to purchase such Shares. The closing
of such purchase shall take place at the principal office of the Company within
ten days after the giving of such written notice by the Company.
(e) Notwithstanding the foregoing, the Company shall not have the right to
purchase any Shares pursuant to this Section 9 if the Company has made an
initial public offering of its Common Stock, the Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as
amended, and either (i) the Realization of the Vestar/Cabot Return has occurred
or (ii) five years have elapsed since July 11, 1995.
10. EXECUTIVE'S RIGHT TO PUT SHARES.
(a) Following any Termination of Employment due to death, Permanent
Disability or Retirement, the Optionee shall have the right and option to put to
the Company, and the Company shall be required upon exercise by the Optionee of
such right and option to purchase (either in cash or, if the Board determines
that payment in cash would conflict with the Company's existing contractual
obligations or could reasonably be anticipated to cause a default under
applicable financing agreements, by note, which note shall be repaid in cash
upon determination by the Board that the conditions described in this
parenthetical no longer exist), all of the Shares held by such Optionee at a
price equal to (x) the Fair Market Value of a share of Common Stock multiplied
by (y) the number of shares of Shares held by such Optionee. Notwithstanding the
foregoing, the Optionee shall have no such put right with respect to those
Shares which may then be sold pursuant to Rule 144 or an effective registration
statement under Securities Act of 1933, as amended, provided the Common Stock is
then registered pursuant to Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, as amended.
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<PAGE> 8
(b) If, pursuant to this Section 10, the Optionee desires to exercise its
right to put any Shares following such a Termination of Employment, the Optionee
shall send written notice to the Company not later than 30 days after
Termination of Employment of his intention to put such Shares. The closing of
such purchase shall take place at the principal office of the Company within ten
days after the giving of such written notice by the Company.
11. SECONDARY SALES. The put and call rights and obligations set forth in
Sections 9 and 10 hereof shall lapse with respect to Shares sold by the Optionee
in a secondary public offering effected pursuant to a registration statement
under the Securities Act of 1933, as amended, in which Vestar would be allowed
to sell shares of Common Stock (whether or not Vestar chooses to sell) and the
Optionee sells Shares.
12. DRAG-ALONG. TAG-ALONG, REGISTRATION RIGHTS AND RESTRICTIONS ON
TRANSFER.
Drag-along rights currently applicable to shares of Common Stock owned
by the Optionee pursuant to the Stockholders' Agreement shall be equally
applicable to the Option and the Shares, so that Vestar will have the right to
cause pro rata participation by the Optionee in a sale of the Company. Tag-along
rights currently applicable to shares of Common Stock owned by the Optionee
pursuant to the Stockholders' Agreement shall be equally applicable to the
Option and the Shares, so that the Optionee can tag-along in the event of sales
by other stockholders. Following the Company's initial public offering, the
Shares will be registered on a Form S-8 with other Company plans and the
registration rights currently applicable to shares of Common Stock owned by the
Optionee pursuant to the Stockholders' Agreement shall be equally applicable to
the Shares. Restrictions on transfer currently applicable to shares of Common
Stock owned by the Optionee pursuant to the Stockholders' Agreement shall be
equally applicable to the Shares.
13. MISCELLANEOUS.
(a) Notices hereunder shall be mailed or delivered to the Company at its
principal place of business, One Washington Mall, Boston, MA 02108 and shall be
mailed or delivered to the Optionee at the address set forth below, or in either
case at such other address as one party may subsequently furnish to the other
party in writing.
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<PAGE> 9
(b) The Option does not confer upon the Optionee any rights with respect
to continuance of employment by the Company or any Subsidiary.
Aearo Corporation
By:
--------------------------------
Name:
Title:
The foregoing Option is hereby accepted and its terms and conditions are
hereby agreed to.
-----------------------------------
Optionee:
Dated:
-------------------------- -----------------------------------
Address
-----------------------------------
Social Security Number
9
<PAGE> 10
EXHIBIT A
"Realization of the Vestar/Cabot Return" shall be deemed to have occurred
on the earliest date when the "Vestar/Cabot Equity Value" (as defined below)
with respect to Company Stock (as defined below) is equal to or greater than, as
of the date of determination, the amount determined by increasing $62 million
plus the amount of additional cash invested by Vestar and Cabot in Company Stock
after the Closing Date at a compounded annual rate of 30% commencing on July 11,
1995 (with respect to $62 million invested in the aggregate by Vestar and Cabot
collectively in Company Stock on the Closing Date) and the date of any
subsequent cash investment by Vestar and Cabot (with respect to Company Stock
acquired by Vestar and Cabot after the Closing Date) through and including such
date of determination (it being understood that the calculation of such amount
will give effect to redemptions or distributions in respect of such Company
Stock); provided, however, that in no event shall there be a Realization of the
Vestar/Cabot Return unless and until the Vestar/Cabot Equity Value equals or
exceeds $136.4 million (i.e. 2.2 multiplied by the total cash initially invested
by Vestar and Cabot collectively on the Closing Date).
"Vestar/Cabot Equity Value" shall mean the sum of:
(i) all amounts actually received by Vestar or Cabot from time to time on
a cumulative basis through the date of determination of (A) cash (x) through any
cash dividend or other distribution on account of the Company Stock or (y) in
connection with either (1) a disposition (including by way of redemption,
repurchase or repayment) of all or part of the Company Stock or of securities or
other non-cash property previously received by way of a dividend or other
distribution on account of the Company Stock, but only to the extent Company
Stock or other securities or non-cash property is so disposed, (2) a disposition
of any or all of the assets of the Company or any of its subsidiaries, or (3) a
recapitalization of the Company or its subsidiaries, or (B) securities or other
non-cash property (valued at their fair market value) in connection with either
(x) a disposition of all or part of the Company Stock to a third party, but only
to the extent Company Stock is so disposed, or (y) a disposition of any or all
of the assets of the Company or any of its subsidiaries (it being understood
that for purposes of this clause (i), the terms "disposition," "dispose," and
"disposed" shall not include the creation of a pledge, lien or other similar
encumbrance); plus
(ii) to the extent that (A) the Common Stock owned by Vestar and Cabot
either (x) becomes subject to a registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), that has been declared effective
under the Securities Act (it being understood that the Company shall use its
best efforts to cause such a registration statement to be so declared effective
on or about July 11, 1998 and thereafter remain in effect, whether or not Vestar
or Cabot exercises its demand registration rights prior to such date) or (y) is
then able to be sold pursuant to Rule 144(k) under the Securities Act (it being
understood that, for the purposes hereof, sale pursuant to Rule 144(k) will not
be deemed available earlier than
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<PAGE> 11
July 11, 1998), (B) such Common Stock is not sold by the owner thereof pursuant
to such registration statement or pursuant to Rule 144(k) and (C) such Common
Stock is not subject to any restriction on transfer, contained in a contract
entered into (I) primarily for the benefit of the Company and its subsidiaries,
taken as a whole, (II) in connection with financing primarily for the benefit of
the Company or its subsidiaries, taken as a whole, or (III) at the request of
any underwriter in connection with an offering of securities of the Company or
any of its subsidiaries, an amount with respect to each unsold share of Common
Stock then owned by Vestar and Cabot which is covered by such registration
statement or able to be sold pursuant to Rule 144(k) as described above equal to
90% of the Market Price (as defined below) thereof as of such date; plus
(iii) an amount with respect to all shares of preferred stock of the
Company held by Vestar and Cabot as of the determination date (including
preferred stock issued in payment of dividends and all accrued and unpaid
dividends thereon to the date of determination) equal to the aggregate
liquidation preference in respect thereof, determined as of such date in
accordance with the terms of such preferred stock (whether or not funds would be
legally available for the payment of such liquidation preference).
"Closing Date" shall mean July 11, 1995.
"Company Stock" shall mean issued and outstanding shares of capital stock
of any class or series of the Company, so long as such shares were originally
acquired by Vestar or Cabot from the Company.
"Vestar" shall mean collectively Vestar Equity Partners, L.P. Leonard
Lieberman and the Seelig Family Lifetime Trust and their affiliated transferees
taken as a whole.
"Cabot" shall mean Cabot Corporation and its affiliated transferees taken
as a whole.
"Market Price" shall mean with respect to the Common Stock (A) if on the
date of determination the Common Stock is listed on a national securities
exchange or is quoted on the NASDAQ system, the last sale price, regular way,
per share of Common Stock on the principal national securities exchange on which
the Common Stock is then listed or on the NASDAQ system, as the case may be, or
(B) if there have been no sales on any such exchange or on NASDAQ on any day,
the average of the highest bid and the lowest asked prices at the end of such
day on such exchange or on the NASDAQ system, as the case may be, or (C) if on
such date the Common Stock is not so listed, the average of the highest bid and
lowest asked prices in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case described in clauses (A), (B) and (C) above averaged over a
period of 20 consecutive trading days ending with the trading day immediately
preceding the date of determination, so long as during such 20-day period the
Common Stock held by Vestar and Cabot was not subject to any restriction on
transfer contained in a contract entered into the connection with a financing
primarily for
11
<PAGE> 12
the benefit of the Company or its subsidiaries, taken as a whole, or at the
request of any underwriter in connection with an offering of securities of the
Company or any of its subsidiaries.
12
<PAGE> 1
Exhibit 10.20
AEARO CORPORATION
1996 STOCK OPTION PLAN
----------------------
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the Aearo Corporation 1996 Stock Option Plan (the
"Plan"). The purpose of the Plan is to encourage and enable the officers,
employees, directors and consultants of Aearo Corporation (the "Company") and
its Subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company, thereby stimulating their efforts on
the Company's behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Cause" means (a) the commission of an act of fraud or embezzlement, (b)
the unauthorized disclosure of confidential or proprietary information of the
Company or any of its Subsidiaries which results in material financial loss to
the Company or any of its Subsidiaries, (c) the commission of a felony, (d)
willful misconduct as an employee of the Company or any of its Subsidiaries
which is reasonably likely to result in material injury or financial loss to the
Company or any of its Subsidiaries or (e) the willful failure to render services
to the Company or any of its Subsidiaries in accordance with his employment
which failure amounts to a material neglect of duties to the Company or any of
its Subsidiaries.
"Committee" means the Committee of the Board referred to in Section 2.
"Disinterested Person" means a non-employee Director who qualifies as such
under Rule 16b-3(c)(2)(i) promulgated under the Act.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 15.
"Fair Market Value" of the Stock on any given date means (i) if the Stock
is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall not be less than the average of the highest bid and lowest asked prices of
the Stock reported for such date or, if no bid and
<PAGE> 2
asked prices were reported for such date, for the last day preceding such date
for which such prices were reported, or (ii) if the Stock is admitted to trading
on a national securities exchange or the NASDAQ National Market System, then
clause (i) shall not apply and the Fair Market Value on any date shall not be
less than the closing price reported for the Stock on such exchange or system
for such date or, if no sales were reported for such date, for the last date
preceding such date for which a sale was reported, and (iii) notwithstanding the
foregoing, the Fair Market Value of the Stock on the effective date of the
Initial Public Offering shall be the offering price to the public of the Stock
on such date.
"Incentive Stock Option" means any Stock Option designated and qualified
as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is neither an
employee or officer of the Company or any Subsidiary.
"Initial Public Offering" means the first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Stock to the public.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Stock" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning with
the Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
------------------------------------------------------------------
AND GRANT OPTIONS
-----------------
(a) COMMITTEE. The Plan shall be administered by a committee of the Board
of not less than two Independent Directors appointed by the Board from time to
time. On and after the date the Company becomes subject to the Act and through
August 14, 1996, each member of the Committee shall be a Disinterested Person.
On and after August 15, 1996, each member of the Committee shall be a
"non-employee director" within the meaning of Rule 16b- 3(b)(3). On and after
the date the Plan becomes subject to Section 162(m) of the Code, each
2
<PAGE> 3
member of the Committee shall be an "outside director" within the meaning of
Section 162(m) of the Code and the regulations promulgated thereunder. On and
after August 15, 1996, the Plan may also be administered by the Board, and all
references to the "Committee" herein may also be deemed to refer to the Board.
(b) POWERS OF COMMITTEE. The Committee shall have the power and authority
to grant Options consistent with the terms of the Plan, including the power and
authority:
(i) to select the officers, employees, Independent Directors,
consultants and key persons of the Company and its Subsidiaries to whom
Options may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if
any, of Incentive Stock Options and Non-Qualified Stock Options, or any
combination of the foregoing, granted to any one or more participants;
(iii) to determine the number of shares of Stock to be covered by
any Options;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Option, which terms and conditions may differ among
individual Options and participants, and to approve the form of written
instruments evidencing the Options;
(v) to accelerate at any time the exercisability or vesting of all
or any portion of any Option and/or to include provisions in Options
providing for such acceleration;
(vi) to impose any limitations on Options granted under the Plan,
including limitations on transfers, repurchase provisions and the like;
(vii) subject to the provisions of Section 5(a)(iii), to extend at
any time the period in which Options may be exercised; and
(viii) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Option (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
3
<PAGE> 4
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(A) STOCK ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 800,000 shares of Stock. For
purposes of the foregoing limitations, the shares of Stock underlying any
Options which are forfeited, canceled, reacquired by the Company, satisfied
without the issuance of Stock or otherwise terminated (other than by exercise)
shall be added back to the shares of Stock available for issuance under the
Plan. Subject to such overall limitation, shares of Stock may be issued up to
such maximum number pursuant to any type or types of Options; provided, however,
that on and after the date the Plan is subject to Section 162(m) of the Code,
Options with respect to no more than 200,000 shares of Stock may be granted to
any one individual participant during any one calendar year period. The shares
available for issuance under the Plan may be authorized but unissued shares of
Stock or shares of Stock reacquired by the Company.
(b) RECAPITALIZATIONS. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Committee shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
of Options that can be granted to any one individual participant, (iii) the
number and kind of shares or other securities subject to any then outstanding
Options under the Plan, and (iv) the price for each share subject to any then
outstanding Options under the Plan, without changing the aggregate exercise
price (i.e., the exercise price multiplied by the number of shares) as to which
such Options remain exercisable. The adjustment by the Committee shall be final,
binding and conclusive. No fractional shares of Stock shall be issued under the
Plan resulting from any such adjustment, but the Committee in its discretion may
make a cash payment in lieu of fractional shares.
(c) MERGERS AND OTHER TRANSACTIONS. Unless otherwise provided in the
relevant option agreement with respect to the relevant Option, if (i) the
Company is acquired by another person or entity in a merger, consolidation or
reorganization or is merged into or consolidated with another corporation and
the Company is not the surviving corporation, (ii) shares of Stock are converted
into cash, securities or property other than shares of Stock, (iii) the Company
is liquidated, dissolved, or (iv) the Company sells or otherwise disposes of all
or substantially all of its assets to another entity while any portion of any
Option remains unexercised and unexpired (any transaction described in clauses
(i), (ii) or (iii) above is referred to herein as a "Transaction"), such Option
shall be assumed as of the effective date of such Transaction by the acquiring
or surviving entity, if any, with appropriate adjustment to the number and kind
of shares or other securities subject to such Option and, if appropriate, the
per share exercise price of such Option; provided, however, that in connection
with any of such Transaction the Committee may also take one or more of the
following actions:
4
<PAGE> 5
(i) The Committee may terminate the Option as of the effective date of
such Transaction, provided that notice of such termination is given to the
Optionee at least 10 days prior to the effective date of such Transaction, and
the Optionee shall have the right to exercise so much of the Option as is then
vested and exercisable during said 10-day period, including if the Option
becomes exercisable due to acceleration of exercisability by the Committee as
provided in Section 3(c)(ii) below, except that in such cases, the exercise of
the Option shall be conditioned upon the effectiveness of such Transaction;
(ii) The Committee may accelerate the date of vesting and exercisability
of any unexercised and unexpired portion of the Option to a date specified by
the Committee prior to the effective date of such Transaction and shall promptly
notify the Optionee of such action;
(iii) The Committee may provide for the repurchase of the unvested and
unexercised portion of the Option by the Company on the effective date of such
Transaction for a cash price per share of Stock equivalent to the value, as
determined by the Committee, of the cash, securities or other property received
with respect to each outstanding share of Stock in such Transaction by the
stockholders of the Company, less the exercise price of the Option;
(iv) The Committee may provide that after the effective date of such
Transaction, the Optionee shall be entitled upon exercise of the Option to
receive in lieu of each share of Stock purchasable under the Option the same
cash, securities or other property received with respect to each outstanding
share of Stock in such Transaction by the stockholders of the Company, with or
without deduction for the exercise price of the Option.
(d) SUBSTITUTE OPTIONS. The Committee may grant Options under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Committee may direct that the substitute
Options be granted on such terms and conditions as the Committee considers
appropriate in the circumstances.
SECTION 4. ELIGIBILITY
-----------
Participants in the Plan will be such officers and other employees,
directors and consultants of the Company and its Subsidiaries who are
responsible for or contribute to the management, growth or profitability of the
Company and its Subsidiaries as are selected from time to time by the Committee,
in its sole discretion.
SECTION 5. STOCK OPTIONS
-------------
Any Stock Option granted under the Plan shall be pursuant to a stock option
agreement which shall be in such form as the Committee may from time to time
approve. Option agreements need not be identical.
5
<PAGE> 6
Stock Options granted under the Plan may be either Incentive Stock Options
or Non- Qualified Stock Options. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code. Non-Qualified Stock Options
may be granted to officers, employees, Independent Directors, advisors,
consultants and key persons of the Company and its Subsidiaries. To the extent
that any Option does not qualify as an Incentive Stock Option, it shall be
deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after June ,
2006.
(a) TERMS OF STOCK OPTIONS. Stock Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
(i) EXERCISE PRICE. The exercise price per share for the Stock
covered by a Stock Option shall be determined by the Committee at the time
of grant, but shall not be less than 100% of the Fair Market Value on the
date of grant. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or
any parent or subsidiary corporation and an Incentive Stock Option is
granted to such employee, the option price of such Incentive Stock Option
shall be not less than 110% of the Fair Market Value on the grant date.
(ii) OPTION TERM. The term of each Stock Option shall be fixed by
the Committee, but no Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of stock
of the Company or any parent or subsidiary corporation and an Incentive
Stock Option is granted to such employee, the term of such option shall be
no more than five years from the date of grant.
(iii) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Committee at or after the
grant date. The Committee may at any time accelerate the exercisability of
all or any portion of any Stock Option. An optionee shall have the rights
of a stockholder only as to shares acquired upon the exercise of a Stock
Option and not as to unexercised Stock Options.
(iv) METHOD OF EXERCISE. Stock Options may be exercised in whole or
in part, by giving written notice of exercise to the Company, specifying
the number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods; provided, however, that the
methods set forth in subsections
6
<PAGE> 7
(B) and (C) below shall become available only after the closing of the
Initial Public Offering:
(A) In cash, by certified or bank check or other instrument
acceptable to the Committee;
(B) In the form of shares of Stock that are not then subject
to restrictions under any Company plan and that have been held by
the optionee free of such restrictions for at least six months, if
permitted by the Committee in its discretion. Such surrendered
shares shall be valued at Fair Market Value on the exercise date; or
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable
and acceptable to the Company to pay the purchase price; provided
that in the event the optionee chooses to pay the purchase price as
so provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Committee shall prescribe as a condition of such
payment procedure.
Payment instruments will be received subject to collection. The delivery
of certificates representing the shares of Stock to be purchased pursuant
to the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Stock Option or applicable provisions of laws.
(v) TERMINATION. Unless otherwise provided in the option agreement
or determined by the Committee, upon the optionee's termination of
employment (or other business relationship) with the Company and its
Subsidiaries, the optionee's rights in his Stock Options shall
automatically terminate.
(vi) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent required
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted
under this Plan and any other plan of the Company or its parent and
subsidiary corporations become exercisable for the first time by an
optionee during any calendar year shall not exceed $100,000. To the extent
that any Stock Option exceeds this limit, it shall constitute a
Non-Qualified Stock Option.
(b) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee.
7
<PAGE> 8
SECTION 6. TAX WITHHOLDING
---------------
Each participant shall, no later than the date as of which the value of an
Option or of any Stock or other amounts received thereunder first becomes
includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of, any federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant.
SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC.
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 8. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the
Committee may, at any time, amend or cancel any outstanding Option (or provide
substitute Options at the same or reduced exercise or purchase price or with no
exercise or purchase price in a manner not inconsistent with the terms of the
Plan), but such price, if any, must satisfy the requirements which would apply
to the substitute or amended Option if it were then initially granted under this
Plan) for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Option without the holder's consent. If and to the extent determined by the
Committee to be necessary to ensure that Incentive Stock Options granted under
the Plan are qualified under Section 422 of the Code, Plan amendments shall be
subject to approval by the Company stockholders who are eligible to vote at a
meeting of stockholders.
SECTION 9. GENERAL PROVISIONS
------------------
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee may
require each person acquiring Stock pursuant to an Option to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
8
<PAGE> 9
No shares of Stock shall be issued pursuant to an Option until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Committee may require the placing of such
stop-orders and restrictive legends on certificates for Stock and Options as it
deems appropriate.
(b) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Options do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
SECTION 10. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the holders of a
majority of the shares of Stock of the Company present or represented and
entitled to vote at a meeting of stockholders. Subject to such approval by the
stockholders and to the requirement that no Stock may be issued hereunder prior
to such approval, Stock Options may be granted hereunder on and after adoption
of this Plan by the Board.
SECTION 11. GOVERNING LAW
-------------
This Plan shall be governed by Delaware law except to the extent such law
is preempted by federal law.
Adopted and Effective: , 1996
9
<PAGE> 1
Exhibit 10.21
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE
AEARO CORPORATION
1996 STOCK OPTION PLAN
Name of Optionee:
----------------------------------------------------
No. of Option Shares:
------------------------------------------------
Option Exercise Price per Share:
-------------------------------------
Grant Date:
----------------------------------------------------------
Expiration Date:
-----------------------------------------------------
Pursuant to the Aearo Corporation 1996 Stock Option Plan (the "Plan") as
amended through the date hereof, Aearo Corporation (the "Company") hereby grants
to the Optionee named above an option (the "Stock Option") to purchase on or
prior to the Expiration Date specified above all or part of the number of shares
of Common Stock, par value $.01 per share (the "Stock") of the Company specified
above at the Option Exercise Price per Share specified above subject to the
terms and conditions set forth herein and in the Plan.
1. VESTING SCHEDULE. No portion of this Stock Option may be exercised
until such portion shall have vested. Except as set forth below, and subject to
the discretion of the Committee (as defined in Section 2 of the Plan) to
accelerate the vesting schedule hereunder, this Stock Option shall be vested and
exercisable with respect to the following number of Option Shares on the dates
indicated:
Number of
---------
Option Shares Exercisable Vesting Date
------------------------- ------------
_____________ (20%) July __, 1997
_____________ (40%) July __, 1998
_____________ (60%) July __, 1999
_____________ (80%) July __, 2000
_____________ (100%) July __, 2000
Once vested, this Stock Option shall continue to be exercisable at any
time or times prior to the close of business on the Expiration Date, subject to
the provisions hereof and of the Plan.
<PAGE> 2
2. MANNER OF EXERCISE.
(a) The Optionee may exercise this Option only in the following
manner: from time to time on or prior to the Expiration Date of this Option, the
Optionee may give written notice to the Committee of his or her election to
purchase some or all of the vested Option Shares purchasable at the time of such
notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or
more of the following methods: (i) in cash, by certified or bank check or other
instrument acceptable to the Committee; (ii) in the form of shares of Stock that
are not then subject to restrictions under any agreement or Company plan and
that have been held by the Optionee for at least six months; (iii) by the
Optionee delivering to the Company a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company to pay the option purchase
price, provided that in the event the Optionee chooses to pay the option
purchase price as so provided, the Optionee and the broker shall comply with
such procedures and enter into such agreements of indemnity and other agreements
as the Committee shall prescribe as a condition of such payment procedure; or
(iv) a combination of (i), (ii) and (iii) above. Payment instruments will be
received subject to collection.
The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment for the
Option Shares, as set forth above and any agreement, statement or other evidence
that the Company may require to satisfy itself that the issuance of Stock to be
purchased pursuant to the exercise of Options under the Plan and any subsequent
resale of the shares of Stock will be in compliance with applicable laws and
regulations.
(b) Certificates for the shares of Stock purchased upon exercise of
this Stock Option shall be issued and delivered to the Optionee upon compliance
to the satisfaction of the Committee with all requirements under applicable laws
or regulations in connection with such issuance and with the requirements hereof
and of the Plan. The determination of the Committee as to such compliance shall
be final and binding on the Optionee. The Optionee shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Stock subject to this Stock Option unless and until this Stock Option shall
have been exercised pursuant to the terms hereof, the Company shall have issued
and delivered the shares to the Optionee, and the Optionee's name shall have
been entered as the stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such shares of Stock.
(c) The minimum number of shares with respect to which this Stock
Option may be exercised at any one time shall be 100 shares, unless the number
of shares with respect to which this Stock Option is being exercised is the
total number of shares subject to exercise under this Stock Option at the time.
2
<PAGE> 3
(d) Notwithstanding any other provision hereof or of the Plan, no
portion of this Stock Option shall be exercisable after the Expiration Date
hereof.
3. TERMINATION OF EMPLOYMENT. If the Optionee's employment by the Company
or a Subsidiary (as defined in the Plan) is terminated, the period within which
to exercise the Option may be subject to earlier termination as set forth below.
(a) TERMINATION DUE TO DEATH. If the Optionee's employment
terminates by reason of death, any Option held by the Optionee shall become
fully exercisable and may thereafter be exercised by the Optionee's legal
representative or legatee for a period of 12 months from the date of death or
until the Expiration Date, if earlier.
(b) TERMINATION DUE TO DISABILITY. If the Optionee's employment
terminates by reason of Disability (as defined in the Plan), any Option held by
the Optionee shall become fully exercisable and may thereafter be exercised by
the Optionee for a period of 12 months from the date of termination or until the
Expiration Date, if earlier.
(c) TERMINATION FOR CAUSE. If the Optionee's employment terminates
for Cause (as defined in the Plan), any Option held by the Optionee shall
terminate immediately and be of no further force and effect.
(d) OTHER TERMINATION. If the Optionee's employment terminates for
any reason other than death, Disability, or Cause, and unless otherwise
determined by the Committee, any Option held by the Optionee may be exercised,
to the extent exercisable on the date of termination, for a period of three
months from the date of termination or until the Expiration Date, if earlier.
Any Option that is not exercisable at such time shall terminate immediately and
be of no further force or effect.
The Committee's determination of the reason for termination of the Optionee's
employment shall be conclusive and binding on the Optionee and his or her
representatives or legatees.
4. INCORPORATION OF PLAN. Notwithstanding anything herein to the contrary,
this Stock Option shall be subject to and governed by all the terms and
conditions of the Plan. Capitalized terms in this Agreement shall have the
meaning specified in the Plan, unless a different meaning is specified herein.
5. TRANSFERABILITY. This Agreement is personal to the Optionee, is
non-assignable and is not transferable in any manner, by operation of law or
otherwise, other than by will or the laws of descent and distribution. This
Stock Option is exercisable, during the Optionee's lifetime, only by the
Optionee, and thereafter, only by the Optionee's legal representative or
legatee.
6. STATUS OF THE STOCK OPTION. This Stock Option is intended to qualify as
an "incentive stock option" under Section 422 of the Internal Revenue Code of
1986, as amended
3
<PAGE> 4
(the "Code"), but the Company does not represent or warrant that this Option
qualifies as such. The Optionee should consult with his or her own tax advisors
regarding the tax effects of this Option and the requirements necessary to
obtain favorable income tax treatment under Section 422 of the Code, including,
but not limited to, holding period requirements. If the Optionee intends to
dispose or does dispose (whether by sale, gift, transfer or otherwise) of any
Option Shares within the one-year period beginning on the date after the
transfer of such shares to him or her, or within the two-year period beginning
on the day after the grant of this Stock Option, he or she will notify the
Company within 30 days after such disposition.
7. MISCELLANEOUS.
(a) Notices hereunder shall be given to the Company at its principal
place of business, and shall be given to the Optionee at the address set forth
below, or in either case at such other address as one party may subsequently
furnish to the other party in writing.
(b) This Stock Option does not confer upon the Optionee any rights
with respect to continuance of employment by the Company or any Subsidiary.
(c) Pursuant to Section 13 of the Plan, the Committee may at any
time amend or cancel any outstanding portion of this Stock Option, but no such
action may be taken which adversely affects the Optionee's rights under this
Agreement without the Optionee's consent.
Aearo Corporation
By:
------------------------------
Title:
4
<PAGE> 5
The foregoing Agreement is hereby accepted and the terms and conditions thereof
hereby agreed to by the undersigned.
Dated:
----------------------- --------------------------------
Optionee's Signature
Optionee's name and address:
--------------------------------
--------------------------------
--------------------------------
293279.c2
5
<PAGE> 1
Exhibit 10.22
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR COMPANY EMPLOYEES UNDER THE
AEARO CORPORATION
1996 STOCK OPTION PLAN
Name of Optionee:
-----------------------------------------------
No. of Option Shares:
-------------------------------------------
Option Exercise Price per Share:
--------------------------------
Grant Date:
-----------------------------------------------------
Expiration Date:
------------------------------------------------
Pursuant to Aearo Corporation 1996 Stock Option Plan (the "Plan") as
amended through the date hereof, Aearo Corporation (the "Company") hereby grants
to the Optionee named above an option (the "Stock Option") to purchase on or
prior to the Expiration Date specified above all or part of the number of shares
of Common Stock, par value $.01 per share (the "Stock") of the Company specified
above at the Option Exercise Price per Share specified above subject to the
terms and conditions set forth herein and in the Plan.
1. VESTING SCHEDULE. No portion of this Stock Option may be exercised
until such portion shall have vested. Except as set forth below, and subject to
the discretion of the Committee (as defined in Section 2 of the Plan) to
accelerate the vesting schedule hereunder, this Stock Option shall be vested and
exercisable with respect to the following number of Option Shares on the dates
indicated:
Number of
---------
Option Shares Exercisable Vesting Date
------------------------- ------------
_____________ (20%) July __, 1997
_____________ (40%) July __, 1998
_____________ (60%) July __, 1999
_____________ (80%) July __, 2000
_____________ (100%) July __, 2000
Once vested, this Stock Option shall continue to be exercisable at any
time or times prior to the close of business on the Expiration Date, subject to
the provisions hereof and of the Plan.
<PAGE> 2
2. MANNER OF EXERCISE.
(a) The Optionee may exercise this Option only in the following
manner: from time to time on or prior to the Expiration Date of this Option, the
Optionee may give written notice to the Committee of his or her election to
purchase some or all of the vested Option Shares purchasable at the time of such
notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or
more of the following methods: (i) in cash, by certified or bank check or other
instrument acceptable to the Committee; (ii) in the form of shares of Stock that
are not then subject to restrictions under any agreement or Company plan and
that have been held by the Optionee for at least six months; (iii) by the
Optionee delivering to the Company a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company to pay the option purchase
price, provided that in the event the Optionee chooses to pay the option
purchase price as so provided, the Optionee and the broker shall comply with
such procedures and enter into such agreements of indemnity and other agreements
as the Committee shall prescribe as a condition of such payment procedure; or
(iv) a combination of (i), (ii) and (iii) above. Payment instruments will be
received subject to collection.
The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment for the
Option Shares, as set forth above and any agreement, statement or other evidence
that the Company may require to satisfy itself that the issuance of Stock to be
purchased pursuant to the exercise of Options under the Plan and any subsequent
resale of the shares of Stock will be in compliance with applicable laws and
regulations.
(b) Certificates for shares of Stock purchased upon exercise of this
Stock Option shall be issued and delivered to the Optionee upon compliance to
the satisfaction of the Committee with all requirements under applicable laws or
regulations in connection with such issuance and with the requirements hereof
and of the Plan. The determination of the Committee as to such compliance shall
be final and binding on the Optionee. The Optionee shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Stock subject to this Stock Option unless and until this Stock Option shall
have been exercised pursuant to the terms hereof, the Company shall have issued
and delivered the shares to the Optionee, and the Optionee's name shall have
been entered as the stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such shares of Stock.
(c) The minimum number of shares with respect to which this Stock
Option may be exercised at any one time shall be 100 shares, unless the number
of shares with respect to which this Stock Option is being exercised is the
total number of shares subject to exercise under this Stock Option at the time.
2
<PAGE> 3
(d) Notwithstanding any other provision hereof or of the Plan, no
portion of this Stock Option shall be exercisable after the Expiration Date
hereof.
3. TERMINATION OF EMPLOYMENT. If the Optionee's employment by the Company
or a Subsidiary (as defined in the Plan) is terminated, the period within which
to exercise the Option may be subject to earlier termination as set forth below.
(a) TERMINATION DUE TO DEATH. If the Optionee's employment
terminates by reason of death, any Option held by the Optionee shall become
fully exercisable and may thereafter be exercised by the Optionee's legal
representative or legatee for a period of 12 months from the date of death or
until the Expiration Date, if earlier.
(b) TERMINATION DUE TO DISABILITY. If the Optionee's employment
terminates by reason of Disability (as defined in the Plan), any Option held by
the Optionee shall become fully exercisable and may thereafter be exercised by
the Optionee for a period of 12 months from the date of termination or until the
Expiration Date, if earlier.
(c) TERMINATION FOR CAUSE. If the Optionee's employment terminates
for Cause (as defined in the Plan), any Option held by the Optionee shall
terminate immediately and be of no further force and effect.
(d) OTHER TERMINATION. If the Optionee's employment terminates for
any reason other than death, Disability or Cause, and unless otherwise
determined by the Committee, any Option held by the Optionee may be exercised,
to the extent exercisable on the date of termination, for a period of three
months from the date of termination or until the Expiration Date, if earlier.
Any Option that is not exercisable at such time shall terminate immediately and
be of no further force or effect.
The Committee's determination of the reason for termination of the Optionee's
employment shall be conclusive and binding on the Optionee and his or her
representatives or legatees.
4. INCORPORATION OF PLAN. Notwithstanding anything herein to the contrary,
this Stock Option shall be subject to and governed by all the terms and
conditions of the Plan. Capitalized terms in this Agreement shall have the
meaning specified in the Plan, unless a different meaning is specified herein.
5. TRANSFERABILITY. This Agreement is personal to the Optionee, is
non-assignable and is not transferable in any manner, by operation of law or
otherwise, other than by will or the laws of descent and distribution. This
Stock Option is exercisable, during the Optionee's lifetime, only by the
Optionee, and thereafter, only by the Optionee's legal representative or
legatee.
6. TAX WITHHOLDING. This Stock Option is not intended to be an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as
amended. The Optionee
3
<PAGE> 4
shall, not later than the date as of which the exercise of this Stock Option
becomes a taxable event for Federal income tax purposes, pay to the Company or
make arrangements satisfactory to the Committee for payment of any Federal,
state, and local taxes required by law to be withheld on account of such taxable
event. The Optionee may elect to have such tax withholding obligation satisfied,
in whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued, or (ii) transferring to the Company, a number of shares of
Stock with an aggregate Fair Market Value that would satisfy the withholding
amount due.
8. MISCELLANEOUS.
(a) Notices hereunder shall be given to the Company at its principal
place of business, and shall be given to the Optionee at the address set forth
below, or in either case at such other address as one party may subsequently
furnish to the other party in writing.
(b) This Stock Option does not confer upon the Optionee any rights
with respect to continuance of employment by the Company or any Subsidiary.
(c) Pursuant to Section 13 of the Plan, the Committee may at any
time amend or cancel any outstanding portion of this Stock Option, but no such
action may be taken which adversely affects the Optionee's rights under this
Agreement without the Optionee's consent.
AEARO CORPORATION
By:
---------------------------------
Title:
The foregoing Agreement is hereby accepted and the terms and conditions thereof
hereby agreed to by the undersigned.
Dated:
----------------------- -----------------------------------
Optionee's Signature
Optionee's name and address:
-----------------------------------
-----------------------------------
-----------------------------------
293277.c2
4
<PAGE> 1
EXHIBIT 10.23
Summary of Swedish-language employment agreement
between Peltor AB and Leif Palmaer
Mr. Leif Palmaer is the President of Peltor Holding AB ("Peltor"), a
wholly-owned subsidiary of Aearo Corporation, and has been a principal
operating officer of Peltor since 1981. His employment agreement with Peltor,
which was in existence when Aearo Corporation acquired Peltor, will terminate
on December 31, 1999, and is renewable for additional twelve-month periods at
the election of the parties. During the term of the agreement, Mr. Palmaer will
be paid 900,000 Swedish Krona annually, and he will devote substantially all of
his professional time and efforts to Peltor. Mr. Palmaer's employment may be
terminated at any time for cause. During the term of employment and for two
years thereafter, Mr. Palmaer will be bound by confidentiality and
non-competition restrictions.
<PAGE> 1
EXHIBIT 10.24
Summary of Swedish-language employment agreement
between Peltor AB and Leif Anderzon
Mr. Leif Anderzon is the Executive Vice President of Peltor Holding AB
("Peltor"), a wholly-owned subsidiary of Aearo Corporation, and has been a
principal operating officer of Peltor since 1981. His employment agreement with
Peltor, which was in existence when Aearo Corporation acquired Peltor, will
terminate on December 31, 1999, and is renewable for additional twelve-month
periods at the election of the parties. During the term of the agreement, Mr.
Anderzon will be paid 900,000 Swedish Krona annually, and he will devote
substantially all of his professional time and efforts to Peltor. Mr.
Anderzon's employment may be terminated at any time for cause. During the term
of employment and for two years thereafter, Mr. Anderzon will be bound by
confidentiality and non-competition restrictions.
<PAGE> 1
EXHIBIT 10.25
AMENDED AND RESTATED US SUBSIDIARY GUARANTY
GUARANTY, dated as of July 11, 1995 and amended and restated
as of May 30, 1996 (as amended, modified or supplemented from time to time, this
"Guaranty"), made by each of the undersigned (each a "Guarantor" and,
collectively, the "Guarantors"). Except as otherwise defined herein, capitalized
terms used herein and defined in the Credit Agreement (as defined below) shall
be used herein as therein defined.
W I T N E S S E T H :
WHEREAS, Aearo Corporation (f/k/a Cabot Safety Holdings
Corporation) ("Holdings"), Cabot Safety Corporation (f/k/a Cabot Safety
Acquisition Corporation) (the "Company"), various Subsidiaries of the Company,
various lenders from time to time party thereto (the "Banks") and Bankers Trust
Company, as Administrative Agent (together with any successor agent, the
"Administrative Agent", and together with the Banks and the Collateral Agent,
the "Bank Creditors"), have entered into a Credit Agreement, dated as of July
11, 1995 and amended and restated as of May 30, 1996 (as amended, modified or
supplemented from time to time, the "Credit Agreement"), providing for the
making of Loans and the issuance of, and participation in, Letters of Credit,
all as contemplated therein;
WHEREAS, the Company and/or one or more of its Subsidiaries
may at any time and from time to time enter into one or more Interest Rate
Protection Agreements or Other Hedging Agreements with one or more Banks or any
affiliate thereof (each such Bank or affiliate, even if the respective Bank
subsequently ceases to be a Bank under the Credit Agreement for any reason,
together with such Bank's or affiliate's successors and assigns, if any,
collectively, the "Other Creditors," and together with the Bank Creditors, the
"Creditors");
WHEREAS, each Guarantor is a direct or indirect Subsidiary of
the Company;
WHEREAS, the Guarantor has heretofore entered into a Guaranty,
dated as of July 11, 1995 (as amended, modified or supplemented prior to the
date hereof, the "Original US Subsidiary Guaranty");
<PAGE> 2
EXHIBIT 10.25
Page 2
WHEREAS, it is a condition to the making of Loans and the
issuance of Letters of Credit under the Credit Agreement that each Guarantor
shall have executed and delivered this Guaranty; and
WHEREAS, each Guarantor will obtain benefits from the
incurrence of Loans by the Borrowers under the Credit Agreement and the entering
into of Interest Rate Protection Agreements or Other Hedging Agreements by each
other Credit Party and, accordingly, desires to execute this Guaranty in order
(i) to satisfy the conditions described in the preceding paragraph and (ii) to
amend and restate the Original US Subsidiary Guaranty;
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Creditors and hereby covenants and agrees with each
Creditor as follows:
1. (a) Subject to the limitations contained in paragraph (b)
below, each Guarantor, jointly and severally, irrevocably and unconditionally
guarantees: (i) to the Bank Creditors the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of (x) the
principal of and interest on the Notes issued by, and the Loans made to, the
Borrowers under the Credit Agreement, and all reimbursement obligations and
Unpaid Drawings with respect to Letters of Credit issued under the Credit
Agreement and (y) all other obligations (including obligations which, but for
the automatic stay under Section 362(a) of the Bankruptcy Code, would become
due) and liabilities owing by any Borrower to the Bank Creditors under the
Credit Agreement or any other Credit Document to which such Borrower is a party
(including, without limitation, indemnities, Fees and interest thereon), whether
now existing or hereafter incurred under, arising out of or in connection with
the Credit Agreement or any such other Credit Document and the due performance
and compliance with all of the terms, conditions and agreements contained in
such Credit Documents by any Borrower (all such principal, interest, liabilities
and obligations being herein collectively called the "Credit Document
Obligations"); and (ii) to each Other Creditor the full and prompt payment when
due (whether at the stated maturity, by acceleration or otherwise) of all
obligations (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing
by the Company or any Subsidiary of the Company (each such Subsidiary, together
with the Company, are herein called the "Credit Parties") under any Interest
Rate Protection Agreement or Other Hedging Agreement, whether now in existence
or hereafter arising (all such obligations and liabilities being herein
collectively called the "Other
<PAGE> 3
EXHIBIT 10.25
Page 3
Obligations," and together with the Credit Document Obligations are herein
collectively called the "Guaranteed Obligations"), provided that the maximum
amount payable by each Guarantor hereunder shall at no time exceed the Maximum
Amount (as hereinafter defined) of such Guarantor. As used herein, "Maximum
Amount" of any Guarantor means an amount equal to 90% of the amount by which (i)
the present fair saleable value of such Guarantor's assets exceeds (ii) the
total liabilities of such Guarantor (including the maximum amount reasonably
expected to come due in respect of contingent liabilities, other than contingent
liabilities of such Guarantor hereunder), in each case determined on the
Restatement Effective Date or on the day any demand is made under this Guaranty,
whichever date results in a higher Maximum Amount. Subject to the proviso in the
second preceding sentence, each Guarantor understands, agrees and confirms that
the Creditors may enforce this Guaranty up to the full amount of the Guaranteed
Obligations against each Guarantor without proceeding against any other
Guarantor, any other Credit Party, against any security for the Guaranteed
Obligations, or under any other guaranty covering all or a portion of the
Guaranteed Obligations. For purposes of this Section 1, the term "Guarantor" as
applied to any Guarantor shall refer to such Guarantor as a guarantor of
indebtedness incurred by others, as opposed to indebtedness directly incurred by
it.
(b) Notwithstanding any other provision of this Amended and
Restated US Subsidiary Guaranty, the aggregate joint and several liability of
the Guarantors hereunder with respect to the Guaranteed Obligations, including
without limitation, obligations for principal, premium, interest, penalties,
fees, indemnifications, reimbursements, damages and other liabilities and
expenses payable by any Borrower or any Credit Party under any Credit Documents,
Interest Rate Protection Agreement or Other Hedging Agreement, shall in no event
exceed the aggregate principal amount of (i) all Original Term Loans (or the
Dollar Equivalent thereof) outstanding from time to time, as such Original Term
Loans have been repaid pursuant to Sections 4.02(b) and (c) of the Credit
Agreement plus (ii) all Revolving Loans (or the Dollar Equivalent thereof).
2. Additionally, subject to the limitations contained in
paragraph 1(b), each Guarantor, jointly and severally, unconditionally and
irrevocably, guarantees the payment of any and all Guaranteed Obligations of any
Credit Party to the Creditors whether or not due or payable by the Credit
Parties upon the occurrence in respect of such Credit Party of any of the events
specified in Section 9.05 of the Credit Agreement, and unconditionally and
irrevocably, jointly and severally, promises to pay such Guaranteed Obligations
to the Creditors, or order, on demand. Each Guarantor agrees that all payments
made by it with respect to any Guaranteed Obligations pursuant to this Guaranty
shall be made in the respective currency in which the underlying Guaranteed
Obligations are denominated or payable, as the case may be. This Guaranty shall
constitute a guaranty of payment, and not of collection.
<PAGE> 4
EXHIBIT 10.25
Page 4
3. The liability of each Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the indebtedness of any
Credit Party whether executed by such Guarantor, any other Guarantor, any other
guarantor or by any other party, and the liability of each Guarantor hereunder
shall not be affected or impaired by any circumstance or occurrence whatsoever,
including, without limitation: (a) any direction as to application of payment by
any Credit Party or by any other party, (b) any other continuing or other
guaranty, undertaking or maximum liability of a guarantor or of any other party
as to the indebtedness of any Credit Party, (c) any payment on or in reduction
of any such other guaranty or undertaking, (d) any dissolution, termination or
increase, decrease or change in personnel by any Credit Party, (e) any payment
made to any Creditor on the indebtedness which any Creditor repays any Credit
Party pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and each Guarantor waives any
right to the deferral or modification of its obligations hereunder by reason of
any such proceeding, (f) any action or inaction by the Creditors as contemplated
in Section 6 hereof, or (g) any invalidity, irregularity or unenforceability of
all or part of the Guaranteed Obligations or of any security therefor.
4. The obligations of each Guarantor hereunder are, subject to
the limitations contained in paragraph 1(b), independent of the obligations of
any other Guarantor, any other guarantor or any Credit Party, and a separate
action or actions may be brought and prosecuted against each Guarantor whether
or not action is brought against any other Guarantor, any other guarantor or any
Credit Party and whether or not any other Guarantor, any other guarantor of any
Credit Party or any Credit Party be joined in any such action or actions. Each
Guarantor waives, to the fullest extent permitted by law, the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof. Any payment by any Credit Party or other circumstance which operates to
toll any statute of limitations as to such Credit Party shall operate to toll
the statute of limitations as to each Guarantor.
5. Each Guarantor hereby waives notice of acceptance of this
Guaranty and notice of any liability to which it may apply, and waives
promptness, diligence, presentment, demand of payment, protest, notice of
dishonor or nonpayment of any such liabilities, suit or taking of other action
by the Administrative Agent or any other Creditor against, and any other notice
to, any party liable thereon (including such Guarantor or any other guarantor or
any Credit Party).
6. Any Creditor may at any time and from time to time without
the consent of, or notice to, any Guarantor, without incurring responsibility to
such Guarantor, without
<PAGE> 5
EXHIBIT 10.25
Page 5
impairing or releasing the obligations of such Guarantor hereunder, upon or
without any terms or conditions and in whole or in part:
(a) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew or alter, any of the
Guaranteed Obligations, any security therefor, or any liability
incurred directly or indirectly in respect thereof, and the guaranty
herein made shall apply to the Guaranteed Obligations as so changed,
extended, renewed or altered;
(b) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any
of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against any
Credit Party or others or otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers,
guarantors, any Credit Party or other obligors;
(e) settle or compromise any of the Guaranteed Obligations,
any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof, and may subordinate the payment of all or any part thereof to
the payment of any liability (whether due or not) of any Credit Party
to creditors of such Credit Party other than the Creditors;
(f) apply any sums by whomsoever paid or howsoever realized to
any liability or liabilities of any Credit Party to the Creditors
regardless of what liabilities of such Credit Party remain unpaid;
(g) consent to or waive any breach of, or any act, omission or
default under, any of the Interest Rate Protection Agreements or Other
Hedging Agreements, the Credit Documents or any of the instruments or
agreements referred to therein, or otherwise amend, modify or
supplement any of the Interest Rate Protection Agreements or Other
Hedging Agreements, the Credit Documents or any of such other
instruments or agreements; and/or
<PAGE> 6
EXHIBIT 10.25
Page 6
(h) act or fail to act in any manner referred to in this
Guaranty which may deprive such Guarantor of its right to subrogation
against any Credit Party to recover full indemnity for any payments
made pursuant to this Guaranty.
7. No invalidity, irregularity or unenforceability of all or
any part of the Guaranteed Obligations or of any security therefor shall affect,
impair or be a defense to this Guaranty, and this Guaranty shall be primary,
absolute and unconditional notwithstanding the occurrence of any event or the
existence of any other circumstances which might constitute a legal or equitable
discharge of a surety or guarantor except payment in full of the Guaranteed
Obligations.
8. This Guaranty is a continuing one and all liabilities to
which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. No failure or delay on the
part of any Creditor in exercising any right, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein expressly specified are cumulative and not exclusive of any
rights or remedies which any Creditor would otherwise have. No notice to or
demand on any Guarantor in any case shall entitle such Guarantor to any other
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of any Creditor to any other or further action in any
circumstances without notice or demand. It is not necessary for any Creditor to
inquire into the capacity or powers of any Credit Party or the officers,
directors, partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
9. Any indebtedness of any Credit Party now or hereafter held
by any Guarantor is hereby subordinated to the indebtedness of such Credit Party
to the Creditors; and such indebtedness of such Credit Party to any Guarantor,
if the Administrative Agent, after an Event of Default has occurred, so
requests, shall be collected, enforced and received by such Guarantor as trustee
for the Creditors and be paid over to the Creditors on account of the
indebtedness of such Credit Party to the Creditors, but without affecting or
impairing in any manner the liability of such Guarantor under the other
provisions of this Guaranty. Prior to the transfer by any Guarantor of any note
or negotiable instrument evidencing any indebtedness of any Credit Party to
such Guarantor, such Guarantor shall mark such note or negotiable instrument
with a legend that the same is subject to this subordination. The provisions of
this Section 9 shall be subject to the provisions of Section 10(c) and (d) of
this Guaranty.
<PAGE> 7
EXHIBIT 10.25
Page 7
10. (a) Each Guarantor waives any right (except as shall be
required by applicable statute and cannot be waived) to require the Creditors:
(i) to proceed against any Credit Party, any other Guarantor, any other
guarantor of the Guaranteed Obligations or any other party; (ii) to proceed
against or exhaust any security held from any Credit Party, any other Guarantor,
any other guarantor of the Guaranteed Obligations or any other party; or (iii)
to pursue any other remedy in the Creditors' power whatsoever. Each Guarantor
waives any defense based on or arising out of any defense of any Credit Party,
any other Guarantor, any other guarantor of the Guaranteed Obligations or any
other party other than payment in full of the Guaranteed Obligations, including,
without limitation, any defense based on or arising out of the disability of
such Credit Party, any other Guarantor, any other guarantor of the Guaranteed
Obligations or any other party, or the unenforceability of the Guaranteed
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of such Credit Party other than payment in full of the
Guaranteed Obligations. The Creditors may, at their election, foreclose on any
security held by the Administrative Agent, the Collateral Agent or the other
Creditors by one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the
Creditors may have against any Credit Party or any other party, or any security,
without affecting or impairing in any way the liability of any Guarantor
hereunder except to the extent the Guaranteed Obligations have been paid in
full. Each Guarantor waives any defense arising out of any such election by the
Creditors, even though such election operates to impair or extinguish any right
of reimbursement or subrogation or other right or remedy of such Guarantor
against any Credit Party or any other party or any security.
(b) Each Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional indebtedness. Each Guarantor assumes all responsibility for being and
keeping itself informed of each Credit Party's financial condition and assets,
and of all other circumstances bearing upon the risk of nonpayment of the
Guaranteed Obligations and the nature, scope and extent of the risks which such
Guarantor assumes and incurs hereunder, and agrees that the Creditors shall have
no duty to advise any Guarantor of information known to them regarding such
circumstances or risks.
(c) Each Guarantor hereby waives (i) all rights of subrogation
which it may at any time otherwise have as a result of this Guaranty (whether
contractual, under Section 509 of the Bankruptcy Code, or otherwise) to the
claims of the Creditors against any Credit Party, any other Guarantor or any
other guarantor of the Guaranteed Obligations to the Creditors (collectively,
the "Other Parties"), and all contractual, statutory or common law
<PAGE> 8
EXHIBIT 10.25
Page 8
rights of reimbursement, contribution or indemnity from any Other Party which it
may at any time otherwise have as a result of this Guaranty and (ii) any right
to enforce any other remedy which the Creditors now have or may hereafter have
against any Other Party, any endorser or any other guarantor of all or any part
of the Guaranteed Obligations and any benefit of, and any right to participate
in, any security or collateral given to or for the benefit of the Creditors to
secure payment of the Guaranteed Obligations, in each case, until the Guaranteed
Obligations have been paid in full.
11. In order to induce the Banks to make Loans and issue
Letters of Credit pursuant to the Credit Agreement, and in order to induce the
Other Creditors to execute, deliver and perform the Interest Rate Protection
Agreements or Other Hedging Agreements, each Guarantor represents, warrants and
covenants that:
(a) Such Guarantor (i) is a duly organized and validly
existing corporation in good standing under the laws of the
jurisdiction of its organization, (ii) has the corporate power and
authority to own its property and assets and to transact the business
in which it is engaged and presently proposes to engage and (iii) is
duly qualified and is authorized to do business and is in good standing
in all jurisdictions where it is required to be so qualified, except
where the failure to be so qualified could not reasonably be expected
to have a material adverse effect on the business, operations,
property, assets, liabilities or condition (financial or otherwise) of
Holdings and its Subsidiaries taken as a whole.
(b) Such Guarantor has the corporate power and authority to
execute, deliver and carry out the terms and provisions of this
Guaranty and each other Credit Document to which it is a party and has
taken all necessary corporate action to authorize the execution,
delivery and performance by it of each such Credit Document. Such
Guarantor has duly executed and delivered this Guaranty and each other
Credit Document to which it is a party and each such Credit Document
constitutes the legal, valid and binding obligation of such Guarantor
enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general
equitable principles (regardless of whether enforcement is sought in
equity or at law) and an implied covenant of good faith and fair
dealing.
(c) Neither the execution, delivery or performance by such
Guarantor of this Guaranty or any other Credit Document to which it is
a party, nor compliance by it with the terms and provisions hereof and
thereof (i) will contravene any applicable provision of any law,
statute, rule or regulation, or any order, writ, injunction or
<PAGE> 9
EXHIBIT 10.25
Page 9
decree of any court or governmental instrumentality, (ii) will conflict
or be inconsistent with or result in any breach of, any of the terms,
covenants, conditions or provisions of, or constitute a default under,
or (other than pursuant to the Security Documents) result in the
creation or imposition of (or the obligation to create or impose) any
Lien upon any of the property or assets of such Guarantor or any of its
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, credit agreement or other material agreement or
other instrument to which such Guarantor is a party or by which it or
any of its property or assets is bound or to which it may be subject or
(iii) will violate any provision of the certificate of incorporation or
by-laws of such Guarantor.
(d) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption
by, any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with,
(i) the execution, delivery and performance of this Guaranty or any
other Credit Document to which such Guarantor is a party or (ii) the
legality, validity, binding effect or enforceability of this Guaranty
or any other Credit Document to which such Guarantor is a party, except
those which have been obtained or made or as may be required by laws
affecting the offer and sale of securities generally in connection with
the exercise of remedies under any Pledge Agreement to which such
Guarantor is a party.
(e) There are no actions, suits or proceedings pending or
threatened (i) with respect to this Guaranty or (ii) with respect to
such Guarantor that could reasonably be expected to have a material
adverse effect on the business, operations, property, assets,
liabilities or condition (financial or otherwise) of Holdings and its
Subsidiaries taken as a whole.
12. Each Guarantor covenants and agrees that on and after the
date hereof and until the termination of the Total Commitment and all Interest
Rate Protection Agreements or Other Hedging Agreements and when no Note or
Letter of Credit remains outstanding and all Guaranteed Obligations have been
paid in full, such Guarantor shall take, or will refrain from taking, as the
case may be, all actions that are necessary to be taken or not taken so that no
violation of any provision, covenant or agreement contained in Section 8 or 9 of
the Credit Agreement, and so that no Default or Event of Default, is caused by
the actions of such Guarantor or any of its Subsidiaries.
<PAGE> 10
EXHIBIT 10.25
Page 10
13. The Guarantors hereby jointly and severally agree to pay
all reasonable out-of-pocket costs and expenses of each Creditor in connection
with the enforcement of this Guaranty.
14. This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Creditors and their
successors and assigns.
15. Neither this Guaranty nor any provision hereof may be
changed, waived, discharged or terminated except with the written consent of
each Guarantor directly affected thereby and with the written consent of either
(x) the Required Banks (or to the extent required by Section 13.12 of the Credit
Agreement, with the written consent of each Bank) at all times prior to the time
at which all Credit Document Obligations have been paid in full or (y) the
holders of at least a majority of the outstanding Other Obligations at all times
after the time at which all Credit Document Obligations have been paid in full;
provided, that any change, waiver, modification or variance affecting the rights
and benefits of a single Class (as defined below) of Creditors (and not all
Creditors in a like or similar manner) shall require the written consent of the
Requisite Creditors (as defined below) of such Class of Creditors (it being
understood that the addition or release of any Guarantor hereunder shall not
constitute a change, waiver, discharge or termination affecting any Guarantor
other than the Guarantor so added or released). For the purpose of this Guaranty
the term "Class" shall mean each class of Creditors, i.e., whether (x) the Bank
Creditors as holders of the Credit Document Obligations or (y) the Other
Creditors as the holders of the Other Obligations. For the purpose of this
Guaranty, the term "Requisite Creditors" of any Class shall mean (x) with
respect to the Credit Document Obligations, the Required Banks and (y) with
respect to the Other Obligations, the holders of at least a majority of all
obligations outstanding from time to time under the Interest Rate Protection
Agreements or Other Hedging Agreements.
16. Each Guarantor acknowledges that an executed (or
conformed) copy of each of the Credit Documents has been made available to its
principal executive officers and such officers are familiar with the contents
thereof.
17. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Creditor Law) and not by way of limitation of any such rights, upon
the occurrence and during the continuance of an Event of Default (such term to
mean and include any "Event of Default" as defined in the Credit Agreement or
any payment default under any Interest Rate Protection Agree ment or Other
Hedging Agreement continuing after any applicable grace period), each Creditor
is hereby authorized at any time or from time to time, without notice to any
Guarantor or to any other Person, any such notice being expressly waived, to set
off and to appropriate and
<PAGE> 11
EXHIBIT 10.25
Page 11
apply any and all deposits (general or special) and any other indebtedness at
any time held or owing by such Creditor to or for the credit or the account of
such Guarantor, against and on account of the obligations and liabilities of
such Guarantor to such Creditor under this Guaranty, irrespective of whether or
not such Creditor shall have made any demand hereunder and although said
obligations, liabilities, deposits or claims, or any of them, shall be
contingent or unmatured.
18. All notices, requests, demands or other communications
pursuant hereto shall be deemed to have been duly given or made when delivered
to the Person to which such notice, request, demand or other communication is
required or permitted to be given or made under this Guaranty, addressed to such
party at (i) in the case of any Bank Creditor, as provided in the Credit
Agreement, (ii) in the case of any Guarantor, at its address set forth opposite
its signature below and (iii) in the case of any Other Creditor, at such address
as such Other Creditor shall have specified in writing to the Guarantors; or in
any case at such other address as any of the Persons listed above may hereafter
notify the others in writing.
19. If claim is ever made upon any Creditor for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (ii) any settlement or compromise of any such claim effected by such payee
with any such claimant (including any Credit Party), then and in such event each
Guarantor agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon such Guarantor, notwithstanding any revocation hereof or
other instrument evidencing any liability of any Credit Party, and such
Guarantor shall be and remain liable to the aforesaid payees hereunder for the
amount so repaid or recovered to the same extent as if such amount had never
originally been received by any such payee.
20. (A) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding
with respect to this Guaranty or any other Credit Document to which such
Guarantor is a party may be brought in the courts of the State of New York or of
the United States of America for the Southern District of New York, and, by
execution and delivery of this Guaranty, each Guarantor hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby
further irrevocably waives any claim that any such courts lack jurisdiction over
such Guarantor, and agrees not to plead or claim, in any legal action or
proceeding with respect to this Agreement or any other Credit Document
<PAGE> 12
EXHIBIT 10.25
Page 12
brought in any of the aforesaid courts, that any such court lacks jurisdiction
over such Guarantor. Each Guarantor hereby irrevocably designates, appoints and
empowers the Company, with offices on the date hereof at One Washington Mall --
8th Floor, Boston, Massachusetts 02108-2610, as its designee, appointee and
agent to receive, accept and acknowledge for and on its behalf, and in respect
of its property, service of any and all legal process, summons, notices and
documents which may be served in any such action or proceeding. If for any
reason the Company shall cease to be available to act as such, each Guarantor
agrees to designate a new designee, appointee and agent in New York City on the
terms and for the purposes of this provision satisfactory to the Administrative
Agent. Each Guarantor further irrevocably consents to the service of process out
of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
such Guarantor at its address set forth opposite its signature below, such
service to become effective 30 days after such mailing. Each Guarantor hereby
irrevocably waives any objection to such service of process and further
irrevocably waives and agrees not to plead or claim in any action or proceeding
commenced hereunder or under any other Credit Document that service of process
was in any way invalid or ineffective. Nothing herein shall affect the right of
any of the Creditors to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against each Guarantor in any
other jurisdiction.
(B) Each Guarantor hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Guaranty or any other Credit Document to which such Guarantor is a party brought
in the courts referred to in clause (a) above and hereby further irrevocably
waives and agrees not to plead or claim in any such court that such action or
proceeding brought in any such court has been brought in an inconvenient forum.
(C) EACH GUARANTOR AND EACH CREDITOR (BY ITS ACCEPTANCE OF THE
BENEFITS OF THIS GUARANTY) HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS GUARANTY, THE OTHER CREDIT DOCUMENTS TO WHICH SUCH GUARANTOR IS A PARTY OR
THE TRANSACTIONS CONTEMPLATED HERE BY OR THEREBY.
(D) After a Noticed Event of Default (as defined in the US
Security Agreement) has occurred and is continuing, each Guarantor hereby
irrevocably authorizes and empowers any attorney of any court of record within
the United States of America or elsewhere to appear for such Guarantor and, with
or without a declaration filed, confess
<PAGE> 13
EXHIBIT 10.25
Page 13
judgment or judgments against such Guarantor in favor of any Creditor, for any
sums payable by such Guarantor under this Guaranty (or any portion thereof, as
such Creditor may elect), plus costs of suit and reasonable attorneys' fees and
expenses with release of all errors, and the right to issue execution forthwith
upon any Noticed Event of Default. Such authority and power shall not be
exhausted by any exercise or attempted exercise thereof and judgment may be
confessed as aforesaid from time to time and as often as there is a Noticed
Event of Default.
21. In the event that all of the capital stock of one or more
Guarantors is sold or otherwise disposed of or liquidated in compliance with the
requirements of Section 8.02 of the Credit Agreement (or such sale or other
disposition has been approved in writing by the Required Banks (or all Banks if
required by Section 13.12 of the Credit Agreement)) and the proceeds of such
sale, disposition or liquidation are applied in accordance with the provisions
of the Credit Agreement, to the extent applicable, such Guarantor shall be
released from this Guaranty and this Guaranty shall, as to each such Guarantor
or Guarantors, terminate, and have no further force or effect (it being
understood and agreed that the sale of one or more Persons that own, directly or
indirectly, all of the capital stock or partnership interests of any Guarantor
shall be deemed to be a sale of such Guarantor for the purposes of this Section
21).
22. This Guaranty may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Guarantors and the
Administrative Agent.
23. All payments made by any Guarantor hereunder will be made
without setoff, counterclaim or other defense.
24. It is understood and agreed that any Subsidiary of the
Company that is required to execute a counterpart of this Guaranty pursuant to
the Credit Agreement shall automatically become a Guarantor hereunder by
executing a counterpart hereof and delivering the same to the Administrative
Agent.
25. (a) The Guarantors' obligations hereunder to make payments
in the Applicable Currency (the "Obligation Currency") shall not be discharged
or satisfied by any tender or recovery pursuant to any judgment expressed in or
converted into any currency other than the Obligation Currency, except to the
extent that such tender or recovery results in the effective receipt by the
respective Creditor of the full amount of the Obligation
<PAGE> 14
EXHIBIT 10.25
Page 14
Currency expressed to be payable to such Creditor under this Guaranty. If for
the purpose of obtaining or enforcing judgment against any Guarantor in any
court or in any jurisdiction, it becomes necessary to convert into or from any
currency other than the Obligation Currency (such other currency being
hereinafter referred to as the "Judgment Currency") an amount due in the
Obligation Currency, the conversion shall be made, at the Alternate Currency
Equivalent or the Dollar Equivalent thereof, as the case may be, and, in the
case of other currencies the rate of exchange (as quoted by the Administrative
Agent or if the Administrative Agent does not quote a rate of exchange on such
currency, by a known dealer in such currency designated by the Administrative
Agent) determined, in each case, as on the day immediately preceding the day on
which the judgment is given (such Business Day being hereinafter referred to as
the "Judgment Currency Conversion Date").
(b) If there is a change in the rate of exchange prevailing
between the Judgment Currency Conversion Date and the date of actual payment of
the amount due, the Guarantors covenant and agree to pay, or cause to be paid,
such additional amounts, if any (but in any event not a lesser amount), as may
be necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of Judgment Currency stipulated in the judgment of judicial
award at the rate of exchange prevailing on the Judgment Currency Conversion
Date.
(c) For purposes of determining the Alternate Currency
Equivalent of the Dollar Equivalent or rate of exchange for this Section, such
amounts shall include any premium and costs payable in connection with the
purchase of the Obligation Currency.
26. Upon the execution and delivery of this Guaranty by the
parties hereto, the Original US Subsidiary Guaranty shall be amended and
restated in its entirety by this Guaranty, effective as of the date hereof, with
all rights and obligations created under or granted pursuant to the Original US
Subsidiary Guaranty continuing from the date thereof.
<PAGE> 15
EXHIBIT 10.25
Page 15
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be executed and delivered as of the date first above written.
Address:
c/o Cabot Safety Corporation CABOT SAFETY INTERMEDIATE
One Washington Mall CORPORATION
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By
---------------------------
Title:
Attention: General Counsel
c/o Cabot Safety Corporation CSC FSC, INC.
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By
---------------------------
Title:
Attention: General Counsel
c/o Cabot Safety Corporation EASTERN SAFETY EQUIPMENT CO., INC.
One Washington Mall
Boston, MA 01550
Telephone No. (617) 371-4200
Telecopy No. (617) 371-4233 By
---------------------------
Title:
Attention: General Counsel
<PAGE> 16
EXHIBIT 10.25
Page 16
Accepted and Agreed to:
BANKERS TRUST COMPANY,
as Administrative Agent
By
---------------------------
Title:
<PAGE> 1
EXHIBIT 21.1
Name of Subsidiary of State or Country of
Aearo Corporation Organization
- ----------------- ------------
Cabot Safety Corporation Delaware
Cabot Safety Intermediate Corporation Delaware
Eastern Safety Equipment Co., Inc. New York
CSC FSC, Inc. Virgin Islands
Cabot Safety Canada Corporation Canada
Cabot Safety Limited United Kingdom
E-A-R SARL France
E-A-R Iberica SA Spain
E-A-R Italian Srl Italy
E-A-R Arbeitsschutz GmbH Germany
Leif Anderzon Invest AB Sweden
Leif Palmaer Invest AB Sweden
Peltor Holding AB Sweden
Peltor AB Sweden
Peltor Service AB Sweden
Peltor Fosaljnings AB Sweden
Peltor Forvaltnings AB Sweden
Telek AB Sweden
Peltor Inc. United States of America
Peltor Ltd. United Kingdom
Peltor AG Switzerland
<PAGE> 2
Peltor GmbH Germany
Peltor SARL France
Peltor Elektronik HB (partnership) Sweden
Peltor Pressarverkstad HB (partnership) Sweden
Peltor Plastsprutning HB (partnership) Sweden
Peltor Plastsvetsning HB (partnership) Sweden
Peltor Mekanik HB (partnership) Sweden
Peltor Montering HB (partnership) Sweden
Peltor Utveckling HB (partnership) Sweden
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 8, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated October 26, 1994 on our audits of the financial statements of
Aearo Company, formerly Cabot Safety Corporation. We also consent to the
reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Boston, Massachusetts
July 8, 1996
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement
of Aearo Corporation on Form S-1 of our report dated May 31, 1996 related to the
consolidated financial statements of Peltor Holdings AB, appearing in the
Prospectus, which is part of this Amendment No. 1 to the Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE AB
Malmo, Sweden
July 8, 1996
