SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997;
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-7007
BANDAG, INCORPORATED
(Exact name of registrant as specified in its charter)
Iowa 42-0802143
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2905 North Highway 61, Muscatine, Iowa 52761-5886
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 319/262-1400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock - $1 Par Value New York Stock Exchange and
Class A Common Stock - $1 Par Value Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock - $1 Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 13, 1998: Common Stock, $402,239,896; Class
A Common Stock (non-voting), $344,687,697; Class B Common Stock,
$1,700,680.
The number of shares outstanding of the issuer's classes of common
stock as of March 13, 1998: Common Stock, 9,754,548 shares; Class A
Common Stock, 11,016,393 shares; Class B Common Stock, 2,048,132 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of the
Shareholders to be held May 5, 1998 are incorporated by reference in Part
III.
<PAGE>
PART I
ITEM 1. BUSINESS
Introduction
All references herein to the "Company" or "Bandag" refer to Bandag,
Incorporated and its subsidiaries unless the context indicates otherwise.
The Company is engaged in two business segments: the manufacture and
sale of precured tread rubber, equipment and supplies for retreading tires
(the "traditional business") and the sale and maintenance of new and
retread tires to principally commercial and industrial customers ("TDS").
As a result of a recapitalization of the Company approved by the
Company's shareholders on December 30, 1986, and substantially completed
in February, 1987, the Carver Family (as hereinafter defined) obtained
absolute voting control of the Company. As of March 13, 1998, the Carver
Family beneficially owned shares of Common Stock and Class B Common Stock
constituting 76% of the votes entitled to be cast in the election of
directors and other corporate matters. The "Carver Family" is composed of
(i) Lucille A. Carver, a director and widow of Roy J. Carver, (ii) the
lineal descendants of Roy J. Carver and their spouses, and (iii) certain
trusts and other entitles for the benefit of the Carver Family members.
Effective as of November 1, 1997, the Company acquired five
franchised dealerships through its wholly-owned subsidiary, Tire
Distribution Systems, Inc. The aggregate purchase price of the
transactions was approximately $158.6 million, which includes the fair
market value of 10,000 shares of the Company's Class A Common Stock. TDS
is operated through Tire Distribution Systems, Inc. See "TDS" herein.
Traditional Business
(a) General
The traditional business is engaged primarily in the production and
sale of precured tread rubber and equipment used by its franchisees for
the retreading of tires for trucks, buses, light commercial trucks,
industrial equipment, off-the-road equipment and passenger cars. Bandag
specializes in a patented cold-bonding retreading process which it
introduced to the United States in 1957 (the "Bandag Method"). The Bandag
Method separates the process of vulcanizing the tread rubber from the
process of bonding the tread rubber to the tire casing, allowing for
optimization of temperature and pressure levels at each stage of the
retreading process.
The Company and its licensees have 1,419 franchisees worldwide, with
34% located in the United States and 66% internationally. The majority of
Bandag's franchisees are independent operators of full service tire
distributorships. The traditional business' revenues primarily come from
the sale of retread material and equipment to its franchisees. The
traditional business' products compete with new tire sales, as well as
retreads produced using other retread processes. The Company concentrates
its marketing efforts on existing franchisees and on expanding their
respective market penetration. Due to its strong distribution systems,
marketing efforts and leading technology, Bandag, through its independent
franchisee network, has been able to maintain the largest market presence
in the retreading industry.
The traditional business competes in the light and heavy truck tire
replacement market. Both new tire manufacturers and tread rubber
suppliers compete in this market. While the Company has independent
franchisees in over 121 countries, and competes in all of these geographic
markets, its largest market is the United States. Truck tires retreaded
by the Company's franchisees make up approximately 15% of the U.S. light
and heavy truck tire replacement market. The Company's primary
competitors are new tire manufacturers such as The Goodyear Tire & Rubber
Company, Bridgestone Corporation and Groupe Michelin. The Goodyear Tire &
Rubber Company also competes in the U.S. market as a tread rubber supplier
to a combination of company owned and independent retreaders and Groupe
Michelin has announced its plans to enter the retread market in the United
States.
The traditional business consists of the franchising of a patented
process for the retreading of tires primarily for trucks, buses, light
commercial trucks, and the production and sale of precured tread rubber
and related products used in connection with this process.
The traditional business can be divided into two main areas:
(i) manufacturing the tread rubber and (ii) bonding the tread to a tire
casing. Bandag manufactures over 500 separate tread designs and sizes,
treads specifically designed for various applications, allowing fleet
managers to fine-tune their tire programs. Bandag tread rubber is
vulcanized prior to shipment to its independent franchisees. The Bandag
franchisee prepares the tire casing for retreading and performs the
retreading process of bonding the cured tread to the prepared tire casing.
This two-step process allows utilization of the optimum temperature and
pressure levels at each step. Lower temperature levels during the bonding
process result in a more consistent, higher quality finished retread with
less damage to the casing. Bandag has developed a totally integrated
retreading system with the materials, bonding process and manufacturing
equipment specifically designed to work together as a whole.
(b) Markets and Distribution
The principal market categories for the traditional business are
truck and bus, with more than 90% of the tread rubber sold by the Company
used in the retreading of these tires. Additionally, the Company markets
tread rubber for the retreading of off-the-road equipment, industrial and
light commercial vehicle and passenger car tires; however, historically,
sales of tread rubber for these applications have not contributed
materially to the Company's results of operations.
Trucks and Buses Tread rubber, equipment, and supplies for
retreading and repairing truck and bus tires are sold primarily to
independent franchisees by the Company to use the Bandag Method for that
purpose. Bandag has 1,419 franchisees throughout North America, Central
America, South America, Europe, Africa, Far East, Australia and New
Zealand. These franchisees are owned and operated by independent
franchisees, some with multiple franchises and/or locations. Of these
franchisees, 487 are located in the United States. One hundred
forty-eight (148) of Bandag's foreign franchisees are franchised by
licensees of the Company in Australia, and joint ventures in India and Sri
Lanka. A limited number of franchisees are trucking companies which
operate retread shops essentially for their own needs. A few franchisees
also offer "hot-cap" retreading and most sell one or more lines of new
tires.
The current franchise agreement offered by the Company grants the
franchisee the non-exclusive retread manufacturing rights to use the
Bandag Method for one or more applications and the Bandag trademarks in
connection therewith within a specified territory, but the franchisee is
free to market Bandag retreads outside the territory. No initial
franchise fee is paid by a franchisee for its franchise.
Direct Sales to Transportation Fleets The Company has entered into
contracts with companies pursuant to which Bandag agrees to sell retread
tires directly to transportation fleets of such companies and provide
maintenance and service for the retread tires (the "Direct Sales
Contracts"). Bandag subcontracts the sales, maintenance and service
components of the Direct Sales Contracts to its independent franchisees.
Other Applications The Company continues to manufacture and supply
to its franchisees a limited amount of tread for Off-the-Road (OTR) tires,
industrial tires, including solid and pneumatic, passenger car tires and
light commercial tires for light trucks and recreational vehicles.
(c) Competition
The Company faces strong competition in the market for replacement
truck and bus tires, the principal retreading market which it serves. The
competition comes not only from the major manufacturers of new tires, but
also from manufacturers of retreading materials. Competitors include
producers of "camelback," "strip stock," and "slab stock" for "hot-cap"
retreading, as well as a number of producers of precured tread rubber.
Various methods for bonding precured tread rubber to tire casings are used
by competitors.
Bandag retreads are often sold at a higher price than tires retreaded
by the "hot-cap" process as well as retreads sold using competitive
precured systems. The Company believes that the superior quality and
greater mileage of Bandag retreads and expanded service programs to
franchisees and end-users outweigh any price differential.
Bandag franchisees compete with many new-tire dealers and retreading
operators of varying sizes, which include shops operated by the major
new-tire manufacturers, large independent retread companies, retreading
operations of large trucking companies, and smaller commercial tire
dealers.
For additional information on competition faced by the traditional
business see the foregoing discussion in "Markets and Distribution"
herein.
(d) Sources of Supply
The Company manufactures the precured tread rubber, cushion gum, and
related supplies in Company-owned and leased manufacturing plants in the
United States, Canada, Brazil, Belgium, South Africa, Indonesia, Mexico,
Malaysia, New Zealand and Venezuela. The Company has entered into joint
venture agreements in India and Sri Lanka. The Company also manufactures
pressure chambers, tire casing analyzers, buffers, tire builders, tire
handling systems, and other items of equipment used in the Bandag
retreading method. Curing rims, chucks, spreaders, rollers, certain
miscellaneous equipment, and various retreading supplies, such as repair
patches sold by the Company, are purchased from others.
The Company purchases rubber and other materials for the production
of tread rubber and other rubber products from a number of suppliers. The
rubber for tread is primarily synthetic and obtained principally from
sources which most conveniently serve the respective areas in which the
Company's plants are located. Although synthetic rubber and other
petrochemical products have periodically been in short supply and
significant cost fluctuations have been experienced in previous years, the
Company to date has not experienced any significant difficulty in
obtaining an adequate supply of such materials. However, the effect on
operations of future shortages will depend upon their duration and
severity and cannot presently be forecast.
The principal source of natural rubber, used for the Company's
cushion gum, is the Far East. The supply of natural rubber has
historically been adequate for the Company's purposes. Natural rubber is
a commodity subject to wide price fluctuations as a result of the forces
of supply and demand. Synthetic prices historically have been related to
the cost of petrochemical feedstocks which were relatively stable prior to
1995. A relationship between natural rubber and synthetic rubber prices
exists, but it is by no means exact.
(e) Patents
The Company owns or has licenses for the use of a number of United
States and foreign patents covering various elements of the Bandag Method.
The Company has patents covering improved features, some of which started
expiring in 1995 and others that will continue to expire through the year
2011, and the Company has applications pending for additional patents.
The Company's patent counsel has advised the Company that the United
States patents are by law presumed valid and that the Company does not
infringe upon the patent rights of others. While the outcome of
litigation can never be predicted with certainty, such counsel has advised
the Company that, in his opinion, in the event of litigation placing the
validity of such patents at issue, the Company's United States patent
position should remain adequate.
The protection afforded the Bandag Method by foreign patents owned by
the Company, as well as those under which it is licensed, varies among
different countries depending mainly upon the extent to which the elements
of the Bandag Method are covered, the strength of the patent laws and the
degree to which patent rights are upheld by the courts. Patent counsel
for the Company is of the opinion that its patent position in the foreign
countries in which its principal sales are made is adequate and does not
infringe upon the rights of others. The Company has, however, extended
its foreign market penetration to some countries where little or no patent
protection exists.
The Company does not consider that patent protection is the primary
factor in its successful retreading operation, but rather, that its
proprietary technical "know-how," product quality, franchisee support
programs and effective marketing programs are more important to its
success.
The Company has secured registrations for its trademark and service
mark BANDAG, as well as other trademarks and service marks, in the United
States and most of the other important commercial countries.
TDS
(a) General
The five dealerships that were acquired by Tire Distribution Systems,
Inc., an indirect wholly-owned subsidiary of Bandag, are: Universal Tire,
Inc. (Nashville, TN); Southern Tire Mart, Inc. (Columbia, MS); J.W. Brewer
Tire Co., Inc. (Wheat Ridge, CO): Joe Esco Tire Co. (Oklahoma City, OK);
and Sound Tire, Inc. (Auburn, WA). The five dealerships together, which
provide new and retread tire products and tire management services to
national, regional and local fleet transportation companies, operate 47
Bandag franchise and manufacturing locations and 91 commercial, retail and
wholesale outlets in 18 states.
(b) Markets and Distribution
TDS offers complete tire management services including: the complete
line of Bandag retreads, new tires (commercial, retail and off-the-road),
24 hour road service and alignment. The tire management services are
provided over a broad geographic area including the northwest and all
across the south. This geographic coverage allows TDS to provide
consistent, cost effective programs, information, products and services to
local, regional and national fleets.
Cost effective tire management services continues to grow in
importance for fleets of all sizes. The trucking industry continues to
consolidate. Trucking fleets are under intense pressure to be cost
competitive and reliable in their services. Tire related costs are one of
the top operating expenses for trucking fleets. Bandag and its dealer
alliance network (including TDS) are able to provide trucking companies
comprehensive tire management services which result in lower tire
operating costs for the trucking company while at the same time helping
the trucking company increase its service reliability through the same
tire management programs.
TDS markets its products through sales personnel located at each of
its commercial locations, retread production facilities and retail
facilities. TDS' sales people make personal sales calls on existing
customers to ensure satisfaction and loyalty. TDS facilities are located
near major highway arteries, industrial centers and customer locations.
TDS commercial locations operate as points of sale for retread tires, new
tires and services. In addition, the commercial locations operate as a
home base for mobile service trucks which must be able to provide
customers with reliable and timely emergency service as well as regularly
scheduled maintenance service.
In an effort to fully service its customers, TDS sells new truck
tires manufactured by Bridgestone/Firestone, Continental/General, Kelley
Tires, Yokahama, Cooper and other manufacturers.
(c) Competition
TDS competitors are other tire dealers which offer competing retread
applications, as well as those which are Bandag franchised dealers. In
addition, such tire dealers typically sell and service new tires produced
by new tire manufacturers and service providers such as The Goodyear Tire
& Rubber Company, Bridgestone Corporation and Groupe Michelin. The
Goodyear Tire & Rubber Company also competes in the U.S. market as a tread
rubber supplier to a combination of company owned and independent
retreaders. Groupe Michelin has also announced its plan to enter the
retread market in the U.S.
(d) Sources of Supply
TDS purchases retread rubber and most of its retreading equipment and
supplies from Bandag and purchases new tires from new tire companies
including Bridgestone/Firestone, Yokahama, Continental/General, Cooper and
Kelley. Groupe Michelin and The Goodyear Tire and Rubber Company have
terminated their dealer relationships with TDS dealers and have announced
that they will not sell new tires to TDS dealers. Thus far, TDS has not
experienced any material adverse effects from such terminations and has
been successful in obtaining and utilizing new tires from other tire
manufacturers in its business.
Regulations
Various federal and state authorities have adopted safety and other
regulations with respect to motor vehicles and components, including
tires, and various states and the Federal Trade Commission enforce
statutes or regulations imposing obligations on franchisors, primarily a
duty to disclose material facts concerning a franchise to prospective
franchisees. Management is unaware of any present or proposed regulations
or statutes which would have a material adverse effect upon its
businesses, but cannot predict what other regulations or statutes might be
adopted or what their effect on the Company's businesses might be.
Other Information
The Company conducts research and development of new products,
primarily in the traditional business, and the improvement of materials,
equipment, and retreading processes. The cost of this research and
development program was approximately $10,525,000 in 1995, $15,909,000 in
1996 and $21,113,000 in 1997.
The Company's business has seasonal characteristics which are tied
not only to the overall performance of the economy, but more specifically
to the level of activity in the trucking industry. Tire demand does,
however, lag the seasonality of the trucking industry. The Company's
third and fourth quarters have historically been the strongest in terms of
sales volume and earnings.
As stated in the Company's 13D filed pursuant to the acquisition of
the HON INDUSTRIES Inc. common stock, "The shares of Common Stock
purchased by Bandag have been acquired for investment purposes." The
Company purchased the stock in 1987 and 1988 at a cost of $24.4 million
and sold the same during the fourth quarter of 1997, realizing a before-
tax gain of $95.1 million.
The Company has sought to comply with all statutory and
administrative requirements concerning environmental quality. The Company
has made and will continue to make necessary capital expenditures for
environmental protection. It is not anticipated that such expenditures
will materially affect the Company's earnings or competitive position.
As of December 31, 1997, the Company had approximately 4,507
employees.
Revenues of Principal Product Groups
The following table sets forth (in millions of dollars), for each of
the last three fiscal years, revenues attributable to the Company's
principal product groups:
1997 1996 1995
Revenues:
Tread rubber, cushion gum,
and retreading supplies $714.7 $700.7 $688.8
New tires 44.7 - -
Other products(1) 50.8 61.0 58.4
Retread tires 19.1 - -
Corporate(2) 102.4 7.3 8.1
-------- ------- -------
Total $931.7 $769.0 $755.3
(1) Includes retreading equipment and related services.
(2) Consists of interest and investment income.
Financial Information about Business Segments and Foreign and Domestic
Operations
Financial Statement "Operations in Different Segments and Different
Geographic Areas and Sales by Principal Products" follows on pages 9 and
10.
<TABLE>
Operations in Different Segments and
Different Geographic Areas and Sales by Principal Products
The Company operates in two business segments: the manufacture of precured tread rubber, equipment and supplies for
retreading tires (traditional business), and the sale and maintenance of new and retread tires to principally commercial
and industrial customers (TDS). While the Company's traditional business does business throughout the world, its principal
markets are in the United States and Europe.
<CAPTION>
Information concerning operations in different segments:
Traditional Business TDS
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
in millions
Net Sales:
Net sales to unaffiliated
customers(1)(2) . . . . . . . . . . . . . . . $767.2 $756.9 $740.4 $ 55.3
Transfers between
segments(3) . . . . . . . . . . . . . . . . . 6.8
------------------------------- ----------------------------
Segment area totals . . . . . . . . . . . . . . 774.0 756.9 740.4 $ 55.3
Elimination (deduction) . . . . . . . . . . . .
Total Net Sales . . . . . . . . . . . . . . . . .
Cost of Products Sold . . . . . . . . . . . . . . $446.6 $442.1 $442.8 $ 35.8
Goodwill Amortization . . . . . . . . . . . . . . $ 1.0 $ 1.0 $ 1.0 $ 1.3
Depreciation Expense . . . . . . . . . . . . . . $ 32.7 $ 33.2 $ 33.2 $ 1.5
Earnings (Expenses) . . . . . . . . . . . . . . .
Operating earnings
(loss)(4) . . . . . . . . . . . . . . . . . . $121.1 $134.8 $157.9 $(3.3)
Interest expense . . . . . . . . . . . . . . . (0.9)
General corporate expenses . . . . . . . . . .
-------------------------------- -----------------------------
Earnings Before Income
Taxes . . . . . . . . . . . . . . . . . . . . . $121.1 $134.8 $157.9 $(4.2)
Total Assets at December
31(5) . . . . . . . . . . . . . . . . . . . . . $483.8 $472.4 $453.0 $215.5
Total Liabilities at
December 31 . . . . . . . . . . . . . . . . . . $173.1 $162.7 $134.9 $ 40.3
Capital Expenditures . . . . . . . . . . . . . . $ 41.2 $ 34.4 $ 28.4 $ 1.0
<CAPTION>
Information for operations in Africa, Asia, Australia, Canada and South America is combined for reporting purposes as
"Other." Information concerning the Company's operations by segment and by geographic area and sales by principal
product for the years ended December 31, 1997, 1996 and 1995 is shown below.
Information concerning operations in different segments:
Corporate Consolidated
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
in millions
Net Sales:
Net sales to unaffiliated
customers(1)(2) . . . . . . . . . . $822.5 $756.9 $740.4
Transfers between
segments(3) . . . . . . . . . . . . 6.8
-------------------------------- -------------------------------
Segment area totals . . . . . . . . . $829.3 $756.9 $740.4
Elimination (deduction) . . . . . . . (6.8)
Total Net Sales . . . . . . . . . . . . $822.5 $756.9 $740.4
Cost of Products Sold . . . . . . . . . $482.4 $442.1 $442.8
Goodwill Amortization . . . . . . . . . $ 2.3 $ 1.0 $ 1.0
Depreciation Expense . . . . . . . . . $ 0.4 $ 0.4 $ 0.4 $ 34.6 $ 33.6 $ 33.6
Earnings (Expenses) . . . . . . . . . .
Operating earnings
(loss)(4) . . . . . . . . . . . . . $102.4 $ 7.3 $ 8.1 $220.2 $142.1 $166.0
Interest expense . . . . . . . . . . (2.4) (1.2) (2.0) (3.3) (1.2) (2.0)
General corporate expenses . . . . . (14.0) (10.1) (8.9) (14.0) (10.1) (8.9)
----------------------------------- -------------------------------
Earnings Before Income
Taxes . . . . . . . . . . . . . . . . $ 86.0 $ (4.0) $ (2.8) $202.9 $130.8 $155.1
Total Assets at December
31(5) . . . . . . . . . . . . . . . . $200.6 $115.9 $101.2 $899.9 $588.3 $554.2
Total Liabilities at
December 31 . . . . . . . . . . . . . $223.1 $ 14.8 $ 19.3 $436.5 $177.5 $154.2
Capital Expenditures . . . . . . . . . $ 42.2 $ 34.4 $ 28.4
<CAPTION>
Information concerning operations in different geographic areas:
United States Europe
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
in millions
Net Sales:
Net sales to unaffiliated
customers(1)(2) . . . . . . . . . . . $533.9 $474.6 $459.6 $123.0 $129.5 $135.9
Transfers between
areas(3) 42.1 28.8 24.9 0.5 1.1 0.6
-------------------------------- ----------------------------
Geographic area totals . . . . . . . . $576.0 $503.4 $484.5 $123.5 $130.6 $136.5
Elimination (deduction) . . . . . . . .
Total Net Sales . . . . . . . . . . . . .
Earnings (Expenses)
Operations(4) . . . . . . . . . . . . . $ 93.1 $109.3 $121.2 $ 4.0 $ 9.0 $ 13.6
Investment income . . . . . . . . . . .
Interest expense . . . . . . . . . . .
General corporate expenses . . . . . .
Earnings Before Income
Taxes . . . . . . . . . . . . . . . . .
Assets at December 31 . . . . . . . . . .
Operations . . . . . . . . . . . . . . $511.6 $301.4 $290.1 $ 72.9 $ 79.2 $ 84.9
Corporate(4) . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . .
Liabilities at December 31
Operations . . . . . . . . . . . . . . $142.8 $ 99.6 $ 79.5 $ 26.6 $ 28.5 $ 31.6
Corporate(5) . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . .
Sales Information by
Principal Product Group
Retread materials and
supplies . . . . . . . . . . . . . .
New tires . . . . . . . . . . . . . . .
Retread tires . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . .
<CAPTION>
Information concerning operations in different geographic areas:
Other Consolidated
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
in millions
Net Sales:
Net sales to unaffiliated
customers(1)(2) . . . . . . . . . . $165.6 $152.8 $144.9 $822.5 $756.9 $740.4
Transfers between
areas(3) 3.6 2.0 1.7 46.2 31.9 27.2
---------------------------- --------------------------------
Geographic area totals . . . . . . . $169.2 $154.8 $146.6 $868.7 $788.8 $767.6
Elimination (deduction) . . . . . . . (46.2) (31.9) (27.2)
--------------------------------
Total Net Sales . . . . . . . . . . . . $822.5 $756.9 $740.4
Earnings (Expenses)
Operations(4) . . . . . . . . . . . . $ 20.7 $ 16.5 $ 23.1 $117.8 $134.8 $157.9
Investment income . . . . . . . . . . 102.4 7.3 8.1
Interest expense . . . . . . . . . . (3.3) (1.2) (2.0)
General corporate expenses . . . . . (14.0) (10.1) (8.9)
--------------------------------
Earnings Before Income
Taxes . . . . . . . . . . . . . . . . $202.9 $130.8 $155.1
Assets at December 31 . . . . . . . . .
Operations . . . . . . . . . . . . . $114.8 $ 91.8 $ 78.0 $699.3 $472.4 $453.0
Corporate(4) . . . . . . . . . . . . 200.6 115.9 101.2
--------------------------------
Total Assets . . . . . . . . . . . . . $899.9 $588.3 $554.2
Liabilities at December 31
Operations . . . . . . . . . . . . . $ 44.0 $ 34.6 $ 23.8 $213.4 $162.7 $134.9
Corporate(5) . . . . . . . . . . . . 223.1 14.8 19.3
--------------------------------
Total Liabilities . . . . . . . . . . . $436.5 $177.5 $154.2
Sales Information by
Principal Product Group
Retread materials and
supplies . . . . . . . . . . . . . 86% 92% 92%
New tires . . . . . . . . . . . . . . 6%
Retread tires . . . . . . . . . . . . 2%
Other . . . . . . . . . . . . . . . . 6% 8% 8%
---------------------------------
100% 100% 100%
(1) No single customer accounted for 10% or more of the Company's sales to unaffiliated customers in any of the years 1997,
1996 or 1995.
(2) Export sales from the United States were less than 10% of sales to unaffiliated customers in each of the years 1997,
1996 and 1995.
(3) Intersegment sales and transfers are recorded at fair market value less a discount between geographic areas within the
traditional business and for transactions between the traditional business and TDS at a value consistent with that to
unaffiliated customers.
(4) Aggregate foreign exchange gains (losses) included in determining net earnings amounted to approximately $1,500,000,
$1,236,000 and $(1,187,000) in 1997, 1996 and 1995, respectively.
(5) Corporate assets are principally cash and cash equivalents, investments, corporate office and related equipment.
Corporate liabilities are principally dividends payable, short-term notes payable and long-term obligations.
</TABLE>
Executive Officers of the Company
The following table sets forth the names and ages of all executive
officers of the Company as of March 13, 1998, the period of service of
each with the Company, positions and offices with the Company presently
held by each, and the period during which each officer has served in his
present office:
Period
Period of in
Service Present Position Present
Name Age with Company or Office Office
Martin G. Carver* 49 19 Yrs. Chairman of the 17 Yrs.
Board, Chief
Executive Officer
and President
Lucille A. Carver* 80 40 Yrs. Treasurer 39 Yrs.
Nathaniel L. Derby II 55 27 Yrs. Vice President, 1 Yr.
Manufacturing
Design
Sam Ferrise II 41 17 Yrs. Executive Vice 1 Mo.
President, Chief
Operating Officer
Warren W. Heidbreder 51 16 Yrs. Vice President, 1 Yr.
Chief Financial
Officer, and
Corporate
Secretary
Hong Yan Li, Henry 50 2 Yrs. Vice President, 2 Yrs.
Asian Operations
Frederico U. Kopittke 54 3 Yrs. Vice President, 1 Mo.
Latin America
Patrick K. Robbins 57 7 Yrs. Vice President 2 Yrs.
and General
Manager, Eastern
Hemisphere
Retread Division
and Southern
Region
John C. McErlane 44 13 Yrs. Vice President, 1 Mo.
Marketing and
Sales
* Denotes that officer is also a director of the Company.
Mr. Martin G. Carver was elected Chairman of the Board effective June
23, 1981, Chief Executive Officer effective May 18, 1982, and President
effective May 25, 1983. Prior to his present position, Mr. Carver was
also Vice Chairman of the Board from January 5, 1981 to June 23, 1981.
Mrs. Carver has served as a Director and Treasurer of the Company for
more than five years.
Mr. Derby joined Bandag in 1971. In December 1985, he was promoted
to Vice President, Engineering and served in that position until August
1996 when he was elected to the office of Vice President, Engineering. He
served in that office until May 1997, when he was elected to his current
office of Vice President, Manufacturing Design effective April 28, 1997.
Mr. Ferrise joined Bandag in 1981. In November 1995, he was elected
to the office of Vice President, Marketing. In February 1997, he was
elected to the office of Vice President, Sales and Marketing effective
January 20, 1997 and served in that position until March 1998 when he was
elected to his current office of Executive Vice President and Chief
Operating Officer effective February 16, 1998.
Mr. Heidbreder joined Bandag in 1982. In 1986 he was elected to the
office of Vice President, Legal and Tax Administration, and Secretary. In
November 1996, he was elected to his current office of Vice President,
Chief Financial Officer, and Secretary effective as of January 1, 1997.
Mr. Li joined Bandag in July 1996 as Vice President, Asian Operations
and was elected to that office in August 1996. Before joining Bandag, Mr.
Li was employed for more than 25 years by the Eastman Kodak Company.
Mr. Kopittke joined Bandag in July 1994 as Company Manager of Bandag
do Brasil Ltda. He served in that position until March 1998 when he was
elected to his current office of Vice President, Latin America effective
March 1, 1998. Before joining Bandag, Mr. Kopittke was employed for more
than 16 years by Nalco Chemical Company in South America.
Mr. Robbins joined Bandag in 1991. He served as General Manager, New
Zealand from 1991 until August 1996. In August 1996, he was elected to
the office of Vice President, Southern Region. In May 1997, he was
elected to his current office of Vice President and General Manager,
Eastern Hemisphere Retread Division and Southern Region effective April 7,
1997.
Mr. McErlane joined Bandag in 1985. From 1985 through 1995, he held
several managerial positions with the Company. In 1996, he was promoted
to the position of Director, Marketing. In March 1998, he was elected to
his current office of Vice President, Marketing and Sales effective
February 16, 1998.
All of the above-named executive officers have been elected by the
Board of Directors and serve at the pleasure of the Board of Directors.
ITEM 2. PROPERTIES
Traditional Business
The general offices of the Company are located in a Company-owned
56,000 square foot office building in Muscatine, Iowa.
The tread rubber manufacturing plants of the Company are located to
service principal markets. The Company operates sixteen of such plants,
six of which are located in the United States, and the remainder in
Canada, Belgium, South Africa, Brazil (two plants), New Zealand, Mexico,
Malaysia, Indonesia and Venezuela. The plants vary in size from 9,600
square feet to 194,000 square feet with the first plant being placed into
production during 1959. All of the plants are owned in fee except for the
plants located in New Zealand, Indonesia, Malaysia and Venezuela, which
are under standard lease contracts.
Retreading equipment is manufactured at Company-owned plants located
in Muscatine, Iowa and Campinas, S.P., Brazil, of approximately 60,000
square feet and 10,000 square feet, respectively. In addition, the
Company owns a research and development center in Muscatine of
approximately 58,400 square feet and a 26,000 square foot facility used
primarily for training franchisees and franchisee personnel. Similar
training facilities are located in Brazil, Mexico (leased facility), South
Africa and Europe. The Company also owns a 26,000 square foot office and
machining facility in Muscatine.
A new training and conference center is under construction in
Muscatine, Iowa. The approximately 83,000 square foot center is scheduled
to be completed in late 1998.
In addition, the Company mixes rubber and produces cushion gum at a
Company-owned 168,000 square foot plant in California. The Company owns
its European headquarters facility in Belgium and a 129,000 square foot
warehouse in the Netherlands.
Dealer Business
TDS currently owns 30 and leases 75 facilities. Forty-seven contain
space for TDS' retread production and ninety-one contain space for
commercial, retail and wholesale operations. The Company believes that it
will be able to renew its existing leases as they expire or find suitable
alternative locations. The leases generally provide for a base rental, as
well as charges for real estate taxes, insurance, maintenance and various
other items.
In the opinion of the Company, its properties are maintained in good
operating condition and the production capacity of its plants is adequate
for the near future. Because of the nature of the activities conducted,
necessary additions can be made within a reasonable period of time.
ITEM 3. LEGAL PROCEEDINGS
Treadco, Inc. v. Bandag, Inc., et. al. On October 27, 1995, Treadco,
Inc. ("Treadco"), Bandag's largest franchisee, filed a complaint in the
Sebastian County Chancery Court, Fort Smith, Arkansas, against Bandag
(Treadco, Inc. v. Bandag, Inc., et al., Case No. 95-1224). Treadco
alleges in that action various Arkansas statutory and common law claims
relating to allegations that Bandag wrongfully induced several Treadco
employees to terminate their employment with Treadco and begin working for
Bandag, that Bandag wrongfully induced Treadco customers to switch their
business to other Bandag franchises, and that Bandag otherwise violated
its duty of good faith and fair dealing to Treadco. Treadco seeks an
unspecified amount of money damages. On November 8, 1995, Bandag filed an
action in the United States District Court for the Western District of
Arkansas to compel the arbitration of Treadco's claims (Bandag, Inc. v.
Treadco, Inc., Case No. 95-2204). The Arkansas Chancery Court stayed all
proceedings pending the federal court's decision on Bandag's petition.
The federal court has ruled that all claims should be settled at the
arbitration hearing.
In addition to its original claims, Treadco has brought an antitrust
counterclaim in the arbitration matter seeking treble damages and attorney
fees. Treadco alleges that Bandag has engaged in conduct intended to
restrain trade and destroy competition in violation of the Robinson-Patman
Act. Discovery and the taking of depositions has been substantially
completed. It appears that the earliest time for the arbitration hearing
to be held is in September 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Information concerning cash dividends declared and market prices of
the Company's Common Stock and Class A Common Stock for the last three
fiscal years is as follows:
<TABLE>
<CAPTION>
1997 % Change 1996 % Change 1995
<S> <C> <C> <C> <C> <C>
Cash Dividends Per Share-Declared
First Quarter $0.2500 $ 0.2250 $ 0.2000
Second Quarter 0.2500 0.2250 0.2000
Third Quarter 0.2500 0.2250 0.2000
Fourth Quarter 0.2750 0.2500 0.2250
Total Year 1.0250 10.8 $ 0.9250 12.1 $ 0.8250
Stock Price Comparison (1)
Common Stock
First Quarter $45.00 - 51.88 $50.25 - 55.88 $57.00 - 62.00
Second Quarter 46.38 - 51.75 47.38 - 52.75 56.75 - 64.63
Third Quarter 47.94 - 54.13 44.50 - 49.50 52.25 - 65.88
Fourth Quarter 48.38 - 55.75 46.13 - 49.38 49.00 - 54.88
Year-End Closing Price 53.44 47.38 54.13
Class A Common Stock
First Quarter $45.25 - 50.38 $48.75 - 54.00 $51.50 - 54.88
Second Quarter 45.00 - 49.50 46.63 - 51.50 52.25 - 60.50
Third Quarter 47.50 - 53.44 43.50 - 48.00 47.75 - 59.75
Fourth Quarter 46.38 - 52.00 45.25 - 47.88 47.50 - 53.63
Year-End Closing Price 47.88 45.75 53.00
__________
(1) High and low composite prices in trading on the New York and Chicago Stock Exchanges (ticker symbol BDG for Common Stock
and BDGA for Class A Common Stock) as reported in The Wall Street Journal.
</TABLE>
<PAGE>
The approximate number of record holders of the Company's Common
Stock as of March 13, 1998, was 2,429, the number of holders of Class A
Common Stock was 1,347 and the number of holders of Class B Common Stock
was 269. The Common Stock and Class A Common Stock are traded on the New
York Stock Exchange and the Chicago Stock Exchange. There is no
established trading market for the Class B Common Stock.
Sale of Unregistered Securities
On November 4, 1997, in connection with the acquisition of Joe Esco
Tire Co. by Tire Distribution Systems, Inc., the Company issued 10,000
shares of its Class A Common Stock to four shareholders. No underwriters
were engaged in connection with the foregoing sales. The issuance of the
foregoing securities was exempt from registration under the Securities Act
of 1933 pursuant to Section 4(2) as a transaction not involving a public
offering.
On November 4, 1997, the Company issued 20,000 shares of Common Stock
and 20,000 shares of Class A Common Stock to Martin G. Carver pursuant to
his exercise of stock options for an aggregate consideration of $925,000.
No underwriters were engaged in connection with the foregoing sale. The
issuance of the foregoing securities were exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2) as a transaction not
involving a public offering.
On December 15, 1997, the Company sold (a) $60,000,000 of 6.41%
Senior Notes due December 15, 2002 and (b) $40,000,000 of 6.50% Senior
Notes due December 15, 2007 to a group of financial institutions. No
underwriters were engaged in connection with the foregoing sales. The
sale of the foregoing debt securities was exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2) as a transaction not
involving a public offering.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain Selected Consolidated
Financial Data for the periods and as of the dates indicated:
<TABLE>
<CAPTION>
1997(3) 1996 1995 1994 1993
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales $822,523 $756,925 $740,363 $650,567 $590,199
Net Earnings(1) 121,994 81,604 97,027 93,994 78,734
-------------------------------------------------------------------
Total Assets $899,904 $588,342 $554,159 $582,146 $550,731
Long-term Debt and Other Obligations 123,195 10,125 11,857 12,252 11,039
Basic Earnings Per Share(2) $5.35 $3.46 3.84 $3.53 $2.90
Diluted Earnings Per Share(2) $5.33 $3.44 $3.82 $3.51 $2.88
Cash Dividends Per Share-Declared $1.0250 $0.9250 $0.8250 $0.7250 $0.6625
__________
(1) Includes in 1997 the effect of a non-recurring gain on the sale of marketable equity securities of $95,087,000 pre-tax,
or $2.44 per diluted share and non-recurring charges of $16,500,000 pre-tax, $9,900,000 after tax, or $.43 per diluted
share, related to the closing of a manufacturing facility and exit cost from a rubber recycling venture.
(2) Per share and weighted average share outstanding amounts for all periods previously presented have been restated to
conform with the requirements of Statement of Financial Accounting Standards No. 128, "Earnings per Share," issued in
February 1997.
(3) During 1997 the Company's subsidiary, Tire Distribution Systems, Inc. acquired five tire dealerships whose operations are
included in the consolidated financial statements from November 1, 1997, the effective date of the acquisitions.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
The year's results include the operations of both the Company's
traditional business and beginning on November 1, its newly-formed
subsidiary, Tire Distribution Systems, Inc. (TDS), which acquired five
dealerships in November.
Consolidated net sales in 1997 increased 9% from 1996. TDS accounted for
approximately 7% of consolidated net sales or approximately 78% of the
increase. The remaining 2% increase was 4% lower than the corresponding
increase in retread material unit volume because of the 3% lower
translated value of the Company's foreign-currency-denominated sales
(primarily the Belgium franc), coupled with 1% lower equipment sales. The
Company's seasonal sales pattern, which is tied to trucking industry
activity, is similar to previous years with the third and fourth quarters
being the strongest for both sales and earnings.
Gross profit margin for the Company's traditional business increased by .7
percentage points due to higher production to support increased sales and
manufacturing efficiencies. Raw material costs, on average, remained
relatively flat. Inclusion of the TDS operations, which operates at a
lower gross margin, decreased consolidated gross margin by .2 percentage
points.
Consolidated operating and other expenses in 1997 increased 16% from 1996.
TDS accounted for 8% of these expenses or one-half of the total increase.
The remaining 8% increase in operating and other expenses was related to
increased spending for Sales and Marketing staffing and programs, employee
training, and higher R&D for the traditional business segment. This 8%
increase resulted in a net earnings decline for the traditional business
in 1997 of 3% before non-recurring items. The Company's consolidated
effective income tax rate of 39.9% was higher than the previous year's
rate of 37.6%, principally due to higher state income taxes.
Consolidated diluted earnings per share were $5.33 in 1997 compared to
$3.44 in 1996. The traditional business diluted earnings per share,
before non-recurring items, was $3.45 compared to $3.44 in 1996. Non-
recurring items include a net gain of approximately $55,800,000 after
taxes, related to the sale of marketable equity securities. This non-
recurring gain was partially offset by non-recurring charges which
included provisions of $2,100,000, net of tax benefits, for the 1998
closing of a manufacturing facility and $7,800,000, net of tax benefits,
to cover exit costs from a rubber recycling venture.
Net sales in the United States for the Company's traditional business were
2% higher than a year ago but two percentage points below the retread
material unit volume increase due to lower equipment sales. Average raw
material costs for the year were approximately flat with the previous
year's average but higher production to support higher sales resulted in
better absorption of fixed manufacturing costs. As a result, gross margin
increased by two percentage points compared to the margin in the previous
year. Earnings before income taxes in 1997 for the Company's traditional
business in the United States declined 10% from the previous year due to
increased operating expenses in support of marketing programs and building
capabilities within the organization, as part of the Company's commitment
to building an alliance with our dealers and end-users.
The Company's foreign operations comprised 37% and 22% of 1997's
traditional net sales and earnings before income taxes, respectively.
This represents the same percentage of total revenues as the prior year,
and an 11 percentage point increase, as a percent of total earnings before
income taxes, in comparison to the prior year.
Net sales in Europe declined 5% from 1996. The decline occurred despite a
5% increase in unit volume and because of the unfavorable impact of a
stronger U.S. dollar on the translated value of the Company's foreign-
currency-denominated sales. Gross profit margin in 1997 decreased
approximately two percentage points compared to 1996 due to higher per
unit manufacturing costs. Operating expenses increased 19%, due mainly to
expenses incurred in developing dealer capabilities and adding
distribution. As a result of the foregoing, earnings before income taxes
declined by 55% over the previous year.
Unit volume for the Company's other combined foreign operations improved
by 13% over 1996, and net sales increased by 8%. Gross profit margin
improved slightly, while operating and other expenses, as a percent of
sales, decreased approximately two percentage points from the previous
year. Earning before income taxes increased by 25% due to both the
improved gross margins and reduced operating expenses.
TDS results are included for the two-month period from its formation
through year-end. Net sales and net loss for TDS were $55,304,000 and
$2,996,000, respectively. See segment information on page 9 for
additional information.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Consolidated net sales in 1996 increased 2% from 1995 matching the unit
volume growth for retread materials. The translated value of the Company's
foreign-currency-denominated sales decreased 1% from 1995 but that
difference was offset by slightly higher equipment sales. The Company's
seasonal sales pattern, which is tied to the trucking industry activity,
is similar to previous years with the third and fourth quarters being the
strongest for both sales and earnings.
The Company's consolidated gross profit margin increased by 1.4 percentage
points from 1995 as a result of raw material cost decreases and
manufacturing efficiencies resulting from past investments in process
improvements. However, this gain was more than offset by higher operating
expenses. The increased operating expenses related principally to
increased spending for Sales and Marketing staffing and programs, employee
training, distribution replacement, and higher R&D, resulted in a net
earnings decline in 1996 of 16% from 1995. The Company's effective income
tax rate of 37.6% was comparable to the previous year's rate of 37.4%.
Diluted earnings per share in 1996 of $3.44 were $.38 lower, a 10%
decrease from 1995. During 1996, the Company acquired 1,298,000 shares of
its outstanding Common Stock and Class A Common Stock for $61,691,000, at
prevailing market prices.
Domestic net sales in 1996 were 3% higher than a year ago, as was the
tread volume. Average raw material costs for the year were approximately
4% lower than the previous year's average. As a result, gross margin
increased by two percentage points compared to a margin decrease
experienced in the previous year. Domestic 1996 earnings before income
taxes declined ten percentage points from the previous year due to
increased investments in marketing programs and building capabilities
within the organization, as part of our commitment to building an alliance
with our dealers and end-users.
The Company's foreign operations comprised 37% and 20% of 1996's net sales
and earnings before income taxes, respectively. This represents a one
percentage-point decline, as a percent of total revenues and a four
percentage-point decrease, as a percent of total earnings before income
taxes, in comparison with the prior year.
Net sales in Europe declined 5% from 1995. The decline was the result of
a 7% decrease in unit volume and a 3% decrease because of the unfavorable
impact on the translated value of the Company's foreign-currency-
denominated sales, which was partially offset with price increases of
approximately 4% to 5%. Gross profit margin in 1996 increased
approximately one percentage point compared to 1995 due to lower per unit
manufacturing costs. Earnings before income taxes declined by 33% over
the previous year.
Unit volume for the Company's other combined foreign operations improved
by 5% over 1995, and net sales increased by 6%. Gross profit margin in
1996 remained the same, but operating and other expenses, as a percent of
sales, increased by approximately six percentage points from the previous
year due principally to a provision related to a tax dispute in Brazil and
the Company's commitment to building a global organizational structure.
Earnings before income taxes declined by 28% due to the increased
operating expenses.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Consolidated net sales increased 14% from 1994. Retread unit volume
increased 3% while the translated value of the Company's foreign-currency-
denominated sales increased 2%. The remaining 9% increase was from the
cumulative increases in selling prices in 1994 and 1995 in response to
higher raw material costs. The Company's seasonal sales pattern, which is
tied to the trucking industry activity, is similar to previous years with
the third and fourth quarters being the strongest for both sales and
earnings.
The Company's consolidated gross profit margin declined by 1.8 percentage
points from 1994, because of raw material cost increases which were not
passed on to dealers. This, combined with increased operating expenses
related principally to increased spending for marketing programs, resulted
in net earnings improving only 3% above 1994. The Company's effective
income tax rate of 37.4% was comparable to the previous year's rate.
Diluted earnings per share in 1995 of $3.82 were $.31 higher, a 9%
increase from 1994. During the year, the Company acquired 1,946,000
shares of its outstanding Common Stock and Class A Common Stock for
$107,964,000, at prevailing market prices.
Domestic net sales in 1995 were 11% higher than in 1994 due to increased
selling prices in 1994 and 1995, and higher equipment sales. Tread volume
increased only 1%. Average raw material costs for the year were
approximately 27% higher than the previous year's average. Selling prices
were increased only in the first quarter, as the Company chose to absorb
further increases during the year. This resulted in a gross margin
decline of 3 percentage points. Domestic 1995 earnings before income
taxes declined four percentage points over the prior year due to flat
sales volume and higher raw material costs, as well as increased spending
for marketing programs.
The Company's foreign operations comprised 38% and 24% of 1995's net sales
and earnings before income taxes, respectively. This represents a
two percentage-point increase, as a percent of total revenues, and a
seven percentage-point increase, as a percent of total earnings before
income taxes, in comparison with the prior year.
Unit volume in Europe increased 6% over 1994. Net sales improved by 22%,
with eight percentage points due to the favorable impact on the translated
value of the Company's foreign-currency-denominated sales. Gross profit
margin in 1995 increased two percentage points compared to 1994 due to
higher production levels and lower manufacturing spending. Earnings
before income taxes improved by 100% over the prior year.
Unit volume for the Company's other combined foreign operations improved
by 6% over 1994, with net sales increasing by 16%. The sales increase
exceeded the volume increase due to the favorable impact of the higher
translated value of foreign-currency-denominated sales coupled with
selling price increases initiated during the year in response to higher
raw material costs. Gross profit margin decreased one percentage point,
but operating expenses, as a percent of sales, decreased by approximately
one percentage point from 1994. Earnings before income taxes increased by
21% due to the increased sales combined with a 5% increase in other
income.
Impact of Inflation and Changing Prices
It has generally been the Company's practice to adjust its selling prices
and sales allowances to reflect changes in production and raw material
costs in order to maintain its gross profit margin. In the past three
years costs have remained relatively constant and the Company has not
found it necessary to implement general price increases.
Replacement of fixed assets requires a greater investment than the
original asset cost due to the impact of the general price level increases
over the useful lives of plant and equipment. This increased capital
investment would result in higher depreciation charges affecting both
inventories and cost of products sold.
Capital Resources and Liquidity
At the end of 1997, current assets exceeded current liabilities by
$292,452,000. Cash and cash equivalents totaled $196,400,000 at year-end,
increasing by $164,947,000 during the year. The Company invests excess
funds over various terms, but only instruments with an original maturity
date of over 90 days are classified as investments. These investments
decreased by $514,000 from the prior year.
The only changes in working capital requirements are for normal business
growth and to accommodate the needs precipitated by the addition of a new
wholly-owned subsidiary, TDS. The Company funds its capital expenditures
from the cash flow it generates from operations. During 1997, the Company
spent $42,223,000 for capital expenditures coupled with $47,659,000 in
cash payments for purchases of the TDS businesses. The Company will make
the remaining cash payments of $87,224,000 for the purchase of the TDS
businesses early in 1998. The proceeds on the sale of marketable equity
securities amounted to $119,558,000 (net after-tax proceeds of
$80,247,000).
As of December 31, 1997, the Company had available uncommitted lines of
credit totaling $77,000,000 in the United States for working capital
purposes. Also, the Company's foreign subsidiaries had approximately
$34,000,000 in credit and overdraft facilities available to them. From
time to time during 1997, the Company borrowed funds to supplement
operational cash flow needs or to settle intercompany transactions. The
Company's long-term liabilities totaled $123,195,000 at year end, which
are approximately 21% of the combined total of long-term liabilities and
stockholders' equity; this is an increase of $113,070,000. This increase
in long-term obligations includes the addition of $100,000,000 in long-
term debt. The $100,000,000 proceeds from long-term borrowings and the
proceeds from the sale of marketable equity securities are being used to
fund the cash payments for the acquired TDS businesses and for working
capital purposes.
During the year, the Company purchased 174,000 shares of its outstanding
Common Stock and Class A Common Stock for $8,643,000 at prevailing market
prices and paid cash dividends amounting to $23,395,000. The Company
generally funds its dividends and stock repurchases from the cash flow
generated from its operations.
Impact of Year 2000
The Company operates with a combination of purchased and internally
developed software systems. Many of the older computer systems were
written using two digits rather than four to defined the applicable year.
As a result, those computer programs have time-sensitive software that
recognize a date using "00" as the year 1900 rather than the year 2000.
This could cause a system failure or miscalculations causing disruptions
of operations. The Company will be required to modify or replace software
which is not Year 2000 compliant so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter.
Purchased software systems account for a significant portion of the
Company's software environment, especially for date sensitive applications
such as Payroll and Accounts Receivable. The Company has performed
assessments in recent years to identify clearly non-compliant software
systems and to initiate replacement activities. Most of those activities
are completed or well underway. Such an assessment is presently being
conducted for the Company's newly-formed TDS subsidiary.
The Company presently believes that with a combination of actions,
including modification of existing software, conversion to new versions of
purchased software and replacement with new systems, the Year 2000 Issue
will not pose significant operational problems for its computer systems.
On the other hand, if such modifications and conversions are not made or
are not completed on a timely basis, the Year 2000 Issue could have a
material impact on the operations of the Company.
During 1998 the Company will initiate formal communications with its
significant suppliers and large customers to determine the extent to which
the Company's activities would be impacted by those third parties' failure
to remediate their own Year 2000 Issues. However, there can be no
guarantee that the systems of other companies on which the Company relies
will be corrected on a timely basis and therefore have no adverse effect
on the Company.
The Company has assessed its own products to determine if it has exposure
to contingencies related to the Year 2000 Issue and it believes that any
such exposure will not be material.
The Company will utilize both internal and external resources to
reprogram, or replace and test the software for Year 2000 compliance. The
Company anticipates completing the Year 2000 project by mid-1999, giving
priority to those systems likely to encounter problems and those having
more significant potential impact to operations.
The total cost of Year 2000 Issue remediation is difficult to identify
because many systems with Year 2000 Issue problems would have been
replaced anyway due to operational issues and changing business needs.
The Company believes that the costs clearly related to the Year 2000 Issue
will total approximately $7,000,000 of which $2,400,000 has been spent to
date. The majority of this will be expensed as incurred.
The costs of the project and the date on which the Company believes it
will complete Year 2000 modifications are based on management's best
estimates which are based on numerous assumptions of future events,
including the continued availability of certain resources, third party
plans and other factors. There can be no guarantee that these estimates
will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant
computer codes, the complexity of the Year 2000 Issue due to dispersed
operating units and geographic locations and similar uncertainties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Auditors 24
Consolidated Balance Sheets as of December 31, 1997, 1996 and
1995 25
Consolidated Statements of Earnings for the Years Ended December
31, 1997, 1996 and 1995 26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 26
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1997, 1996 and 1995 27
Notes to Consolidated Financial Statements 28
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
Bandag, Incorporated
We have audited the accompanying consolidated balance sheets of Bandag,
Incorporated and subsidiaries as of December 31, 1997, 1996 and 1995, and
the related consolidated statements of earnings, cash flows and changes in
stockholders' equity for the years then ended. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bandag,
Incorporated and subsidiaries at December 31, 1997, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
February 3, 1998
<PAGE>
<TABLE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $196,400 $31,453 $31,017
Investments - Note D 1,575 2,089 9,773
Accounts receivable, less allowance (1997 - $12,707;
1996 - $13,320; 1995 - $12,327) 231,648 206,732 200,300
Inventories:
Finished products 90,228 44,704 40,252
Material and work in process 17,295 14,228 12,811
-------- -------- --------
107,523 58,932 53,063
Deferred income tax assets 41,505 29,138 22,451
Prepaid expenses and other current assets 20,343 13,356 11,854
-------- -------- --------
Total Current Assets 598,994 341,700 328,458
Property, Plant and Equipment, on the Basis of Cost:
Land 8,494 3,671 3,731
Buildings and improvements 98,769 85,445 84,426
Machinery and equipment 326,632 292,956 287,771
Construction and equipment installation in progress 25,551 12,520 6,327
-------- -------- --------
459,446 394,592 382,255
Less allowance for depreciation and amortization (261,846) (249,457) (237,405)
-------- -------- --------
197,600 145,135 144,850
Marketable Equity Securities - Note D 79,035 55,684
Goodwill, less accumulated amortization
(1997 - $5,516; 1996 - $3,235; 1995 - $2,237) 75,627 1,753 2,750
Other Assets 27,683 20,719 22,417
-------- -------- --------
Total Assets $899,904 $588,342 $554,159
======== ======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $52,100 $ 28,744 $ 24,268
Accrued employee compensation and benefits 28,874 23,532 21,604
Accrued marketing expenses 32,608 32,872 32,485
Other accrued expenses 66,921 34,076 25,098
Dividends payable 6,274 5,731 5,440
Income taxes payable 20,039 12,254 10,124
Short-term notes payable and current portion of
other obligations 99,726 2,005 3,015
-------- -------- --------
Total Current Liabilities 306,542 139,214 122,034
Long-term debt and other obligations - Note H 123,195 10,125 11,857
Deferred Income Tax Liabilities 6,753 28,136 20,289
Stockholders' Equity - Note H
Common Stock; $1.00 par value, authorized -
21,500,000 shares; issued and outstanding - 9,751,063 shares in 1997;
9,842,861 shares in 1996; 10,112,164 shares in 1995; 9,751 9,843 10,112
Class A Common Stock; $1.00 par value; authorized-
50,000,000 shares; issued and outstanding - 11,013,561 shares in 1997;
11,027,759 shares in 1996; 11,711,344 shares in 1995; 11,014 11,028 11,711
Class B Common Stock; $1.00 par value; authorized -
8,500,000 shares; issued and outstanding - 2,048,785 shares in 1997;
2,051,984 shares in 1996; 2,355,352 shares in 1995 2,049 2,052 2,355
Additional paid-in capital 6,052 4,069 2,493
Retained earnings 445,887 355,663 355,814
Unrealized gain on securities available-for-sale, net
of related tax effect (1996 - $20,765; 1995 - $11,700) 33,854 19,568
Equity adjustment from foreign currency translation (11,339) (5,642) (2,074)
-------- -------- --------
Total Stockholders' Equity 463,414 410,867 399,979
-------- -------- --------
Total Liabilities and Stockholders' Equity $899,904 $558,342 $554,159
======== ======== ========
See notes to consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Earnings
<CAPTION>
Year Ended December 31
1997 1996 1995
(In thousands, except per share data)
<S> <C> <C> <C>
Income:
Net Sales $822,523 $756,925 $740,363
Gain on sale of marketable equity securities - Note D 95,087
Other income 14,092 12,074 14,911
-------- -------- --------
931,702 768,999 755,274
Costs and expenses:
Cost of products sold 482,387 442,149 442,837
Engineering, selling, administrative and other expenses 226,560 194,834 155,362
Non-recurring charges - Note B 16,500
Interest 3,339 1,236 1,959
-------- -------- --------
728,786 638,219 600,158
-------- -------- --------
Earnings Before Income Taxes 202,916 130,780 155,116
Income Taxes - Note F 80,922 49,176 58,089
-------- -------- --------
Net Earnings $121,994 $ 81,604 $ 97,027
======== ======== ========
Net Earnings Per Share - Note G
Basic $ 5.35 $ 3.46 $ 3.84
======= ======= =======
Diluted $ 5.33 $ 3.44 $ 3.82
======= ======= =======
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Operating Activities
Net earnings $121,994 $ 81,604 $ 97,027
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provisions for depreciation and amortization 36,857 34,595 34,595
Change in deferred income taxes (13,375) 1,367 (3,462)
Gain on sale of marketable equity securities (95,087)
Other (9,680) (5,883) 443
Change in operating assets and liabilities, net of effects
from acquisitions of businesses:
Accounts receivable 11,863 (9,959) (19,674)
Inventories 847 (7,401) (1,148)
Prepaid expenses and other current assets (6,824) (1,921) 94
Accounts payable and other accrued expenses 16,577 19,063 11,164
Income taxes payable 8,130 2,582 158
-------- -------- --------
Net Cash Provided by Operating Activities 71,302 114,047 119,197
Investing Activities
Additions to property, plant and equipment (42,223) (34,388) (28,411)
Net dispositions of property, plant and equipment 4,117 506 724
Purchases of investments (3,645) (18,205) (27,379)
Maturities of investments 4,159 25,889 54,470
Payments for acquisitions of businesses (47,659)
Sale of marketable equity securities 119,558
-------- -------- --------
Net Cash Provided by (Used in) Investing Activities 34,307 (26,198) (596)
Financing Activities
Proceeds from short-term notes payable 11,491 42,902 41,230
Proceeds from issuance of long-term debt 100,000
Principal payments on short-term notes payable and long-
term obligations (18,422) (45,246) (46,887)
Cash dividends (23,395) (21,785) (20,651)
Purchases of Common Stock and Class A Common Stock (8,643) (61,691) (107,964)
-------- -------- -------
Net Cash Provided by (Used in) Financing Activities 61,031 (85,820) (134,272)
Effect of exchange rate changes on cash and cash equivalents (1,693) (1,593) 169
-------- -------- -------
Increase (Decrease) in Cash and Cash Equivalents 164,947 436 (15,502)
Cash and cash equivalents at beginning of year 31,453 31,017 46,519
-------- -------- -------
Cash and Cash Equivalents at End of Year $196,400 $ 31,453 $ 31,017
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
Class Stock Class A Class B
Issued and Common Stock Issued and Common Stock
Outstanding Outstanding Issued and
Outstanding
(In thousands, except share data)
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 10,788,985 $ 10,789 12,976,211 $ 12,976 2,357,976 $2,358
Net earnings for the year
Other comprehensive income, net of tax:
Unrealized loss on securities available-for-sale,
net of deferred income taxes of $3,459
Adjustment from foreign currency translation
Other comprehensive income for the year
Comprehensive income for the year
Cash Dividends-$.8250 per share
Conversion of Class B Common Stock to Common
Stock-Note H 2,624 3 (2,624) (3)
Common Stock and Class A Common Stock issued under
Restricted Stock Grant Plan-Note H 4,430 4 4,430 4
Forfeitures of Common Stock and Class A Common
Stock under Restricted Stock Grant Plan-Note H (3,817) (4) (2,939) (3)
Purchases of Common Stock and Class A Common Stock (680,058) (680) (1,266,358) (1,266)
--------------------------------------------------------------------
Balance at December 31, 1995 10,112,164 10,112 11,711,344 11,711 2,355,352 $2,335
Net earnings for the year
Other comprehensive income, net of tax:
Unrealized gain on securities available-for-sale,
net of deferred income taxes of $9,065
Adjustment from foreign currency translation
Other comprehensive income for the year
Comprehensive income for the year
Cash dividends-$.9250 per share
Conversion of Class B Common Stock to Common
Stock-Note H 303,368 303 (303,368) (303)
Common Stock and Class A Common Stock issued under
Restricted Stock Grant Plan-Note H 7,610 8 7,610 8
Forfeitures of Common Stock and Class A Common
Stock under
Restricted Stock Grant Plan-Note H (110) 0 (110) 0
Common Stock and Class A Common Stock issued
under Stock
Award Program Plan-Note H 2,636 3 2,638 2
Common Stock and Class A Common Stock issued under
Defined-Contribution Plan-Note I 10,450 10 10,738 11
Purchases of Common Stock and Class A Common Stock (593,257) (593) (704,461) (704)
-------------------------------------------------------------------
Balance at December 31, 1996 9,842,861 9,843 11,027,759 11,028 2,051,984 2,052
Net earnings for the year
Other comprehensive income, net of tax:
Unrealized gain on securities available
for sale
Adjustment from foreign currency translation
Other comprehensive income for the year
Comprehensive income for the year
Cash dividends-$1.0250 per share
Conversion of Class B Common Stock to Common
Stock-Note H 3,199 3 (3,199) (3)
Common Stock and Class A Common Stock issued under
Restricted Stock Grant Plan-Note H 6,840 6 6,840 7
Forfeitures of Common Stock and Class A Common
Stock under Restricted Stock Grant Plan-Note H (2,145) (2) (1,765) (2)
Common Stock and Class A Common Stock issued
nder Stock Award Program Plan-Note H 2,708 3 2,708 3
Common Stock and Class A Common Stock issued under
Defined-Contribution Plan-Note I
Purchase of Common Stock and Class A Common Stock (122,400) (122) (51,981) (52)
Stock options exercised 20,000 20 20,000 20
Stock issued in acquisition of businesses - Note C 10,000 10
--------------------------------------------------------------------
Balance at December 31, 1997 9,751,063 $ 9,751 11,013,561 $ 11,014 2,048,785 2,049
====================================================================
<CAPTION>
(In thousands, except share data) Accumulated
Additional Other
Paid-in Retained Comprehensive Comprehensive
Capital Earnings Income Income
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 3,192 $ 384,607 $ 20,127
Net earnings for the year 97,027 $ 97,027
Other comprehensive income, net of tax:
Unrealized loss on securities available-for-sale, net of
deferred income taxes of $3,459 (4,923) (4,923)
Adjustment from foreign currency translation 2,290 2,290
Other comprehensive income for the year (2,633)
Comprehensive income for the year $ 94,394
Cash Dividends-$.8250 per share (20,651)
Conversion of Class B Common Stock to Common Stock-Note H
Common Stock and Class A Common Stock issued under
Restricted Stock Grant Plan-Note H 436
Forfeitures of Common Stock and Class A Common Stock under
Restricted Stock Grant Plan-Note H (287)
Purchases of Common Stock and Class A Common Stock (848) (105,169)
------------------------------------
Balance at December 31, 1995 2,493 355,814 17,494
Net earnings for the year 81,604 $ 81,604
Other comprehensive income, net of tax:
Unrealized gain on securities available-for-sale, net of
deferred income taxes of $9,065 14,286 14,286
Adjustment from foreign currency translation (3,568) (3,568)
Other comprehensive income for the year 10,718
Comprehensive income for the year $ 92,322
Cash dividends-$.9250 per share (21,785)
Conversion of Class B Common Stock to Common Stock-Note H
Common Stock and Class A Common Stock issued under
Restricted Stock Grant Plan-Note H 698
Forfeitures of Common Stock and Class A Common Stock under
Restricted Stock Grant Plan-Note H (10)
Common Stock and Class A Common Stock issued under Stock
Award Program Plan-Note H 262
Common Stock and Class A Common Stock issued under
Defined-Contribution Plan-Note I 1,050
Purchases of Common Stock and Class A Common Stock (424) (59,970)
------------------------------------
Balance at December 31, 1996 4,069 355,663 28,212
Net earnings for the year 121,994 $ 121,994
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale (33,854) (33,854)
Adjustment from foreign currency translation (5,697) (5,697)
Other comprehensive income for the year (39,551)
Comprehensive income for the year $ 82,443
Cash dividends-$1.0250 per share (23,395)
Conversion of Class B Common Stock to Common Stock-Note H
Common Stock and Class A Common Stock issued under
Restricted Stock Grant Plan-Note H 662
Forfeitures of Common Stock and Class A Common Stock under
Restricted Stock Grant Plan-Note H (193)
Common Stock and Class A Common Stock issued under Stock
Award Program Plan-Note H 245
Common Stock and Class A Common Stock issued under
Defined-Contribution Plan-Note I
Purchase of Common Stock and Class A Common Stock (93) (8,375)
Stock options exercised 885
Stock issued in acquisition of businesses - Note C 477
-----------------------------------
Balance at December 31, 1997 $ 6,052 $ 445,887 $ (11,339)
===================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts and
transactions of all subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying
amount reported in the consolidated balance sheet for cash and cash
equivalents approximates its fair value.
Accounts Receivable and Concentrations of Credit Risk:
Concentrations of credit risk with respect to accounts receivable are
limited due to the number of customers the Company has and their
geographic dispersion. The Company maintains close working relationships
with these customers and performs ongoing credit evaluations of their
financial condition. No one customer is large enough to pose a significant
financial risk to the Company. The Company maintains an allowance for
losses based upon the expected collectibility of accounts receivable.
Credit losses have been within management's expectations.
Inventories:
Inventories are valued at the lower of cost or market. At December 31,
1997, cost was determined by the last in, first out (LIFO) method for
approximately 52% of the inventories, and on the first in, first out
method for the remainder. At December 31, 1996 and 1995 cost was
determined by the LIFO method for all inventories.
The excess of current cost over the amount stated for inventories valued
by the LIFO method amounted to approximately $22,635,000, $23,111,000 and
24,479,000 at December 31, 1997, 1996, and 1995, respectively.
Property, Plant, and Equipment:
Provisions for depreciation of plant and equipment is computed using
straight-line and declining-balance methods, over the following estimated
useful lives:
Buildings 5 to 50 years
Building Improvements 5 to 39 years
Machinery and equipment 3 to 11 years
Goodwill:
Goodwill, which at December 31, 1997, principally represents the cost in
excess of the fair value of the net assets acquired in the Tire
Distribution Systems, Inc. business acquisitions (See Note C), is
amortized using the straight-line method over 10 years. Goodwill
amortization approximated $2,281,000, $998,000, and $1,037,000 in 1997,
1996, and 1995, respectively.
Foreign Currency Translation:
Assets and liabilities of foreign subsidiaries are translated at the
current exchange rate and items of income and expense are translated at
the average exchange rate for the year. Exchange gains and losses
arising from translations denominated in a currency other than the
functional currency of the foreign subsidiary and translation adjustments
in countries with highly inflationary economies or in which operations are
directly and integrally linked to the Company's U.S. operations are
included in income.
Long Lived Assets:
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of", when indicators of impairment are
present, the Company evaluates the carrying value of property, plant, and
equipment and intangibles in relation to the operating performance and
future undiscounted cash flows of the underlying businesses. The Company
adjusts the net book value of the underlying assets if the sum of the
expected future cash flows is less than book value. During the year ended
December 31, 1997, $13,000,000 was recorded as a nonrecurring charge for
the impairment related to the Company's decision to exit its investment in
a rubber recycling venture (See Note B).
Research and Development:
Expenditures for research and development, which are expensed as incurred,
approximated $21,113,000, $15,909,000, and $10,525,000 in 1997, 1996, and
1995, respectively.
Revenue Recognition:
Sales and associated costs are recognized at the time of delivery of
products or performance of services.
Earnings Per Share:
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
128, "Earnings per Share." SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share (See Note G). Unlike primary earnings per share, basic earnings per
share excludes the dilutive effects of stock options and unvested
restricted stock grants. Diluted earnings per share is very similar to
the previously reported fully diluted earnings per share. All earnings
per share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS No. 128 requirements.
Comprehensive Income:
As of January 1, 1997, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net income or
shareholders' equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities and the foreign currency
translation adjustments, which prior to adoption were reported separately
in the Consolidated Statements of Changes in Shareholders' Equity, to be
included in other comprehensive income. Prior year financial statements
have been reclassified to conform to the requirements of SFAS 130.
Segment Disclosures:
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which is effective for years
beginning after December 15, 1997. SFAS 131 establishes standards for the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The Company will adopt the new requirements retroactively in
1998. Management has not completed its review of SFAS No. 131, but
anticipates that the adoption of this statement will not have a
significant effect on the Company's reported segments.
Reclassification:
Certain prior year amounts have been reclassified to conform with the
current year presentation.
B. NONRECURRING CHARGES
During the fourth quarter 1997, the Company recorded non-recurring charges
totaling $16,500,000 or $9,900,000 net of tax benefits. The non-recurring
charges include a provision of $13,000,000 to adjust asset carrying
amounts and to cover exit costs from a rubber recycling venture and
$3,500,000 for the 1998 closing of a domestic manufacturing facility,
including attendant personnel reductions. The net sales and results of
operations of the rubber recycling venture included in the Company's
consolidated statements of earnings were not significant during any of the
years presented.
C. ACQUISITIONS
During the fourth quarter 1997, Tire Distribution Systems, Inc. (TDS), the
Company's newly formed subsidiary, acquired all of the outstanding shares
of common stock of five tire dealerships (Acquisitions). These
dealerships were Bandag franchises at the time of acquisition and are in
the business of selling and servicing new and retread tires, primarily for
commercial and industrial vehicles. The five dealerships: J.W. Brewer
Tire Company, Inc. (Wheat Ridge, CO), Joe Esco Tire Co. (Oklahoma City,
OK), Sound Tire, Inc. (Seattle, WA), Southern Tire Mart, Inc. (Columbia,
MS), and Universal Tire, Inc. (Nashville, TN) were acquired for a total of
$158.6 million in cash, short-term notes payable and 10,000 shares of
Bandag Class A Common Stock.
The Acquisitions were accounted for using the purchase method of
accounting. Accordingly, the purchase price for each acquisition was
allocated to the respective assets and liabilities based on their
estimated fair values as of the date of acquisition. The purchase price
allocations have been completed on a preliminary basis, subject to
adjustment should new or additional facts about the businesses become
known. The accounts and transactions of the acquired businesses have been
included in the consolidated financial statements from November 1, 1997,
the effective date of the acquisitions.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the acquired
businesses as if the Acquisitions had occurred as of January 1, 1996. The
pro forma information is presented for informational purposes only and
includes certain adjustments, such as additional depreciation expense as a
result of the write-up to fair value of fixed assets, amortization of
goodwill, and increased interest expense on acquisition debt. They do not
purport to be indicative of the results of operations that actually would
have been achieved had the Acquisitions been consummated as of January 1,
1996.
Year Ended December 31,
in thousands, except per share data: 1997 1996
Net Sales $1,113,300 $1,077,900
Cost of Products sold 684,500 671,300
Net Earnings $ 123,700 $ 78,600
Earnings per share:
Basic $5.43 $3.33
Diluted $5.40 $3.31
The following unaudited pro forma information presents the results of the
acquired businesses as a stand alone entity as if the acquisitions had
occurred as of January 1, 1996:
Year Ended December 31,
in thousands 1997 1996
Net Sales $389,085 $365,969
Cost of products sold 287,788 274,048
Goodwill amortization 7,779 7,779
Net Loss $ (1,298) $ (3,050)
Certain supplemental non-cash information related to the Company's
acquisitions of businesses in 1997 is as follows:
in thousands
Assets acquired $248,724
Less liabilities(1) (177,387)
Less stock issued(2) (487)
-------
Cash paid 70,850
Less cash acquired 23,191
-------
Net cash paid for acquisitions $47,659
=======
(1) Includes notes payable to sellers of $87,224,000.
(2) Represents fair market value of Class A common stock
issued to sellers.
D. INVESTMENTS
Debt securities are classified as held-to-maturity based upon the positive
intent and ability of the Company to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion is included in investment income. Interest on
securities classified as held-to-maturity is included in investment
income.
Marketable equity securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value with the
unrealized gains, net of tax, reported as a separate component of
stockholders' equity. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are
included in investment income. The cost of securities sold is based on
the specific identification method. During the fourth quarter 1997, the
Company sold its investment in marketable equity securities. As a result,
a realized gain of $95,087,000 was included in the Consolidated Statements
of Earnings for the year ended December 31, 1997. Dividends on securities
classified as available-for-sale are included in investment income.
The following is a summary of securities held-to-maturity and available-
for-sale:
<TABLE>
<CAPTION>
Gross Unrealized Estimated Fair
in thousands Cost Gains Value
<S> <C> <C> <C>
December 31, 1997
Securities Held-to-Maturity
Obligations of states and
political subdivisions $38,561 $ - $38,561
Investment in Eurodollar time
deposits 2,600 - 2,600
-------- ---------- ---------
$41,161 $ - $41,161
======== ========== =========
December 31, 1996
Securities Held-to-Maturity
Obligations of states and
political subdivisions $10,694 $ 5 $10,699
Short-term corporate debt 3,350 - 3,350
Investment in Eurodollar time
deposits 3,000 - 3,000
------- --------- --------
$17,044 $ 5 $17,049
======= ========= ========
Securities Available-for-Sale
Marketable equity securities $24,416 $54,619 $79,035
======= ========= ========
December 31, 1995
Securities Held-to-Maturity
Obligations of states and
political subdivisions $19,028 $ 6 $19,034
Short-term corporate debt 4,450 - 4,450
Investment in Eurodollar time
deposits 7,100 - 7,100
-------- --------- --------
$30,578 $ 6 $30,584
======== ========= ========
Securities Available-for-Sale
Marketable equity securities $24,416 $31,268 $55,684
======== ========= ========
</TABLE>
At December 31, 1997, 1996 and 1995, securities held-to-maturity are due
in one year or less and include $39,586,000, $14,955,000 and $20,805,000,
respectively, reported as cash equivalents.
E. FINANCING ARRANGEMENTS
The following summarizes information concerning the Company's short term
notes payable:
December 31,
in thousands 1997 1996 1995
Total short-term notes payable at year end $90,628 $43 $261
Weighted average interest rate at year end 6.4% 6.0% 10.7%
Weighted average interest rate for the year 6.0% 5.8% 7.9%
At December 31, 1997, short-term notes payable includes $87,224,000
payable in January 1998 to the former shareholders of certain of the
businesses acquired in 1997 (See Note C).
The following is a summary of the Company's long-term debt and other
obligations as of December 31:
in thousands Interest
Rates 1997 1996 1995
Senior Unsecured Notes
Payable, maturing
2002 6.41% $ 60,000 $ - $ -
Senior Unsecured Notes
Payable, maturing
2007 6.50% 40,000 - -
-----------------------------
Total long-term debt $100,000 - -
Other obligations 23,195 10,125 11,857
-----------------------------
Total long-term debt and
other obligations $123,195 $10,125 $11,857
=============================
The aggregate amount of scheduled annual maturities of long-term debt and
other obligations for each of the next five years is: $9,098,000 in 1998;
$6,476,000 in 1999; $3,662,000 in 2000; $7,206,000 in 2001; $67,385,000 in
2002; and $38,466,000 thereafter.
Cash payments for interest on debt were $3,143,000, $1,764,000 and
$2,231,000 in 1997, 1996, and 1995, respectively.
The fair values of the Company's financing arrangements were estimated
using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
At December 31, 1997, the fair value of the Company's outstanding long-
term obligations approximate its carrying amount.
Total available funds under unused lines of credit at December 31, 1997
amounted to $111,000,000.
F. INCOME TAXES
Significant components of the Company's deferred tax assets (liabilities)
reflecting the net tax effects of temporary differences are summarized as
follows:
<TABLE>
<CAPTION>
December 31
in thousands 1997 1996 1995
<S> <C> <C> <C>
Obligation to provide postretirement benefits $ 2,403 $ 2,243 $ 2,039
Marketing programs 14,303 14,012 11,148
Accounts receivable valuation allowances 2,848 2,696 2,834
Unremitted earnings of foreign subsidiaries (5,625) (3,488) (1,999)
Excess pension funding (4,882) (3,953) (3,252)
Purchased tax benefits (445) (1,025) (1,531)
Unrealized holding gain on marketable
equity securities - (20,765) (11,700)
Cost to exit rubber recycling venture 4,980 - -
Other, net 18,066 11,282 4,623
------- -------- --------
Net deferred tax assets $ 31,648 $ 1,002 $ 2,162
======= ======== ========
<CAPTION>
The components of earnings before income
taxes are summarized as follows:
Year Ended December 31
in thousands 1997 1996 1995
<S> <C> <C> <C>
Domestic $177,066 $102,099 $116,373
Foreign 25,850 28,681 38,743
-------- -------- --------
$202,916 $130,780 $155,116
======== ======== ========
<CAPTION>
Significant components of the provision for income tax
expense (credit) are summarized as follows:
Year Ended December 31
in thousands 1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ 68,167 $39,570 $39,513
State 14,667 4,900 4,900
Foreign 17,343 11,353 14,010
Deferred:
Federal (9,432) (4,354) (1,555)
State - (486) (107)
Foreign (9,243) (1,301) 1,768
Equivalent credit relating to purchased
income tax benefits (580) (506) (440)
-------- ------- --------
$82,919 $49,176 $58,089
======== ======= ========
</TABLE>
No item, other than state income taxes in 1997, 1996, and 1995 affects the
Company's effective income tax rate by an amount which exceeds 5% of the
income tax expense computed at the statutory rate.
Undistributed earnings of subsidiaries on which deferred income taxes have
not been provided are not significant.
Income taxes paid amounted to $85,804,000, $52,992,000 and $58,238,000 in
1997, 1996, and 1995, respectively.
G. EARNINGS PER SHARE
Earnings per share amounts are based on the weighted average number of
shares of Common Stock, Class A Common Stock, Class B Common Stock and
dilutive potential common shares (non-vested restricted stock and stock
options) outstanding during the year.
The following table sets forth the computation of basic and diluted
earnings per share:
in thousands, except per share amounts 1997 1996 1995
Numerator:
Net Earnings $121,994 $ 81,604 $ 97,027
Denominator:
Denominator for basic earnings
per share-weighted-average
shares 22,786 23,613 25,273
Effect of dilutive securities:
Non-vested restricted stock 36 28 30
Stock options 86 105 117
-------- ------- -------
Dilutive potential common
shares: 122 133 147
Denominator for diluted
earnings per share -
weighted-average
shares and dilutive
potential common shares 22,908 23,746 25,420
========= ======= =======
Net Earnings Per Share:
Basic $5.35 $3.46 $3.84
========= ======= =======
Diluted $5.33 $3.44 $3.82
========= ======= =======
H. STOCKHOLDERS' EQUITY
Class A Common Stock and Class B Common Stock have the same rights
regarding dividends and distributions upon liquidation as Common Stock.
However, Class A Common Stockholders are not entitled to vote, Class B
Common Stockholders are entitled to ten votes for each share held and
Common Stockholders are entitled to one vote for each share held. Transfer
of shares of Class B Common Stock is substantially restricted and must be
converted to Common Stock prior to sale. In certain instances, outstanding
shares of Class B Common Stock will be automatically converted to shares
of Common Stock. Unless extended for an additional period of five years by
the Board of Directors, all then-outstanding shares of Class B Common
Stock will be converted to shares of Common Stock on January 16, 2002.
Under the terms of the Bandag, Incorporated Restricted Stock Grant Plan,
the Company is authorized to grant up to an aggregate of 100,000 shares of
Common Stock and 100,000 shares of Class A Common Stock to certain key
employees. The shares granted under the Plan will entitle the grantee to
all dividends and voting rights; however, such shares will not vest until
seven years after the date of grant. If a grantee's employment is
terminated prior to the end of the seven-year period for any reason other
than death, disability or termination of employment after age 60, the
shares will be forfeited and made available for future grants. A grantee
who has attained age 60 and whose employment is then terminated prior to
the end of the seven-year vesting period does not forfeit the non-vested
shares. During the years ended December 31, 1997, 1996, and 1995, 6,840
shares, 7,610 shares and 4,430 shares of Common Stock, respectively, were
granted under the Plan. During the years ended December 31, 1997, 1996 and
1995, 6,840 shares, 7,610 shares and 4,430 shares of Class A Common Stock,
respectively, were also granted under the Plan. The resulting charge to
earnings amounted to $1,177,000, $1,245,000, and $770,000, in 1997, 1996,
and 1995, respectively. During the year ended December 31, 1997, 2,145
shares of Common Stock and 1,765 shares of Class A Common Stock were
forfeited. During the year ended December 31, 1996, 110 shares of Common
Stock and 110 shares of Class A Common Stock were forfeited. The credit
to 1997 and 1996 earnings related to the forfeited shares was
approximately $197,000 and $12,000, respectively. At December 31, 1997,
37,460 shares of Common Stock and 46,850 shares of Class A Common Stock
are available for grant under the Plan.
Under the terms of the Bandag, Incorporated Nonqualified Stock Option
Plan, the Company was authorized through November 13, 1997 to grant
options to purchase up to 500,000 shares of Common Stock and 500,000
shares of Class A Common Stock to certain key employees at an option price
equal to the market value of the shares on the date of grant. No options
were granted under the Plan in 1997, 1996 or 1995. During 1997, options
to purchase 20,000 shares of Common Stock and 20,000 shares of Class A
Common Stock were exercised. At December 31, 1997, options to purchase
80,000 shares of Common Stock and 80,000 shares of Class A Common Stock
are outstanding and exercisable at $23.458 per share for Common Stock
options and $22.792 per share for Class A Common Stock options. Options
to purchase 20,000 shares of Common Stock and 20,000 shares of Class A
Common Stock expire on November 13, 1998, and each of the three
anniversaries thereafter.
The Company has a stock award program covering substantially all U.S. and
Canadian employees, except for employees of its subsidiary, TDS, which was
established to promote employee commitment and ownership in the Company.
In 1997, 1996 and 1995, $283,000, $250,000 and $284,000, respectively,
were charged to earnings for the estimated cost of awards to be made under
the stock award program.
I. EMPLOYEE PENSION PLANS
The Company sponsors defined-benefit pension plans covering full-time
employees directly employed by Bandag, Incorporated, Bandag Licensing
Corporation, Bandag Canada, Ltd., and certain employees in the Company's
European operations. For the year ended December 31, 1997, certain
employees of TDS are also covered by defined-benefit plans. Benefits are
based on years of service and, for salaried employees, the employee's
average annual compensation for the last five years of employment. The
Company's funding policy is to contribute annually the maximum amount that
can be deducted for income tax purposes. Contributions are intended to
provide for benefits attributed to service to date and those expected to
be earned in the future.
Aggregate accumulated benefit obligations, projected benefit obligations,
as estimated by consulting actuaries, plan net assets and funded status
are as follows:
December 31
in thousands 1997 1996 1995
Actuarial present value of
accumulated benefit obligations:
Vested $ 45,823 $ 40,944 $ 33,787
Non-vested 2,401 3,145 5,810
-------- --------- --------
$ 48,224 $ 44,089 $ 39,597
======== ========= ========
Plan net assets at fair value $116,304 $ 90,775 $ 79,291
Projected benefit obligations 62,305 58,357 54,496
-------- --------- --------
Plan net assets in excess of
projected benefit obligations 53,999 32,418 24,795
Unrecognized prior service cost 1,054 1,187 1,278
Unamortized actuarial net gain (38,737) (19,557) (12,988)
Unamortized net transition gain (4,968) (5,591) (6,332)
-------- --------- -------
Prepaid pension cost included
in the consolidated balance sheet $ 11,348 $ 8,457 $ 6,753
======== ========= ========
Assumptions used in the determination of the actuarial present value of
the projected benefit obligations and net pension cost are as follows:
December 31
1997 1996 1995
Weighted average discount rate 7.00% 7.00% 7.00%
Rate of increase in future
compensation 4.50% 4.50% 4.75%
Expected long-term rate of
return on assets 8.00% 8.00% 8.00%
Assets of the plans are principally invested in U.S. domestic common
stocks, and short term notes and bonds (fixed income securities) with
maturities under five years.
Pension expense (credit) is composed of the following:
Year Ended December 31
in thousands 1997 1996 1995
Service cost for benefits earned
during the year $ 2,420 $ 2,193 $ 1,929
Interest cost on projected
benefit obligations 3,382 3,153 2,899
Investment return on plan assets (25,807) (12,025) (14,510)
Net amortization and deferral 17,610 5,045 8,964
-------- ------- -------
Net periodic pension expense
(credit) $(2,395) $(1,634) $ (718)
======== ======= =======
The Company also sponsors defined-contribution plans, covering
substantially all employees in the United States. Annual contributions are
made in such amounts as determined by the Company's Board of Directors.
Although employees may contribute up to 15% of their annual compensation
from the Company, they are generally not required to make contributions in
order to participate in the plans. The Company currently provides plans
with a variety of contribution levels (including employee contribution
match provisions). The Company recorded expense for contributions in the
amount of $3,439,000, $2,796,000, and $3,578,000 in 1997, 1996, and 1995,
respectively.
Employees in most foreign countries are covered by various retirement
benefit arrangements generally sponsored by the foreign governments. The
Company's contributions to foreign plans were not significant in 1997,
1996, and 1995.
J. OTHER POSTRETIREMENT EMPLOYEE BENEFITS
The Company provides medical benefits under its self-insured health
benefit plan to certain individuals who retired from employment before
January 1, 1993. Employees who retire after December 31, 1992 and are at
least age 62 with 15 years of service after direct employment with Bandag,
Incorporated, Bandag Licensing Corporation, or Kendon Corporation are
eligible for temporary medical benefits that cease at age 65. The program
is contributory, with retiree contributions adjusted periodically. The
program also contains co-insurance provisions, which result in shared
costs between the Company and the retiree. The Company's postretirement
medical obligations are unfunded.
The following table sets forth amounts recognized in the Company's
consolidated financial statements:
December 31
in thousands 1997 1996 1995
Accumulated postretirement
benefit obligation:
Retirees $2,173 $2,146 $2,109
Fully eligible active plan participants 80 104 111
Other active plan participants 3,646 3,177 2,754
------- ------ ------
Accumulated postretirement
benefit obligation 5,899 5,427 4,974
Unrecognized net gain and prior
service cost 375 429 351
------- ------ ------
Accrued postretirement benefit cost $6,274 $5,856 $5,325
======= ====== ======
Net periodic postretirement benefit cost
includes the following components:
Service cost $247 $231 $200
Interest cost on accumulated
postretirement benefit obligation 375 344 321
Net amortization and deferral 3 3 33
------- ------ ------
Net periodic postretirement
benefit cost $ 625 $578 $554
======= ====== ======
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits is 9% for 1998 and is assumed to decrease
gradually to 6% for 2001 and remain at that level thereafter. Increasing
the assumed health care cost trend rates by one percentage point in each
year would increase the accumulated postretirement benefit obligation as
of December 31, 1997, by $837,000 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for
1997 by $103,000. The weighted-average discount rate used in determining
the accumulated postretirement benefit obligation was 7.0% for 1997, 1996
and 1995.
Substantially all United States employees with the Company on and after
January 1, 1993, excluding the employees of TDS, are covered by the Bandag
Security Program, which provides fully vested benefits after 5 years of
service. Benefits under this program are available upon retirement or
separation for any other reason and may be used in connection with medical
expense, insurance premiums, or for any other purpose. The periodic cost
and benefit obligation information for the Bandag Security Program is
reflected in Note I.
K. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into agreements (derivative financial instruments) to
manage the risks associated with certain aspects of its business, but does
not actively trade such instruments nor enter into such agreements for
speculative purposes. The Company principally utilizes foreign currency
forward exchange contracts and foreign currency option contracts.
Option contracts that are designated as hedges are marked to market with
realized and unrealized gains and losses deferred and recognized in
earnings as an adjustment to sales when the future sales occur (the
deferral accounting method). Realized and unrealized gains and losses on
options that are not designated as hedges, that fail to be effective
hedges, or that relate to sales that are no longer probable of occurring
would be included in income as foreign exchange gains or losses. The
assets representing the fair value of open positions and deferred amounts
are included in other assets and liabilities, respectively.
The Company periodically uses forward foreign exchange contracts to reduce
its exposure to foreign currency risk from receivables denominated in
foreign currencies and certain firm purchase commitments.
For contracts that are designated and effective as hedges, discounts or
premiums are accreted or amortized to other operating expenses over the
contract lives using the straight-line method while the realized and
unrealized gains and losses resulting from changes in the spot exchange
rate, net of related taxes, are included in the cumulative transaction
adjustment account in shareholders' equity. The related amounts due to or
from counterparties are included in other assets or other liabilities.
Contract amounts, after considering tax effects, in excess of the carrying
value of the Company's obligations are marked to market, with changes in
market value recorded in earnings as foreign exchange gains or losses.
Realized and unrealized gains or losses at the time of maturity,
termination, sale or repayment of a derivative contract or designated item
are recorded in a manner consistent with the original designation of the
derivative in view of the nature of the termination, sale, or repayment
transaction. Amounts arising at the settlement of currency forward or
option contracts require no special accounting because such amounts are
periodically recorded. Realized and unrealized changes in fair value of
derivatives designated with items that no longer exist or are no longer
probable of occurring are recorded as a component of the gain or loss
arising from the disposition of the designated item.
At December 31, 1997, 1996 and 1995, the Company had approximately
$12,301,000, $23,862,000 and $18,156,000, respectively, in foreign
currency forward exchange contracts and foreign currency option contracts
designated and effective as hedges which become due in various amounts and
at various dates throughout the following year. The difference between
the contract amounts and their fair value, in the aggregate, was
insignificant at December 31, 1997, 1996 and 1995.
L. BUSINESS INFORMATION BY GEOGRAPHIC AREA
The information regarding operations in different segments and geographic
areas is presented on page 10 of this report, and is incorporated herein
by reference.
M. SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December 31,
1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended
in thousands, except per share data Mar. 31 Jun. 30 Sep. 30 Dec. 31
1997:
<S> <C> <C> <C> <C>
Net sales $169,518 $195,748 $201,242 $256,015
Gross profit 68,969 80,446 85,230 105,491
Net earnings 13,740 17,560 23,794 $66,900
Net earnings per share:
Basic $0.60 $0.77 $1.04 $2.94
Diluted $0.60 $0.77 $1.04 $2.92
1996:
Net sales $170,303 $188,875 $194,086 $203,661
Gross profit 66,295 77,403 85,762 85,316
Net earnings 15,866 20,094 23,945 21,699
Net earnings per share:
Basic $0.65 $0.83 $1.03 $0.95
Diluted $0.65 $0.83 $1.02 $0.94
</TABLE>
Earnings per share amounts for 1996 and the first three quarters of 1997
have been restated to comply with SFAS No. 128, as described in Note A.
Fourth quarter 1997 net earnings reflect a non-recurring after tax gain of
$55,800,000 ($2.44 per diluted share) as a result of the sale of
marketable equity securities which is further described in Note D. As
further described in Note B, net earnings for the fourth quarter 1997 also
reflect non-recurring charges totaling $9,900,000 ($.43 per diluted
share), relating to costs to exit a rubber recycling venture and closing a
domestic manufacturing facility.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10 (with respect to the directors
of the registrant) is incorporated herein by reference from the
registrant's definitive Proxy Statement involving the election of
directors filed or to be filed pursuant to Regulation 14A not later than
120 days after December 31, 1997. In accordance with General Instruction
G (3) to Form 10-K, the information with respect to executive officers of
the Company required by Item 10 has been included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not
later than 120 days after December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not
later than 120 days after December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not
later than 120 days after December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements are included in Part
II, Item 8:
Page
Consolidated Balance Sheets as of December 31, 1997, 1996 and
1995 25
Consolidated Statements of Earnings for the Years Ended December
31, 1997, 1996 and 1995 26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 26
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1997, 1996 and 1995 27
Notes to Consolidated Financial Statements 28
(2) Financial Statement Schedule
Schedule II - Valuation and qualifying accounts and reserves.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
(3) Exhibits
Exhibit No. Description
3.1 Bylaws: As amended February 5, 1997 (Incorporated by
reference to Exhibit No. 3.1 to the Company's Form 10-
K for the year ended December 31, 1996.)
3.2 Restated Articles of Incorporation, effective December
30, 1986. (Incorporated by reference to Exhibit No.
3.2 to the Company's Form 10-K for the year ended
December 31, 1992.)
3.3 Articles of Amendment to Bandag, Incorporated's
Articles of Incorporation, effective May 6, 1992.
(Incorporated by reference to Exhibit No. 3.3 to the
Company's Form 10-K for the year ended December 31,
1992.)
4.1 Instruments defining the rights of security holders.
(Incorporated by reference to Exhibit Nos. 3.2 and 3.3
to the Company's Form 10-K for the year ended December
31, 1992.)
4.2 Note Purchase Agreement dated December 15, 1997 for
$60,000,000 of 6.41% Senior Notes due December 15,
2002.
4.3 Note Purchase Agreement dated December 15, 1997 for
$40,000,000 of 6.50% Senior Notes due December 15,
2007.
10.1* Bandag, Incorporated Restricted Stock Grant Plan, as
amended November 12, 1996 (Incorporated by reference
to Exhibit No. 10.1 to the Company's Form 10-K for the
year ended December 31, 1996.)
10.2 U.S. Bandag System Franchise Agreement Truck and Bus
Tires. (Incorporated by reference to Exhibit No. 10.2
to the Company's Form 10-K for the year ended
December 31, 1993.)
10.2(a) U.S. Bandag System Franchise Agreement Truck and Bus
Tires, as is revised April 1996. (Incorporated by
reference to Exhibit No. 10.2(a) to the Company's Form
10-K for the year ended December 31, 1996.)
10.3* Miscellaneous Fringe Benefits for Executives.
(Incorporated by reference to Exhibit No. 10.3 to the
Company's Form 10-K for the year ended December 31,
1996.)
10.4* Nonqualified Stock Option Plan, as amended
November 12, 1996 (Incorporated by reference to
Exhibit No. 10.4 to the Company's Form 10-K for the
year ended December 31, 1996.)
10.5* Nonqualified Stock Option Agreement of Martin G.
Carver dated November 13, 1987, as amended by an
Addendum dated June 12, 1992. (Incorporated by
reference to Exhibit No. 10.7 to the Company's Form
10-K for the year ended December 31, 1992.)
10.6* Form of Participation Agreement under the Bandag,
Incorporated Restricted Stock Grant Plan.
(Incorporated by reference as Exhibit 10.7 to the
Company's Form 10-K for the year ended December 31,
1994.)
10.7* Agreement with William A. Sweatman regarding
termination of employment dated May 21, 1997.
10.8* Agreement with William D. Herd regarding termination
of employment, dated September 12, 1995 (Incorporated
by reference to Exhibit 10.8 to the Company's Form 10-
K for the year ended December 31, 1995.)
21 Subsidiaries of Registrant.
27 Financial Data Schedule (with EDGAR filing only)
27.1 Revised 1996 Financial Data Schedule (with EDGAR
filing only)
27.2 Revised 1995 Financial Data Schedule (with EDGAR
filing only)
*Represents a management compensatory plan or arrangement.
(b) Reports on Form 8-K dated were filed by the Company under date of
November 26, 1997 and November 12, 1997.
<PAGE>
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BANDAG, INCORPORATED AND SUBSIDIARIES
<CAPTION>
COL. C
COL. A COL. B ADDITIONS COL. D COL. E
1 2
Balance at Charged to Charged to Other Balance at End
Beginning of Costs and Accounts - Deductions - of
DESCRIPTION Period Expenses Describe Describe Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts $13,320,000 $3,491,000 $4,104,000 (1) $12,707,000
Year ended December 31, 1996:
Allowance for doubtful accounts $12,327,000 $3,289,000 $2,296,000 (1) $13,320,000
Year ended December 31, 1995:
Allowance for doubtful accounts $11,883,000 $1,964,000 $1,520,000 (1) $12,327,000
(1) - Uncollectible accounts written off, net of recoveries and foreign exchange fluctuations.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BANDAG, INCORPORATED
By /s/ Martin G. Carver
Martin G. Carver
Chairman of the Board,
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Robert T. Blanchard /s/ Lucille A. Carver
Robert T. Blanchard Lucille A. Carver
Director Director
/s/ Roy J. Carver, Jr. /s/ Gary E. Dewel
Roy J. Carver, Jr. Gary E. Dewel
Director Director
/s/ James R. Everline /s/ Phillip J. Hanrahan
James R. Everline Phillip J. Hanrahan
Director Director
/s/ R. Stephen Newman
/s/ Edgar D. Jannotta R. Stephen Newman
Edgar D. Jannotta Director
Director
/s/ Warren W. Heidbreder
/s/ Martin G. Carver Warren W. Heidbreder
Martin G. Carver Vice President,
Chairman of the Board, Chief Financial Officer
Chief Executive Officer, (Chief Accounting Officer)
President and Director
(Principal Executive Officer) /s/ Charles W. Vesey
Charles W. Vesey
Corporate Controller
(Principal Accounting Officer)
Date: March 27, 1998
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1 Bylaws: As amended February 5, 1997 (Incorporated by
reference to Exhibit No. 3.1 to the Company's Form 10-K
for the year ended December 31, 1996.)
3.2 Restated Articles of Incorporation, effective December 30,
1986. (Incorporated by reference to Exhibit No. 3.2 to the
Company's Form 10-K for the year ended December 31, 1992.)
3.3 Articles of Amendment to Bandag, Incorporated's Articles
of Incorporation, effective May 6, 1992. (Incorporated by
reference to Exhibit No. 3.3 to the Company's Form 10-K
for the year ended December 31, 1992.)
4.1 Instruments defining the rights of Security Holders.
(Incorporated by reference to Exhibit Nos. 3.2 and 3.3 to
the Company's Form 10-K for the year ended December 31,
1992.)
4.2 Note Purchase Agreement dated December 15, 1997 for
$60,000,000 of 6.41% Senior Notes due December 15, 2002.
4.3 Note Purchase Agreement dated December 15, 1997 for
$40,000,000 of 6.50% Senior Notes due December 15, 2007.
10.1 *Bandag, Incorporated Restricted Stock Grant Plan, as
amended November 12, 1996. (Incorporated by reference to
Exhibit No. 10.1 to the Company's Form 10-K for the year
ended December 31, 1996.)
10.2 U. S. Bandag System Franchise Agreement Truck and Bus
Tires. (Incorporated by reference to Exhibit No. 10.2 to
the Company's Form 10-K for the year ended December 31,
1993.)
10.2(a) U. S. Bandag System Franchise Agreement Truck and Bus
Tires as is revised April 1996. (Incorporated by
reference to Exhibit No. 10.2(a) to the Company's Form 10-
K for the year ended December 31, 1996.)
10.3 *Miscellaneous Fringe Benefits for Executives.
(Incorporated by reference to Exhibit No. 10.3 to the
Company's Form 10-K for the year ended December 31, 1996.)
10.4 *Nonqualified Stock Option Plan, as amended November 12,
1996. (Incorporated by reference to Exhibit No. 10.4 to
the Company's Form 10-K for the year ended December 31,
1996.)
10.5 *Nonqualified Stock Option Agreement of Martin G. Carver
dated November 13, 1987, as amended by an Addendum dated
June 12, 1992. (Incorporated by reference to Exhibit No.
10.7 to the Company's Form 10-K for the year ended
December 31, 1992.)
10.6 *Form of Participation Agreement under the Bandag,
Incorporated Restricted Stock Grant Plan. (Incorporated
by reference to Exhibit No. 10.7 to the Company's Form 10-
K for the year ended December 31, 1994.)
10.7 *Agreement with William A. Sweatman regarding termination
of employment dated May 21, 1997.
10.8 *Agreement with William D. Herd regarding termination of
employment dated September 12, 1995 (incorporated by
reference to Exhibit 10.8 to the Company's Form 10-K for
the year ended December 31, 1995.)
21 Subsidiaries of Registrant.
27 Financial Data Schedule (with EDGAR filing only)
27.1 Revised 1996 Financial Data Schedule (with EDGAR filing
only)
27.2 Revised 1995 Financial Data Schedule (with EDGAR filing
only)
* Represents a management compensatory plan or arrangement.
Execution Copy
BANDAG, INCORPORATED
$60,000,000
6.41% Senior Notes due December 15, 2002
_______________
NOTE PURCHASE AGREEMENT
________________
Dated December 15, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
1. AUTHORIZATION OF NOTES . . . . . . . . . . . . . . . . . . . . . . 1
2. SALE AND PURCHASE OF NOTES . . . . . . . . . . . . . . . . . . . . 1
3. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . 2
4.1. Representations and Warranties . . . . . . . . . . . . . . . 2
4.2. Performance; No Default . . . . . . . . . . . . . . . . . . 2
4.3. Compliance Certificates . . . . . . . . . . . . . . . . . . 3
4.4. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . 3
4.5. Purchase Permitted By Applicable Law, etc. . . . . . . . . . 3
4.6. Sale of Other Notes . . . . . . . . . . . . . . . . . . . . 3
4.7. Payment of Special Counsel Fees . . . . . . . . . . . . . . 4
4.8. Private Placement Number . . . . . . . . . . . . . . . . . . 4
4.9. Changes in Corporate Structure . . . . . . . . . . . . . . . 4
4.10. Proceedings and Documents . . . . . . . . . . . . . . . . . 4
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . 4
5.1. Organization; Power and Authority . . . . . . . . . . . . . 4
5.2. Authorization, etc. . . . . . . . . . . . . . . . . . . . . 5
5.3. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4. Organization and Ownership of Shares of Subsidiaries . . . . 5
5.5. Financial Statements . . . . . . . . . . . . . . . . . . . . 6
5.6. Compliance with Laws, Other Instruments, etc. . . . . . . . 6
5.7. Governmental Authorizations, etc. . . . . . . . . . . . . . 7
5.8. Litigation; Observance of Statutes and Orders . . . . . . . 7
5.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.10. Title to Property; Leases . . . . . . . . . . . . . . . . . 7
5.11. Licenses, Permits, etc. . . . . . . . . . . . . . . . . . . 8
5.12. Compliance with ERISA . . . . . . . . . . . . . . . . . . . 8
5.13. Private Offering by the Company . . . . . . . . . . . . . . 9
5.14. Use of Proceeds; Margin Regulations . . . . . . . . . . . . 9
5.15. Existing Indebtedness . . . . . . . . . . . . . . . . . . . 9
5.16. Foreign Assets Control Regulations, etc. . . . . . . . . . . 10
5.17. Status under Certain Statutes . . . . . . . . . . . . . . . 10
6. REPRESENTATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . 10
6.1. Purchase for Investment . . . . . . . . . . . . . . . . . . 10
6.2. Source of Funds . . . . . . . . . . . . . . . . . . . . . . 10
7. INFORMATION AS TO COMPANY . . . . . . . . . . . . . . . . . . . . 12
7.1. Financial and Business Information . . . . . . . . . . . . . 12
7.2. Officer's Certificate . . . . . . . . . . . . . . . . . . . 14
7.3. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . 15
8. PREPAYMENT OF THE NOTES . . . . . . . . . . . . . . . . . . . . . 15
8.1. Required Prepayments . . . . . . . . . . . . . . . . . . . . 15
8.2. Optional Prepayments with Make-Whole Amount . . . . . . . . 15
8.3. Allocation of Partial Prepayments . . . . . . . . . . . . . 16
8.4. Maturity; Surrender, etc. . . . . . . . . . . . . . . . . . 16
8.5. Purchase of Notes . . . . . . . . . . . . . . . . . . . . . 16
8.6. Make-Whole Amount . . . . . . . . . . . . . . . . . . . . 17
9. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 18
9.1. Compliance with Law . . . . . . . . . . . . . . . . . . . . 18
9.2. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.3. Maintenance of Properties . . . . . . . . . . . . . . . . . 19
9.4. Payment of Taxes and Other Claims . . . . . . . . . . . . . 19
9.5. Corporate Existence, etc. . . . . . . . . . . . . . . . . . 19
10. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 20
10.1. Transactions with Affiliates . . . . . . . . . . . . . . . . 20
10.2. Merger, Consolidation and Disposition of Assets . . . . . . 20
10.3. Limitations on Indebtedness. . . . . . . . . . . . . . . . . 22
10.4. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . 23
10.5. Priority Debt. . . . . . . . . . . . . . . . . . . . . . . . 25
10.6. Sale and Leaseback. . . . . . . . . . . . . . . . . . . . . 25
10.7. Limitation on Investments. . . . . . . . . . . . . . . . . . 25
10.8. Restricted Payments. . . . . . . . . . . . . . . . . . . . . 25
10.9. Line of Business. . . . . . . . . . . . . . . . . . . . . . 25
10.10.Subsidiary Dividend Restrictions. . . . . . . . . . . . . . 25
11. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 26
12. REMEDIES ON DEFAULT, ETC. . . . . . . . . . . . . . . . . . . . . 28
12.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 28
12.2. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . 29
12.3. Rescission . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.4. No Waivers or Election of Remedies, Expenses, etc. . . . . . 29
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES . . . . . . . . . . 30
13.1. Registration of Notes . . . . . . . . . . . . . . . . . . . 30
13.2. Transfer and Exchange of Notes . . . . . . . . . . . . . . . 30
13.3. Replacement of Notes . . . . . . . . . . . . . . . . . . . . 30
14. PAYMENTS ON NOTES . . . . . . . . . . . . . . . . . . . . . . . . 31
14.1. Place of Payment . . . . . . . . . . . . . . . . . . . . . . 31
14.2. Home Office Payment . . . . . . . . . . . . . . . . . . . . 31
15. EXPENSES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.1. Transaction Expenses . . . . . . . . . . . . . . . . . . . . 32
15.2. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 32
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT . . . 32
17. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . 33
17.1. Requirements . . . . . . . . . . . . . . . . . . . . . . . . 33
17.2. Solicitation of Holders of Notes . . . . . . . . . . . . . . 33
17.3. Binding Effect, etc. . . . . . . . . . . . . . . . . . . . . 34
17.4. Notes held by Company, etc. . . . . . . . . . . . . . . . . 34
18. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19. REPRODUCTION OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . 35
20. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 35
21. SUBSTITUTION OF PURCHASER . . . . . . . . . . . . . . . . . . . . 36
22. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . 36
22.2. Payments Due on Non-Business Days . . . . . . . . . . . . . 37
22.3. Severability . . . . . . . . . . . . . . . . . . . . . . . . 37
22.4. Construction . . . . . . . . . . . . . . . . . . . . . . . . 37
22.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 37
22.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 37
SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of
Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.11 -- Patents, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness
SCHEDULE 10.4 -- Existing Liens
SCHEDULE 10.7 -- Existing Investments
EXHIBIT 1 -- Form of 6.41% Senior Note due December 15, 2002
EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
<PAGE>
BANDAG, INCORPORATED
2905 North Highway 61
Muscatine, IA 52671
6.41% Senior Notes due December 15, 2002
December 15, 1997
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Bandag, Incorporated, an Iowa corporation (the "Company"),
agrees with each of the purchasers listed in the attached Schedule A
(individually, a "Purchaser" and collectively, the "Purchasers") as
follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $60,000,000
aggregate principal amount of its 6.41% Senior Notes due December 15, 2002
(the "Notes", such term to include any such notes issued in substitution
therefor pursuant to Section 13 of this Agreement). The Notes shall be
substantially in the form set out in Exhibit 1, with such changes
therefrom, if any, as may be approved by the Purchasers and the Company.
Certain capitalized terms used in this Agreement are defined in Schedule
B; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to each Purchaser and each Purchaser will
purchase from the Company, at the Closing provided for in Section 3, Notes
in the principal amount specified opposite such Purchaser's name in
Schedule A at the purchase price of 100% of the principal amount thereof.
The obligations of each respective Purchaser hereunder are several and not
joint obligations and no Purchaser shall have any liability to any Person
for the performance or non-performance by any other Purchaser hereunder.
3. CLOSING.
The sale and purchase of the Notes to be purchased by the
Purchasers shall occur at the offices of Schiff Hardin & Waite, 7200 Sears
Tower, 233 S. Wacker Drive, Chicago, Illinois 60606 at 10:00 a.m., Central
Standard time, at a closing (the "Closing") on December 15, 1997. At the
Closing the Company will deliver to each Purchaser the Notes to be pur-
chased by such Purchaser in the form of a single Note (or such greater
number of Notes in denominations of at least $500,000 as such Purchaser
may request or as may be specified on Schedule A) dated the date of the
Closing and registered in such Purchaser's name (or in the name of its
nominee), against delivery by such Purchaser to the Company or its order
of immediately available funds in the amount of the purchase price there-
for by wire transfer of immediately available funds for the account of the
Company to account number 98655, at The Northern Trust Company, 50 S.
LaSalle Street, Chicago, IL 60675; ABA number 071000152. If at the
Closing the Company shall fail to tender such Notes to a Purchaser as
provided above in this Section 3, or any of the conditions specified in
Section 4 shall not have been fulfilled to the satisfaction of a
Purchaser, such Purchaser shall, at its election, be relieved of all
further obligations under this Agreement, without thereby waiving any
rights it may have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Each Purchaser's obligation to purchase and pay for the Notes to
be sold to it at the Closing is subject to the fulfillment to such
Purchaser's satisfaction, prior to or at the Closing, of the following
conditions:
4.1. Representations and Warranties.
The representations and warranties of the Company in this Agree-
ment shall be correct when made and at the time of the Closing in all
Material respects.
4.2. Performance; No Default.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be
performed or complied with by it prior to or at the Closing and after
giving effect to the issue and sale of the Notes (and the application of
the proceeds thereof as contemplated by Schedule 5.14) no Default or Event
of Default shall have occurred and be continuing.
4.3. Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to
each Purchaser an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have
been fulfilled.
(b) Secretary's Certificate. The Company shall have delivered
to each Purchaser a certificate certifying as to the resolutions attached
thereto and other corporate proceedings relating to the authorization,
execution and delivery of the Notes and the Agreements.
4.4. Opinions of Counsel.
Each Purchaser shall have received opinions in form and
substance satisfactory to it, dated the date of the Closing (a) from Foley
& Lardner, counsel for the Company, covering the matters set forth in
Exhibit 4.4(a) and covering such other matters incident to the
transactions contemplated hereby as the Purchasers or their respective
counsel may reasonably request (and the Company hereby instructs its
counsel to deliver such opinion to the Purchasers) and (b) from the
Purchasers' special counsel in connection with such transactions, sub-
stantially in the form set forth in Exhibit 4.4(b) and covering such other
matters incident to such transactions as the Purchasers may reasonably
request.
4.5. Purchase Permitted By Applicable Law, etc.
On the date of the Closing each Purchaser's purchase of Notes
shall (i) be permitted by the laws and regulations of each jurisdiction to
which such Purchaser is subject, without recourse to provisions (such as
Section 1405(a)(8) of the New York Insurance Law) permitting limited
investments by insurance companies without restriction as to the character
of the particular investment, (ii) not violate any applicable law or
regulation (including, without limitation, Regulation G, T or X of the
Board of Governors of the Federal Reserve System) and (iii) not subject
such Purchaser to any tax, penalty or liability under or pursuant to any
applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by any Purchaser, such Purchaser shall have
received an Officer's Certificate certifying as to such matters of fact as
such Purchaser may reasonably specify to enable it to determine whether
such purchase is so permitted.
4.6. Sale of Other Notes.
(a) Contemporaneously with the Closing with respect to each
Purchaser, the Company shall sell to each other Purchaser and each other
Purchaser shall purchase the Notes to be purchased by it at the Closing as
specified in Schedule A.
(b) Contemporaneously with the Closing the Company shall sell
to the purchasers of the Series 2007 Notes and the purchasers of the
Series 2007 Notes shall purchase the Series 2007 Notes to be purchased by
them as specified in Schedule A of the Series 2007 Note Purchase
Agreement.
4.7. Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company
shall have paid on or before the Closing the fees, charges and disburse-
ments of the Purchasers' special counsel referred to in Section 4.4 to the
extent reflected in a statement of such counsel rendered to the Company at
least one Business Day prior to the Closing.
4.8. Private Placement Number.
A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained
for the Notes.
4.9. Changes in Corporate Structure.
Except as specified in Schedule 4.9, the Company shall not have
changed its jurisdiction of incorporation or been a party to any merger or
consolidation and shall not have succeeded to all or any substantial part
of the liabilities of any other entity, at any time following the date of
the most recent financial statements referred to in Schedule 5.5.
4.10. Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be satisfactory to each
Purchaser and its special counsel, and each Purchaser and its special
counsel shall have received all such counterpart originals or certified or
other copies of such documents as it or they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
5.1. Organization; Power and Authority.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation,
and is duly qualified as a foreign corporation and is in good standing in
each jurisdiction in which such qualification is required by law, other
than those jurisdictions as to which the failure to be so qualified or in
good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Company has the corporate
power and authority to own or hold under lease the properties it purports
to own or hold under lease, to transact the business it transacts and
proposes to transact, to execute and deliver this Agreement and the Notes
and to perform the provisions hereof and thereof.
5.2. Authorization, etc.
This Agreement and the Notes have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each Note will
constitute, a legal, valid and binding obligation of the Company enforce-
able against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights generally and (ii) general principles of equity
(regardless of whether such enforceability is considered in a proceeding
in equity or at law).
5.3. Disclosure.
The Company, through its agent, William Blair & Company, L.L.C.,
has delivered to each Purchaser a copy of a Confidential Placement
Memorandum, dated November 1997 (the "Memorandum"), relating to the
transactions contemplated hereby. Except as disclosed in Schedule 5.3,
this Agreement, the Memorandum, the documents, certificates or other
writings identified in Schedule 5.3 and the financial statements listed in
Schedule 5.5, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under
which they were made. Except as disclosed in the Memorandum or as
expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings identified therein, or in the financial
statements listed in Schedule 5.5, since December 31, 1996, there has been
no change in the financial condition, operations, business or properties
of the Company or any of its Subsidiaries except changes that individually
or in the aggregate would not reasonably be expected to have a Material
Adverse Effect.
5.4. Organization and Ownership of Shares of Subsidiaries.
(a) Schedule 5.4 is (except as noted therein) a complete and
correct list of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary. As of the date of Closing, all Subsidiaries of the
Company will be Restricted Subsidiaries.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being owned
by the Company and its Subsidiaries have been validly issued, are fully
paid and nonassessable and are owned by the Company or another Subsidiary
free and clear of any Lien (except as otherwise disclosed in Schedule
5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation
duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to
which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate power and
authority to own or hold under lease the properties it purports to own or
hold under lease and to transact the business it transacts and proposes to
transact.
5.5. Financial Statements.
The Company has delivered to each Purchaser copies of the
financial statements of the Company and its Subsidiaries listed on
Schedule 5.5. All of said financial statements (including in each case
the related schedules and notes) fairly present in all material respects
the consolidated financial position of the Company and its Subsidiaries as
of the respective dates specified in such Schedule and the consolidated
results of their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consistently
applied throughout the periods involved except as set forth in the notes
thereto (subject, in the case of any interim financial statements, to
normal year-end adjustments).
5.6. Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by the Company of this
Agreement and the Notes will not (i) contravene, result in any breach of,
or constitute a default under, or result in the creation of any Lien in
respect of any property of the Company or any Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement,
lease, corporate charter or by-laws, or any other Material agreement or
instrument to which the Company or any Subsidiary is bound or by which the
Company or any Subsidiary or any of their respective properties may be
bound or affected, (ii) conflict with or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree, or ruling
of any court, arbitrator or Governmental Authority applicable to the
Company or any Subsidiary or (iii) violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to the
Company or any Subsidiary relying, in part, as to compliance with federal
and state securities laws, on the representation of the Purchasers
contained in Section 6.1.
5.7. Governmental Authorizations, etc.
No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in
connection with the execution, delivery or performance by the Company of
this Agreement or the Notes.
5.8. Litigation; Observance of Statutes and Orders.
(a) There are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the Company
or any Subsidiary or any property of the Company or any Subsidiary in any
court or before any arbitrator of any kind or before or by any
Governmental Authority that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under
any order, judgment, decree or ruling of any court, arbitrator or Govern-
mental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
5.9. Taxes.
The Company and its Subsidiaries have filed all income tax
returns that are required to have been filed in any jurisdiction, and have
paid all taxes shown to be due and payable on such returns and all other
taxes and assessments payable by them, to the extent such taxes and
assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (i) the amount of which
is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which the Company or
a Subsidiary, as the case may be, has established adequate reserves in
accordance with GAAP. The Federal income tax liabilities of the Company
and its Subsidiaries have been determined by the Internal Revenue Service
and paid for all fiscal years up to and including the fiscal year ended
December 31, 1993.
5.10. Title to Property; Leases.
The Company and its Subsidiaries have good and sufficient title
to their respective Material properties, including all such properties
reflected in the most recent audited balance sheet referred to in Section
5.5 or purported to have been acquired by the Company or any Subsidiary
after said date (except as sold or otherwise disposed of in the ordinary
course of business), in each case free and clear of Liens prohibited by
this Agreement, except for those defects in title and Liens that,
individually or in the aggregate, would not have a Material Adverse
Effect. All Material leases are valid and subsisting and are in full
force and effect in all material respects.
5.11. Licenses, Permits, etc.
Except as disclosed in Schedule 5.11, the Company and its
Subsidiaries own or possess all licenses, permits, franchises,
authorizations, patents, copyrights, service marks, trademarks and trade
names, or rights thereto, that are Material, without known conflict with
the rights of others, except for those conflicts that, individually or in
the aggregate, would not have a Material Adverse Effect.
5.12. Compliance with ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for
such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any ERISA Affiliate has incurred any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and
no event, transaction or condition has occurred or exists that would
reasonably be expected to result in the incurrence of any such liability
by the Company or any ERISA Affiliate, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or any ERISA
Affiliate, in either case pursuant to Title I or IV of ERISA or to such
penalty or excise tax provisions or to Section 401(a)(29) or 412 of the
Code, other than such liabilities or Liens as would not be individually or
in the aggregate Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as of
the end of such Plan's most recently ended plan year on the basis of the
actuarial assumptions specified for funding purposes in such Plan's most
recent actuarial valuation report, did not exceed the aggregate current
value of the assets of such Plan allocable to such benefit liabilities.
The term "benefit liabilities" has the meaning specified in section 4001
of ERISA and the terms "current value" and "present value" have the
meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multi-
employer Plans that individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined
as of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage
mandated by section 4980B of the Code) of the Company and its Subsidiaries
is not Material.
(e) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any transaction
that is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to sec-
tion 4975(c)(1)(A)-(D) of the Code. The representation by the Company in
the first sentence of this Section 5.12(e) is made in reliance upon and
subject to the accuracy of the Purchasers' representations in Section 6.2
as to the sources of the funds to be used to pay the purchase price of the
Notes to be purchased by the Purchasers.
5.13. Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has offered
the Notes or any similar securities for sale to, or solicited any offer to
buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than the Purchasers, the purchasers of
Series 2007 Notes and not more than 60 other Institutional Investors, each
of which has been offered the Notes or the Series 2007 Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf
has taken, or will take, any action that would subject the issuance or
sale of the Notes to the registration requirements of Section 5 of the
Securities Act.
5.14. Use of Proceeds; Margin Regulations.
The Company will apply the proceeds of the sale of the Notes as
set forth in Schedule 5.14. No part of the proceeds from the sale of the
Notes hereunder will be used, directly or indirectly, for the purpose of
buying or carrying any margin stock within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System (12 CFR 207), or for
the purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Company in a violation of Regulation X of
said Board (12 CFR 224) or to involve any broker or dealer in a violation
of Regulation T of said Board (12 CFR 220). Margin stock does not consti-
tute more than 25% of the value of the consolidated assets of the Company
and its Subsidiaries and the Company does not have any present intention
that margin stock will constitute more than 25% of the value of such
assets. As used in this Section, the terms "margin stock" and "purpose of
buying or carrying" shall have the meanings assigned to them in said
Regulation G.
5.15. Existing Indebtedness.
Except as described therein, Schedule 5.15 sets forth a complete
and correct list of all outstanding Indebtedness of the Company and its
Subsidiaries as of November 30, 1997, since which date there has been no
Material change in the amounts, interest rates, sinking funds, installment
payments or maturities of the Indebtedness of the Company or its
Subsidiaries. Neither the Company nor any Subsidiary is in default and no
waiver of default is currently in effect, in the payment of any principal
or interest on any Indebtedness of the Company or such Subsidiary and no
event or condition exists with respect to any Indebtedness of the Company
or any Subsidiary that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such
Indebtedness to become due and payable before its stated maturity or
before its regularly scheduled dates of payment.
5.16. Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Company hereunder nor its
use of the proceeds thereof will violate the Trading with the Enemy Act,
as amended, or any of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or
any enabling legislation or executive order relating thereto.
5.17. Status under Certain Statutes.
Neither the Company nor any Subsidiary is subject to regulation
under the Investment Company Act of 1940, as amended, the Public Utility
Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.
6. REPRESENTATIONS OF THE PURCHASERS.
6.1. Purchase for Investment.
Each Purchaser represents that it is purchasing the Notes for
its own account or for one or more separate accounts maintained by it or
for the account of one or more pension or trust funds and not with a view
to the distribution thereof, provided that the disposition of its or their
property shall at all times be within its or their control. Each
Purchaser understands that the Notes have not been registered under the
Securities Act and may be resold only if registered pursuant to the provi-
sions of the Securities Act or if an exemption from registration is
available, except under circumstances where neither such registration nor
such an exemption is required by law, and that the Company is not required
to register the Notes.
6.2. Source of Funds.
Each Purchaser represents that at least one of the following
statements is an accurate representation as to each source of funds (a
"Source") to be used by it to pay the purchase price of the Notes to be
purchased by such Purchaser hereunder:
(a) The Source of funds being used by such Purchaser to pay the
purchase price of the Notes being purchased by such Purchaser
hereunder constitutes assets: (i) allocated to the "insurance company
general account" of such Purchaser (as such term is defined under
Section V of the United States Department of Labor's Prohibited
Transaction Class Exemption "TCE" 95-60), and as of the date of the
purchase of the Notes such Purchaser satisfies all of the applicable
requirements for relief under Section I and IV of PTCE 95-60, (ii)
allocated to a separate account maintained by such Purchaser in which
no employee benefit plan, other than employee benefit plans
identified on a list which has been furnished by such Purchaser to
the Company, participates to the extent of 10% or more, or (iii) of
an investment fund, the assets of which do not include assets of any
employee benefit plan within the meaning of ERISA.
(b) The Source is either (i) an insurance company pooled
separate account, within the meaning of Prohibited Transaction
Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank
collective investment fund, within the meaning of the PTE 91-38
(issued July 12, 1991) and, except as such Purchaser has disclosed to
the Company in writing pursuant to this paragraph (b), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
(c) The Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets
that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained
by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of
the total client assets managed by such QPAM, the conditions of Part
I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM
nor a person controlling or controlled by the QPAM (applying the
definition of "control" in Section V(e) of the QPAM Exemption) owns a
5% or more interest in the Company and (i) the identity of such QPAM
and (ii) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company
in writing pursuant to this paragraph (c); or
(d) The Source is a governmental plan; or
(e) The Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e); or
(f) The Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall have
the respective meanings assigned to such terms in Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1. Financial and Business Information.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal
year), duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Restricted Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries, for such quarter and (in the case of
the second and third quarters) for the portion of the fiscal
year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments;
(b) Annual Statements -- within 105 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Restricted Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and accompanied by an opinion thereon of
independent certified public accountants of recognized national
standing, which opinion shall state that such financial statements
present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and
cash flows and have been prepared in conformity with GAAP, and that
the examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted
auditing standards, and that such audit provides a reasonable basis
for such opinion in the circumstances;
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice
or proxy statement sent by the Company or any Restricted Subsidiary
to public security holders generally, and (ii) each regular or
periodic report, each registration statement that shall have become
effective (without exhibits except as expressly requested by such
holder), and each final prospectus and all amendments thereto filed
by the Company or any Restricted Subsidiary with the Securities and
Exchange Commission or with any national securities exchange;
(d) Notice of Default or Event of Default -- promptly, and in
any event within five days, after a Responsible Officer becoming
aware of the existence of any Default or Event of Default, a written
notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect
thereto;
(e) ERISA Matters -- promptly, and in any event within five
days, after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to
take with respect thereto:
(i) with respect to any Plan, any reportable event, as
defined in section 4043(b) of ERISA and the regulations there-
under, for which notice thereof has not been waived pursuant to
such regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan, or the receipt by the
Company or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by the PBGC with respect to
such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on any
of the rights, properties or assets of the Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or such penalty or
excise tax provisions, if such liability or Lien, taken together
with any other such liabilities or Liens then existing, would
reasonably be expected to have a Material Adverse Effect; and
(f) Information Required by Rule 144A -- upon the request of
the holder of any Note, provide such holder, and any qualified
institutional buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be
necessary in order to permit compliance with the information
requirements of Rule 144A under the Securities Act in connection with
the resale of Notes, except at such times as the Company is subject
to the reporting requirements of section 13 or 15(d) of the Exchange
Act. For the purposes of this paragraph 7.1(f), the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A
under the Securities Act.
(g) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes.
7.2. Officer's Certificate.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied
by a certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was
in compliance with the requirements of Section 10.2 through Section
10.7 hereof, inclusive, during the quarterly or annual period covered
by the statements then being furnished (including with respect to
each such Section, where applicable, the calculations of the maximum
or minimum amount, ratio or percentage, as the case may be, permissi-
ble under the terms of such Sections, and the calculation of the
amount, ratio or percentage then in existence); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be
made, under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall
not have disclosed the existence during such period of any condition
or event that constitutes a Default or an Event of Default or, if any
such condition or event existed or exists (including, without
limitation, any such event or condition resulting from the failure of
the Company or any Subsidiary to comply with any Environmental Law),
specifying the nature and period of existence thereof and what action
the Company shall have taken or proposes to take with respect
thereto.
7.3. Inspection.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior
notice to the Company, to visit the principal executive office of the
Company, to discuss the affairs, finances and accounts of the Company
and its Subsidiaries with the Company's officers, and, with the
consent of the Company (which consent will not be unreasonably with-
held) to visit the other offices and properties of the Company and
each Subsidiary, all at such reasonable times and as often as may be
reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists, at
the expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to
make copies and extracts therefrom, and to discuss their respective
affairs, finances and accounts with their respective officers and
independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and
accounts of the Company and its Subsidiaries), all at such times and
as often as may be requested.
8. PREPAYMENT OF THE NOTES.
8.1. Required Prepayments.
The Notes shall not be subject to required prepayment.
8.2. Optional Prepayments with Make-Whole Amount.
The Company may, at its option, upon notice as provided below,
prepay at any time after the first anniversary of the Closing all, or from
time to time any part of, the Notes, in an amount not less than 5% of the
aggregate principal amount of the Notes then outstanding in the case of a
partial prepayment, at 100% of the principal amount so prepaid, plus the
Make-Whole Amount determined for the prepayment date with respect to such
principal amount. The Company will give each holder of Notes written no-
tice of each optional prepayment under this Section 8.2 not less than 30
days and not more than 60 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the aggregate
principal amount of the Notes to be prepaid on such date, the principal
amount of each Note held by such holder to be prepaid (determined in
accordance with Section 8.3), and the interest to be paid on the
prepayment date with respect to such principal amount being prepaid, and
shall be accompanied by a certificate of a Senior Financial Officer as to
the estimated Make-Whole Amount due in connection with such prepayment
(calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business
Days prior to such prepayment, the Company shall deliver to each holder of
Notes a certificate of a Senior Financial Officer specifying the
calculation of such Make-Whole Amount as of the specified prepayment date.
8.3. Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes, the princi-
pal amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time outstanding in proportion, as nearly as practicable, to
the respective unpaid principal amounts thereof not theretofore called for
prepayment.
8.4. Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this Section
8, the principal amount of each Note to be prepaid shall mature and become
due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any. From and after such date, unless the Company
shall fail to pay such principal amount when so due and payable, together
with the interest and Make-Whole Amount, if any, as aforesaid, interest on
such principal amount shall cease to accrue. Any Note paid or prepaid in
full shall be surrendered to the Company and canceled and shall not be
reissued, and no Note shall be issued in lieu of any prepaid principal
amount of any Note.
8.5. Purchase of Notes.
The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any
of the outstanding Notes except (a) upon the payment or prepayment of the
Notes in accordance with the terms of this Agreement and the Notes or
(b) pursuant to an offer to purchase made by the Company or an Affiliate
pro rata to the holders of all Notes at the time outstanding upon the same
terms and conditions. Any such offer shall provide each holder with suf-
ficient information to enable it to make an informed decision with respect
to such offer, and shall remain open for at least 30 Business Days. If
the holders of more than 5% of the principal amount of the Notes then
outstanding accept such offer, the Company shall promptly notify the
remaining holders of such fact and the expiration date for the acceptance
by holders of Notes of such offer shall be extended by the number of days
necessary to give each such remaining holder at least 15 Business Days
from its receipt of such notice to accept such offer. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any
such Notes.
8.6. Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the
Remaining Scheduled Payments with respect to the Called Principal of such
Note over the amount of such Called Principal, provided that the Make-
Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.2
or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
"Discounted Value" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from their
respective scheduled due dates to the Settlement Date with respect to
such Called Principal, in accordance with accepted financial practice
and at a discount factor (as adjusted to reflect the same periodic
basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal
of any Note, 0.5% over the yield to maturity implied by (a) the
yields reported, as of 10:00 A.M. (New York City time) on the second
Business Day preceding the Settlement Date with respect to such
Called Principal, on the display designated as "Page 678" on the Dow
Jones Markets, Inc. services (Telerate) (or such other display as may
replace Page 678 on the Dow Jones Markets, Inc. services (Telerate))
for actively traded U.S. Treasury securities having a maturity equal
to the Remaining Average Life of such Called Principal as of such
Settlement Date, or (b) if such yields are not reported as of such
time or the yields reported as of such time are not ascertainable,
the Treasury Constant Maturity Series Yields reported, for the latest
day for which such yields have been so reported as of the second
Business Day preceding the Settlement Date with respect to such
Called Principal, in Federal Reserve Statistical Release H.15 (519)
(or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date.
Such implied yield will be determined, if necessary, by (1) convert-
ing U.S. Treasury bill quotations to bond-equivalent yields in
accordance with accepted financial practice and (2) interpolating
linearly between (A) the actively traded U.S. Treasury security with
the duration closest to and greater than the Remaining Average Life
and (B) the actively traded U.S. Treasury security with the duration
closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) the principal
component of each Remaining Scheduled Payment with respect to such
Called Principal by (b) the number of years (calculated to the
nearest one-twelfth year) that will elapse between the Settlement
Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with re-
spect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, provided that if such
Settlement Date is not a date on which interest payments are due to
be made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount
of interest accrued to such Settlement Date and required to be paid
on such Settlement Date pursuant to Section 8.2 or 12.1.
"Settlement Date" means, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or has become or is declared to be
immediately due and payable pursuant to Section 12.1, as the context
requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. Compliance with Law.
The Company will, and will cause each of its Restricted Sub-
sidiaries to, comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without
limitation, Environmental Laws, and will obtain and maintain in effect all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties
or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances
or governmental rules or regulations or failures to obtain or maintain in
effect such licenses, certificates, permits, franchises and other
governmental authorizations would not reasonably be expected, individually
or in the aggregate, to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the
Company and its Restricted Subsidiaries taken as a whole.
9.2. Insurance.
The Company will, and will cause each of its Restricted Sub-
sidiaries to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses
against such casualties and contingencies, of such types, on such terms
and in such amounts (including deductibles and co-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case
of entities of established reputations engaged in the same or a similar
business and owning and operating similar properties, provided that such
insurance is commercially available; and further provided that the Company
and its Restricted Subsidiaries may maintain a system or systems of self-
insurance in accordance with good business practice if adequate reserves
are maintained with respect thereto.
9.3. Maintenance of Properties.
The Company will, and will cause each of its Restricted Sub-
sidiaries to, maintain, preserve and keep, or cause to be maintained,
preserved and kept, their respective properties in good repair, working
order and condition (ordinary wear and tear excepted), and will, and will
cause each of its Restricted Subsidiaries to, make all repairs,
replacements, additions and betterments, as needed, so that the efficiency
thereof shall be maintained, provided that this Section shall not prevent
the Company or any Restricted Subsidiary from discontinuing the operation
and the maintenance of any of its properties if such discontinuance is
desirable in the conduct of its business and the Company has concluded
that such discontinuance would not, individually or in the aggregate, have
a materially adverse effect on the business, operations, affairs,
financial condition, properties or assets of the Company and its
Restricted Subsidiaries taken as a whole.
9.4. Payment of Taxes and Other Claims.
The Company will, and will cause each of its Restricted Sub-
sidiaries to, file all income tax or similar tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be
due and payable on such returns and all other taxes, assessments,
governmental charges, or levies and all claims for labor, materials and
supplies payable by any of them, to the extent such taxes, assessments,
charges, levies and claims have become due and payable and before they
have become delinquent, provided that neither the Company nor any
Restricted Subsidiary need pay any such tax, assessment, charge, levy or
claim if (i) the amount, applicability or validity thereof is contested
by the Company or such Restricted Subsidiary on a timely basis in good
faith and in appropriate proceedings that will prevent the forfeiture or
sale of any property, and the Company or Restricted Subsidiary has estab-
lished adequate reserves therefor in accordance with GAAP on the books of
the Company or such Restricted Subsidiary or (ii) the nonpayment of all
such taxes, assessments, charges, levies and claims in the aggregate would
not reasonably be expected to have a materially adverse effect on the
business, operations, affairs, financial condition, properties or assets
of the Company and its Restricted Subsidiaries taken as a whole.
9.5. Corporate Existence, etc.
Subject to Section 10.2, the Company will, and will cause each
of its Restricted Subsidiaries to, at all times preserve and keep in full
force and effect its corporate existence (except in the case of a merger
of a Restricted Subsidiary into the Company or into a Wholly-Owned
Restricted Subsidiary) and all of its rights and franchises unless, in the
good faith judgment of the Company, the termination of or failure to
preserve and keep in full force and effect such right or franchise would
not, individually or in the aggregate, have a materially adverse effect on
the business, operations, affairs, financial condition, properties or
assets of the Company and its Restricted Subsidiaries taken as a whole.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are out-
standing:
10.1. Transactions with Affiliates.
The Company will not, and will not permit any Restricted Sub-
sidiary to, enter into directly or indirectly any transaction (including,
without limitation, the purchase, lease, sale or exchange of properties of
any kind or the rendering of any service) with any Affiliate, except
pursuant to the reasonable requirements of the Company's or such
Restricted Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Restricted Subsidiary than would be
obtainable in a comparable arm's-length transaction with a Person not an
Affiliate; provided that the Company or a Restricted Subsidiary may enter
into any transaction with an Affiliate so long as such transaction,
together with any other related transactions, would not reasonably be
expected to have a materially adverse effect on the business, operations,
affairs, financial condition, properties or assets of the Company and its
Restricted Subsidiaries taken as a whole.
10.2. Merger, Consolidation and Disposition of Assets
The Company will not, and will not permit any Restricted
Subsidiary to, merge or consolidate with any Person, or sell, transfer,
lease or otherwise dispose of any substantial portion of its properties to
any Person, except that:
(i) any corporation may be merged into any Restricted
Subsidiary and any Restricted Subsidiary may consolidate with or
merge into, or sell, lease or otherwise dispose of its properties as
an entirety or substantially as an entirety to, the Company, another
Restricted Subsidiary or any corporation, so long as immediately
after the consummation thereof (a) the Company shall be entitled to
incur an additional $1.00 of Senior Funded Debt under clauses (a) and
(b) of Section 10.3(ii), (b) the Company is in compliance with the
provisions of Section 10.4 and (c) no Default or Event of Default
shall exist;
(ii) any corporation may be merged into the Company and the
Company may consolidate with or merge into, or sell or otherwise
dispose of its properties as an entirety or substantially as an
entirety to, any solvent corporation organized and existing under the
laws of the United States or any State thereof (including the
District of Columbia) which expressly assumes in writing (in form and
substance reasonably satisfactory to the Required Holders and
executed and delivered to each holder of any Note) the due and
punctual payment of the principal of, and interest and Make-Whole
Amount on, the Notes and the due and punctual performance of the
obligations of the Company under this Agreement and under the Notes,
so long as immediately after the consummation thereof (a) the
surviving entity or such corporation to which such properties are
sold or otherwise disposed of, as the case may be, shall be entitled
to incur an additional $1.00 of Senior Funded Debt under clauses (a)
and (b) of Section 10.3(ii), (b) the surviving entity or such
corporation, as the case may be, is in compliance with the provisions
of Section 10.4 and (c) no Default or Event of Default shall exist;
(iii) the Company or any Restricted Subsidiary may sell,
lease or otherwise dispose of any of its assets in the ordinary
course of its business;
(iv) the Company or any Restricted Subsidiary may, on one
occasion in one transaction or group of related transactions, sell,
transfer, lease or otherwise dispose of properties at fair market
value, so long as (a) the aggregate net proceeds received by the
Company and its Restricted Subsidiaries from all properties sold,
transferred, leased or otherwise disposed of in such transaction or
group of transactions does not exceed 20% of the Company's
Consolidated Total Assets as of the end of the fiscal year of the
Company most recently ended prior to the date of such transaction,
(b) prior to or promptly after the consummation of such transaction
the Company shall have notified each holder of any Note that the
Company has effected a transaction pursuant to this clause (iv),
together with a description of such transaction, and (c) immediately
after the consummation of such transaction (1) the Company shall be
entitled to incur an additional $1.00 of Senior Funded Debt under
clauses (a) and (b) of Section 10.3(ii), (2) the Company is in
compliance with the provisions of Section 10.4, and (3) no Default or
Event of Default shall exist; and
(v) in addition to transactions permitted by clauses (i), (ii),
(iii) or (iv) of this Section 10.2, the Company or any Restricted
Subsidiary may sell or otherwise dispose of any of its properties at
fair market value so long as (a) the net proceeds received by the
Company and its Restricted Subsidiaries from such sale or other
disposition, together with (x) the aggregate net proceeds received by
the Company and its Restricted Subsidiaries from all sales, leases
and other dispositions of properties (excluding sales of inventory
and other properties sold in the ordinary course of its business)
during the 12 consecutive calendar months immediately preceding such
sale or other disposition and (y) the aggregate fair market value of
all the properties of any Restricted Subsidiary which the Company had
designated as an Unrestricted Subsidiary during such 12 consecutive
calendar months, shall not exceed 10% of Consolidated Total Assets as
of the end of the fiscal year of the Company most recently ended
prior to the date of such transaction, and (b) immediately after the
consummation of such transaction (1) the Company shall be entitled to
incur an additional $1.00 of Senior Funded Debt under clauses (a) and
(b) of Section 10.3(ii), (2) the Company is in compliance with the
provisions of Section 10.4, and (3) no Default or Event of Default
shall exist.
For purposes of this Section 10.2, a "substantial portion" of
the properties of the Company or any Restricted Subsidiary shall mean
properties which, together with all properties sold, transferred or
otherwise disposed of in any related transactions, have a book value, in
the aggregate, greater than or equal to 10% of the Consolidated Total
Assets as of the end of the fiscal year most recently ended. No sale,
transfer, lease or other disposition permitted under this Section 10.2
shall have the effect of releasing the Company or any successor
corporation that shall theretofore have become such in the manner
prescribed in this Section 10.2 from its liability under this Agreement or
the Notes.
10.3. Limitations on Indebtedness.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume, Guaranty or
otherwise become directly or indirectly liable with respect to any Current
Debt or Funded Debt, other than:
(i) the Notes, the Series 2007 Notes and all Funded Debt
outstanding as of the date of this Agreement and identified on
Schedule 5.15 hereto;
(ii) Funded Debt of the Company or any Restricted Subsidiary
(including any Funded Debt secured by Liens permitted under Section
10.4) if immediately after giving effect thereto (a) the ratio of
Consolidated Senior Funded Debt to Total Capitalization would not
exceed 60% and (b) the ratio of Consolidated Funded Debt to Total
Capitalization would not exceed 65%;
(iii) Current Debt of the Company or any Restricted
Subsidiary (including any Current Debt secured by Liens permitted
under Section 10.4), provided that during the 12 month period
immediately preceding each day such Current Debt is outstanding,
there shall have been a period of 30 consecutive days during which,
on each day during such 30 day period, the aggregate amount of all
outstanding Current Debt of the Company and its Restricted
Subsidiaries did not exceed the amount of additional Senior Funded
Debt that the Company could have (but did not) incur under clauses
(a) and (b) of Section 10.3(ii); and
(iv) Funded Debt and Current Debt of a Restricted Subsidiary
owed to the Company or to a Wholly-Owned Restricted Subsidiary.
provided, however, that, in each case, after giving effect to such Funded
Debt or Current Debt, the Company shall be in compliance with the
provisions of Section 10.5 hereof.
For the purposes of this Section 10.3, any Person becoming a
Restricted Subsidiary after the date hereof shall be deemed, at the time
it becomes a Restricted Subsidiary, to have incurred all of its then
existing Funded Debt and Current Debt, and any Person extending, renewing
or refunding any Funded Debt or Current Debt shall be deemed to have
incurred such Funded Debt or Current Debt at the time of such extension,
renewal or refunding.
10.4. Limitation on Liens.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly create, incur, assume or permit to
exist (upon the happening of a contingency or otherwise) any Lien on or
with respect to any property (including, without limitation, any document
or instrument in respect of goods or accounts receivable) of the Company
or any Restricted Subsidiary, whether now owned or held or hereafter
acquired, or any income or profits therefrom, (whether or not provision is
made for the equal and ratable securing of the Notes in accordance with
the last paragraph of this Section 10.4), or assign or otherwise convey
any right to receive income or profits, except:
(i) Liens on property of the Company or a Restricted Subsidiary
existing as of the date of this Agreement and which are either (a)
identified on Schedule 10.4 hereto or (b) Liens which do not secure
Indebtedness and which, in the aggregate, are not Material;
(ii) Liens, pledges or deposits in connection with worker's
compensation, social security, unemployment insurance, to secure the
performance of letters of credit, bids, tenders, sales contracts,
leases, subleases granted to others, statutory obligations, surety,
appeal and performance bonds and other similar obligations not
incurred in connection with borrowing money, the obtaining of
advances or the payment of the deferred purchase price of property;
(iii) Liens for taxes, assessments or governmental charges
or levies or construction or materialmen's or warehousemen's liens
securing obligations not overdue, or if overdue, being contested in
good faith by appropriate proceedings that will prevent the
forfeiture or sale of any property, provided that adequate reserves
are established in accordance with GAAP on the books of the Company
or a Restricted Subsidiary;
(iv) attachment, judgment and other similar Liens arising in
connection with court proceedings, provided the execution or other
enforcement of such Lien(s) is effectively stayed and the claims
secured thereby are being contested in good faith in such manner that
the property subject to such Lien(s) is not subject to forfeiture or
sale, and further provided that adequate reserves are established in
accordance with GAAP on the books of the Company or a Restricted
Subsidiary;
(v) encumbrances in the nature of zoning restrictions,
easements, rights and restrictions of record on the use of real
property, landlord's and lessor's liens in the ordinary course of
business, which do not materially impair the Company's or a
Restricted Subsidiary's use thereof;
(vi) Liens, including Capital Leases, securing Indebtedness for
the acquisition or construction of real property, leasehold
improvements, equipment or other tangible assets provided that (a)
such Liens are limited to the property acquired or constructed with
the proceeds of the Indebtedness secured thereby and the amount of
such Indebtedness is limited to the cost or value of such property,
and (b) after giving effect thereto, the Company could incur an
additional $1.00 of Senior Funded Debt under clauses (a) and (b) of
Section 10.3(ii) and no Default or Event of Default shall exist;
(vii) Liens existing on property at the time of the
acquisition by the Company or its Restricted Subsidiaries of such
property (or of the entity owning such property) provided that the
Lien does not extend to any other property of the Company or its
Restricted Subsidiaries; and
(viii) other Liens securing Funded Debt or Current Debt
permitted to be incurred under the provisions of Section 10.3 hereof,
provided that, after giving effect to such Funded Debt or Current
Debt, the Company shall be in compliance with the provisions of
Section 10.5 hereof.
If, notwithstanding the prohibition contained herein, the
Company shall, or shall permit any of its Restricted Subsidiaries to,
directly or indirectly create, incur, assume or permit to exist any Lien,
other than those Liens permitted by the provisions of clauses (i) through
(viii) of this Section 10.4, it will make or cause to be made effective
provision whereby the Notes will be secured equally and ratably with any
and all other obligations thereby secured, such security to be pursuant to
agreements reasonably satisfactory to the Required Holders and, in any
such case, the Notes shall have the benefit, to the fullest extent that,
and with such priority as, the holders of the Notes may be entitled under
applicable law, of an equitable Lien on such property. Such violation of
this Section 10.4 will constitute a Default, whether or not provision is
made for an equal and ratable Lien pursuant to this paragraph.
10.5. Priority Debt.
The Company will not at any time permit Priority Debt to exceed
15% of Consolidated Total Assets.
10.6. Sale and Leaseback.
The Company will not, and will not permit any Restricted
Subsidiary to, sell or transfer any property (other than real property) to
any Person (other than to the Company or a Wholly-Owned Restricted
Subsidiary) and thereupon lease, as lessee, the same property unless such
lease constitutes a Capital Lease and the incurrence of the Indebtedness
evidenced thereby shall be permitted under Section 10.3.
10.7. Limitation on Investments.
The Company will not, and will not permit any Restricted
Subsidiary to, make or suffer to exist any Investment other than Permitted
Investments.
10.8. Restricted Payments.
The Company will not, and will not permit any Restricted
Subsidiary to, declare or make any Restricted Payment unless, immediately
after giving effect thereto, (a) no Default or Event of Default would
exist and (b) the Company could incur an additional $1.00 of Senior Funded
Debt under clauses (a) and (b) of Section 10.3(ii).
10.9. Line of Business.
The Company will not, and will not permit any Restricted
Subsidiary to, engage to any substantial extent in any business other than
the business in which the Company and its Subsidiaries in the aggregate
are engaged on the date of this Agreement as described in the Memorandum.
10.10. Subsidiary Dividend Restrictions.
The Company will not, and will not permit any Restricted
Subsidiary to, enter into, or be otherwise subject to, any contract or
agreement (including its certificate of incorporation or other
organization document) which limits the amount of, or otherwise imposes
restriction on the payment of, dividends by such Restricted Subsidiary.
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal of or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than ten Business Days after the same becomes due and
payable; or
(c) the Company defaults in the performance of or compliance
with any term contained in Sections 10.1 through 10.10 and such
default is not remedied within 30 days after the earlier of (i) a
Responsible Officer obtaining actual knowledge of such default and
(ii) the Company receiving written notice of such default from any
holder of a Note (any such written notice to be identified as a
"notice of default" and to refer specifically to this paragraph (c)
of Section 11); or
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in para-
graphs (a), (b) and (c) of this Section 11) and such default is not
remedied within 30 days after the earlier of (i) a Responsible Offi-
cer obtaining actual knowledge of such default and (ii) the Company
receiving written notice of such default from any holder of a Note
(any such written notice to be identified as a "notice of default"
and to refer specifically to this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incor-
rect in any material respect on the date as of which made; or
(f) (i) the Company or any Restricted Subsidiary is in default
(as principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount of
at least $10,000,000 beyond any period of grace provided with respect
thereto, or (ii) the Company or any Restricted Subsidiary is in
default in the performance of or compliance with any term of any
evidence of any Indebtedness in an aggregate outstanding principal
amount of at least $10,000,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a
consequence of such default or condition such Indebtedness has
become, or has been declared due and payable (or to be repurchased by
the Company or any Restricted Subsidiary) before its stated maturity
or before its regularly scheduled dates of payment; provided however,
that this clause (f) shall not apply to any Indebtedness which is
payable solely out of the property or assets of a partnership, joint
venture or similar entity (which is not a Restricted Subsidiary) in
which the Company or any Restricted Subsidiary is a participant, or
is secured by a mortgage on the property or assets owned or held by
such partnership, joint venture or other entity, if there is no
recourse to or liability of the Company or any Restricted Subsidiary
for the payment of such Indebtedness; or
(g) the Company or any Restricted Subsidiary (i) is generally
not paying, or admits in writing its inability to pay, its debts as
they become due, (ii) files, or consents by answer or otherwise to
the filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or
to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an
assignment for the benefit of its creditors, (iv) consents to the ap-
pointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, (v) is adjudicated as insolvent or to be
liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(h) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of
its Restricted Subsidiaries, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief
or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Company or any of its
Restricted Subsidiaries, or any such petition shall be filed against
the Company or any of its Restricted Subsidiaries and such petition
shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 are rendered against one or more
of the Company and its Restricted Subsidiaries and which judgments
are not, within 60 days after entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within 60 days after the
expiration of such stay; or
(j) (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably
expected to be filed with the PBGC or the PBGC shall have instituted
proceedings under ERISA section 4042 to terminate or appoint a
trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject of
any such proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of ERISA)
under all Plans, determined in accordance with Title IV of ERISA,
shall exceed $10,000,000, (iv) the Company or any ERISA Affiliate
shall have incurred or is reasonably expected to incur any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (v) the
Company or any ERISA Affiliate withdraws from any Multiemployer Plan,
or (vi) the Company or any Restricted Subsidiary establishes or
amends any employee welfare benefit plan that provides post-
employment welfare benefits in a manner that would increase the
liability of the Company or any Restricted Subsidiary thereunder; and
any such event or events described in clauses (i) through (vi) above,
either individually or together with any other such event or events,
would reasonably be expected to have a Materially Adverse Effect.
12. REMEDIES ON DEFAULT, ETC.
12.1. Acceleration.
(a) If an Event of Default with respect to the Company de-
scribed in paragraph (g) or (h) of Section 11 (other than an Event of De-
fault described in clause (i) of paragraph (g) or described in clause (vi)
of paragraph (g) by virtue of the fact that such clause encompasses clause
(i) of paragraph (g)) has occurred, all the Notes then outstanding shall
automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 51% in principal amount of
the Notes at the time outstanding may at any time at its or their option,
by notice or notices to the Company, declare all the Notes then out-
standing to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of
Notes at the time outstanding affected by such Event of Default may at any
time, at its or their option, by notice or notices to the Company, declare
all the Notes held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus (x) all accrued
and unpaid interest thereon and (y) the Make-Whole Amount determined in
respect of such principal amount (to the full extent permitted by applica-
ble law), shall all be immediately due and payable, in each and every case
without presentment, demand, protest or further notice, all of which are
hereby waived. The Company acknowledges, and the parties hereto agree,
that each holder of a Note has the right to maintain its investment in the
Notes free from repayment by the Company (except as herein specifically
provided for) and that the provision for payment of a Make-Whole Amount by
the Company in the event that the Notes are prepaid or are accelerated as
a result of an Event of Default, is intended to provide compensation for
the deprivation of such right under such circumstances.
12.2. Other Remedies.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any
Note at the time outstanding may proceed to protect and enforce the rights
of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement
contained herein or in any Note, or for an injunction against a violation
of any of the terms hereof or thereof, or in aid of the exercise of any
power granted hereby or thereby or by law or otherwise.
12.3. Rescission.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less
than 51% in principal amount of the Notes then outstanding, by written no-
tice to the Company, may rescind and annul any such declaration and its
consequences if (a) the Company has paid all overdue interest on the
Notes, all principal of and Make-Whole Amount, if any, on any Notes that
are due and payable and are unpaid other than by reason of such declara-
tion, and all interest on such overdue principal and Make-Whole Amount, if
any, and (to the extent permitted by applicable law) any overdue interest
in respect of the Notes, at the Default Rate, (b) all Events of Default
and Defaults, other than non-payment of amounts that have become due
solely by reason of such declaration, have been cured or have been waived
pursuant to Section 17, and (c) no judgment or decree has been entered for
the payment of any monies due pursuant hereto or to the Notes. No re-
scission and annulment under this Section 12.3 will extend to or affect
any subsequent Event of Default or Default or impair any right consequent
thereon.
12.4. No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or
remedies. No right, power or remedy conferred by this Agreement or by any
Note upon any holder thereof shall be exclusive of any other right, power
or remedy referred to herein or therein or now or hereafter available at
law, in equity, by statute or otherwise. Without limiting the obligations
of the Company under Section 15, the Company will pay to the holder of
each Note on demand such further amount as shall be sufficient to cover
all costs and expenses of such holder incurred in any enforcement or
collection under this Section 12, including, without limitation,
reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. Registration of Notes.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The
name and address of each holder of one or more Notes, each transfer
thereof and the name and address of each transferee of one or more Notes
shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be
registered shall be deemed and treated as the owner and holder thereof for
all purposes hereof, and the Company shall not be affected by any notice
or knowledge to the contrary. The Company shall give to any holder of a
Note that is an Institutional Investor promptly upon request therefor, a
complete and correct copy of the names and addresses of all registered
holders of Notes.
13.2. Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office of
the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of
such Note or his attorney duly authorized in writing and accompanied by
the address for notices of each transferee of such Note or part thereof),
the Company shall execute and deliver, at the Company's expense (except as
provided below), one or more new Notes (as requested by the holder
thereof) in exchange therefor, in an aggregate principal amount equal to
the unpaid principal amount of the surrendered Note. Each such new Note
shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit 1. Each such new Note shall be dated
and bear interest from the date to which interest shall have been paid on
the surrendered Note or dated the date of the surrendered Note if no
interest shall have been paid thereon. The Company may require payment of
a sum sufficient to cover any stamp tax or governmental charge imposed in
respect of any such transfer of Notes. Notes shall not be transferred in
denominations of less than $500,000, provided that if necessary to enable
the registration of transfer by a holder of its entire holding of Notes,
one Note may be in a denomination of less than $500,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its
nominee), shall be deemed to have made the representation set forth in
Section 6.2.
13.3. Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation
of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and
such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such
Note is, or is a nominee for, an original Purchaser or another holder
of a Note with a minimum net worth of at least $25,000,000, such
original Purchaser's or other Note holder's own unsecured agreement
of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof,
a new Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or
dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.
14. PAYMENTS ON NOTES.
14.1. Place of Payment.
Subject to Section 14.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall
be made in Muscatine, Iowa at the principal office of the Company in such
jurisdiction. The Company may at any time, by notice to each holder of a
Note, change the place of payment of the Notes so long as such place of
payment shall be either the principal office of the Company in such
jurisdiction or the principal office of a bank or trust company in such
jurisdiction.
14.2. Home Office Payment.
So long as a Purchaser or nominee of a Purchaser shall be the
holder of any Note, and notwithstanding anything contained in Section 14.1
or in such Note to the contrary, the Company will pay all sums becoming
due on such Note for principal, Make-Whole Amount, if any, and interest by
the method and at the address specified for such purpose below such
Purchaser's name in Schedule A, or by such other method or at such other
address as such Purchaser shall have from time to time specified to the
Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that
concurrently with or reasonably promptly after payment or prepayment in
full of any Note, such Purchaser shall surrender such Note for
cancellation, to the Company at its principal executive office or at the
place of payment most recently designated by the Company pursuant to
Section 14.1. Prior to any sale or other disposition of any Note held by
such Purchaser or such Purchaser's nominee such Purchaser will, at its
election, either endorse thereon the amount of principal paid thereon and
the last date to which interest has been paid thereon or surrender such
Note to the Company in exchange for a new Note or Notes pursuant to
Section 13.2. The Company will afford the benefits of this Section 14.2
to any Institutional Investor that is the direct or indirect transferee of
any Note purchased by a Purchaser under this Agreement and that has made
the same agreement relating to such Note as the Purchasers have made in
this Section 14.2.
15. EXPENSES, ETC.
15.1. Transaction Expenses.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including
reasonable attorneys' fees of a special counsel and, if reasonably
required, local or other counsel) incurred by each Purchaser or holder of
a Note in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of this Agreement or
the Notes (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (a) the costs and expenses
incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the Notes or in
responding to any subpoena or other legal process or informal investi-
gative demand issued in connection with this Agreement or the Notes, or by
reason of being a holder of any Note, and (b) the costs and expenses,
including financial advisors' fees, incurred in connection with the
insolvency or bankruptcy of the Company or any Subsidiary or in connection
with any work-out or restructuring of the transactions contemplated hereby
and by the Notes. The Company will pay, and will save each Purchaser and
each other holder of a Note harmless from, all claims in respect of any
fees, costs or expenses if any, of brokers and finders (other than those
retained by such Purchaser).
15.2. Survival.
The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes, and the
termination of this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the
purchase or transfer by any Purchaser of any Note or portion thereof or
interest therein and the payment of any Note, and may be relied upon by
any subsequent holder of a Note, regardless of any investigation made at
any time by or on behalf of any Purchaser or any other holder of a Note.
All statements contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant to this Agreement shall be deemed
representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between each respective Purchaser and
the Company and supersede all prior agreements and understandings relating
to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1. Requirements.
This Agreement and the Notes may be amended, and the observance
of any term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company
and the Required Holders, except that (i) no amendment or waiver of any of
the provisions of Section 1, 2, 3, 4, 5, 6, or 21 hereof, or any defined
term (as it is used therein), will be effective as to any Purchaser unless
consented to by such Purchaser in writing, and (ii) no such amendment or
waiver may, without the written consent of the holder of each Note at the
time outstanding affected thereby, (a) subject to the provisions of Sec-
tion 12 relating to acceleration or rescission, change the amount or time
of any prepayment or payment of principal of, or reduce the rate or change
the time of payment or method of computation of interest or of the Make-
Whole Amount on, the Notes, (b) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any
such amendment or waiver, or (c) amend any of Sections 8, 11(a), 11(b),
12, 17 or 20.
17.2. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a decision
is required, to enable such holder to make an informed and considered
decision with respect to any proposed amendment, waiver or consent in
respect of any of the provisions hereof or of the Notes. The Company will
deliver executed or true and correct copies of each amendment, waiver or
consent effected pursuant to the provisions of this Section 17 to each
holder of outstanding Notes promptly following the date on which it is
executed and delivered by, or receives the consent or approval of, the
requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any
holder of Notes as consideration for or as an inducement to the entering
into by any holder of Notes or any waiver or amendment of any of the terms
and provisions hereof unless such remuneration is concurrently paid, or
security is concurrently granted, on the same terms, ratably to each
holder of Notes then outstanding even if such holder did not consent to
such waiver or amendment.
17.3. Binding Effect, etc.
Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon
them and upon each future holder of any Note and upon the Company without
regard to whether such Note has been marked to indicate such amendment or
waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of
dealing between the Company and the holder of any Note nor any delay in
exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any holder of such Note. As used herein, the term
this "Agreement" and references thereto shall mean this Agreement as it
may from time to time be amended or supplemented.
17.4. Notes held by Company, etc.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to
be given under this Agreement or the Notes, or have directed the taking of
any action provided herein or in the Notes to be taken upon the direction
of the holders of a specified percentage of the aggregate principal amount
of Notes then outstanding, Notes directly or indirectly owned by the
Company, any Restricted Subsidiary or any of its Affiliates shall be
deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be
in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return
receipt requested (postage prepaid), or (c) by a recognized overnight
delivery service (with charges prepaid). Any such notice must be sent:
(i) if a Purchaser or its nominee, to such Purchaser or its
nominee at the address specified for such communications in Schedule
A, or at such other address as such Purchaser or its nominee shall
have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of Garold L. Oliver,
Assistant Treasurer, or at such other address as the Company shall
have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually
received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may
hereafter be executed, (b) documents received by any Purchaser at the
Closing (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to
any Purchaser, may be reproduced by such Purchaser by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and such Purchaser may destroy any original document so
reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not
such reproduction was made by such Purchaser in the regular course of
business) and any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could contest
the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential Information"
means information delivered to a Purchaser by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and
that was clearly marked or labeled or otherwise adequately identified when
received by such Purchaser as being confidential information of the
Company or such Subsidiary, provided that such term does not include
information that (a) was publicly known or otherwise known to such
Purchaser prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by such Purchaser or any person
acting on its behalf, (c) otherwise becomes known to such Purchaser other
than through disclosure by the Company or any Subsidiary or (d)
constitutes financial statements delivered to such Purchaser under
Section 7.1 that are otherwise publicly available. Such Purchaser will
maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by it in good faith to protect
confidential information of third parties delivered to such Purchaser,
provided that a Purchaser may deliver or disclose Confidential Information
to (i) its directors, officers, employees, agents, attorneys and
affiliates, (to the extent such disclosure reasonably relates to the
administration of the investment represented by such Purchaser's Notes),
(ii) its financial advisors and other professional advisors who agree to
hold confidential the Confidential Information substantially in accordance
with the terms of this Section 20, (iii) any other holder of any Note,
(iv) any Institutional Investor to which such Purchaser sells or offers
to sell such Note or any part thereof or any participation therein (if
such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this
Section 20), (v) any Person from which such Purchaser offers to purchase
any security of the Company (if such Person has agreed in writing prior to
its receipt of such Confidential Information to be bound by the provisions
of this Section 20), (vi) any federal or state regulatory authority having
jurisdiction over such Purchaser, (vii) the National Association of
Insurance Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about such
Purchaser's investment portfolio, or (viii) any other Person to which such
delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to such
Purchaser is, (x) in response to any subpoena or other legal process,
(y) in connection with any litigation to which such Purchaser is a party
or (z) if an Event of Default has occurred and is continuing, to the
extent such Purchaser may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under such Purchaser's Notes and
this Agreement. Each holder of a Note, by its acceptance of a Note, will
be deemed to have agreed to be bound by and to be entitled to the benefits
of this Section 20 as though it were a party to this Agreement. On
reasonable request by the Company in connection with the delivery to any
holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that
is a party to this Agreement or its nominee), such holder will enter into
an agreement with the Company embodying the provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER.
Each Purchaser shall have the right to substitute any one of its
affiliates as the purchaser of the Notes that it has agreed to purchase
hereunder, by written notice to the Company, which notice shall be signed
by both such Purchaser and such affiliate, shall contain such affiliate's
agreement to be bound by this Agreement and shall contain a confirmation
by such affiliate of the accuracy with respect to it of the repre-
sentations set forth in Section 6. Upon receipt of such notice, wherever
the word "Purchaser" or "Purchasers" is used in this Agreement with
respect to such Purchaser (other than in this Section 21), such word shall
be deemed to refer to such affiliate in lieu of such Purchaser. In the
event that such affiliate is so substituted as a purchaser hereunder and
such affiliate thereafter transfers to such Purchaser all of the Notes
then held by such affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "Purchaser" or "Purchasers" is used in this
Agreement with respect to such Purchaser (other than in this Section 21),
such words shall no longer be deemed to refer to such affiliate, but shall
refer to such Purchaser, and such Purchaser shall have all the rights of
an original holder of the Notes under this Agreement.
22. MISCELLANEOUS.
22.1. Successors and Assigns.
All covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit
of their respective successors and assigns (including, without limitation,
any subsequent holder of a Note) whether so expressed or not.
22.2. Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or
interest on any Note that is due on a date other than a Business Day shall
be made on the next succeeding Business Day without including the
additional days elapsed in the computation of the interest payable on such
next succeeding Business Day.
22.3. Severability.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted
by law) not invalidate or render unenforceable such provision in any other
jurisdiction.
22.4. Construction.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other
covenant contained herein, so that compliance with any one covenant shall
not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person.
22.5. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall
constitute one instrument. Each counterpart may consist of a number of
copies hereof, each signed by less than all, but together signed by all,
of the parties hereto.
22.6. Governing Law.
This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the
State of Illinois excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction
other than such State.
* * * * *
If you are in agreement with the foregoing, please sign the form
of agreement on the accompanying counterpart of this Agreement and return
it to the Company, whereupon the foregoing shall become a binding
agreement between all Purchasers so signing such form and the Company.
Very truly yours,
BANDAG, INCORPORATED
By_________________________________
Name:_________________________
Title:________________________
and
By________________________________
Name:________________________
Title:_______________________
The foregoing is hereby
agreed to as of the
date thereof.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By________________________________
Name:________________________
Title:_______________________
PRUCO LIFE INSURANCE COMPANY
By_________________________________
Name:_________________________
Title:________________________
USAA LIFE INSURANCE COMPANY
By_________________________________
Name:_________________________
Title:________________________
INFORMATION RELATING TO PURCHASERS
Aggregate
Principal
Amount of
Notes to be Note
Purchased Denomination(s)
THE PRUDENTIAL INSURANCE COMPANY OF $28,847,000 $28,847,000
AMERICA
(1) All payments on account of Notes
held by such Purchaser shall be made
by wire transfer of immediately
available funds for credit to:
Account No. 890-0304-391
Bank of New York
New York, New York
(ABA No.: 021-000-018)
Each such wire transfer shall set
forth the name of the Company, a
reference to "6.41% Senior Notes due
December 15, 2002, PPN 059815 A* 1,
Security No. !INV5813!", and the due
date and application (as among
principal, interest and Make-Whole
Amount) of the payment being made.
(2) Address for all notices relating to
payments:
The Prudential Insurance Company of
America
c/o Prudential Capital Group
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Manager, Investment
Operations Group
Telephone: (201) 802-5260
Telecopier: (201) 802-8055
(3) Address for all other communications
and notices:
The Prudential Insurance Company of
America
c/o Prudential Capital Group
Two Prudential Plaza, Suite 5600
Chicago, Illinois 60601
Attention: Managing Director
Telephone: (312) 540-0931
Telecopier: (312) 540-4222
(4) Telephonic notices of prepayment to
be given on or before the date
written notice of prepayment is
given to:
Manager, Investment Structuring and
Pricing
Telephone: (201) 802-7398
Telecopier: (201) 802-9425
(5) Tax Identification No.: 22-1211670
SCHEDULE A
Aggregate
Principal
Amount of
Notes to be Note
Purchased Denomination(s)
PRUCO LIFE INSURANCE COMPANY $6,153,000 $6,153,000
(1) All payments on account of Notes
held by such Purchaser shall be
made by wire transfer of
immediately available funds for
credit to:
Account No. 890-0304-421
Bank of New York
New York, New York
(ABA No.: 021-000-018)
Each such wire transfer shall set
forth the name of the Company, a
reference to "6.41% Senior Notes
due December 15, 2002, PPN 059815
A* 1, Security No. !INV5814!", and
the due date and application (as
among principal, interest and Make-
Whole Amount) of the payment being
made.
(2) Address for all notices relating to
payments:
Pruco Life Insurance Company
c/o Prudential Capital Group
Gateway Center Three
100 Mulberry Street
Newark, New Jeresy 07102-4077
Attention: Manager, Investment
Operations Group
Telephone: (201) 802-5260
Telecopier: (201) 802-8055
(3) Address for all other
communications and notices:
Pruco Life Insurance Company
c/o Prudential Capital Group
Two Prudential Plaza, Suite 5600
Chicago, Illinois 60601
Attention: Managing Director
Telephone: (312) 540-0931
Telecopier: (312) 540-4222
(4) Telephonic notices of prepayment to
be given on or before the date
written notice of prepayment is
given to:
Manager, Investment Structuring and
Pricing
Telephone: (201) 802-7398
Telecopier: (201) 802-9425
(5) Tax Identification No.: 22-1944557
Aggregate
Principal
Amount of
Notes to be Note
Purchased Denomination(s)
USAA LIFE INSURANCE COMPANY $25,000,000 $25,000,000
(1) All payments on account of Notes
held by such Purchaser shall be made
by wire transfer of immediately
available funds for credit to:
BTCO
ABA No.: 021-001-033
Pvt Placement Proc. No. 99 911 145
USAA Life Insurance Company
Account No. 99717
Each such wire transfer shall set
forth the name of the Company, a
reference to "Bandag, Incorporated
6.41% Senior Notes due December 15,
2002, PPN 059815 A* 1" and the due
date and application (as among
principal, interest and Make-Whole
Amount) of the payment being made.
(2) Address for all payment notices and
communications:
USAA Life Insurance Company
c/o Insurance Accounting
USAA Building, F-2-W
9800 Fredericksburg Road
San Antonio, TX 78288
(3) Address for all other communications
and notices:
Insurance Company Portfolios
USAA IMCO
USAA Building, BK DO4 N
9800 Fredericksburg Road
San Antonio, TX 78288
(4) Telephonic notices of prepayment to
be given on or before the date
written notice of prepayment is
given to:
C. W. Shirley
Senior Vice President
Telecopier: 210-498-5689
(5) Note to be registered in nominee
name:
Salkeld & Co.
(6) Tax Identification No.: 74-1472662
DEFINED TERMS
As used herein, the following terms have the respective meanings
set forth below or set forth in the Section of the Agreement following
such term:
"Affiliate" means any Person (other than the Company or a
Restricted Subsidiary) which, directly or indirectly, controls, is
controlled by or is under direct or indirect common control with the
Company or a Restricted Subsidiary or which beneficially owns or holds or
has the power to direct the voting power of 20% or more of the voting
stock of the Company or a Restricted Subsidiary, and any director or
executive officer of the Company or a Restricted Subsidiary. As used in
this definition, "Control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities,
by contract or otherwise.
"Agreement" as defined in Section 17.3.
"Business Day" means (a) for the purposes of Section 8.6 of the
Agreement only, any day other than a Saturday, a Sunday or a day on which
commercial banks in New York City, New York, are required or authorized to
be closed, and (b) for the purposes of any other provision of the
Agreement, any day other than a Saturday, a Sunday or a day on which
commercial banks in New York City, New York, or Des Moines, Iowa are
required or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of
an asset and the incurrence of a liability in accordance with GAAP.
"Closing" is defined in Section 3 of the Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from
time to time.
"Company" means Bandag, Incorporated, an Iowa corporation.
"Confidential Information" is defined in Section 20 of the
Agreement.
"Consolidated Funded Debt" means, on any date, the sum of all
Consolidated Senior Funded Debt on such date and all Consolidated
Subordinated Funded Debt on such date.
"Consolidated Net Worth" means, on any date, the total
shareholders' equity of the Company and its Restricted Subsidiaries
(including any preferred shareholders' equity) on such date, determined on
a consolidated basis in accordance with GAAP .
"Consolidated Senior Funded Debt" means, on any date, all Senior
Funded Debt of the Company and its Restricted Subsidiaries on such date
after eliminating inter-company items in accordance with GAAP.
"Consolidated Subordinated Funded Debt" means, on any date, all
Subordinated Funded Debt of the Company and its Restricted Subsidiaries on
such date after eliminating inter-company items in accordance with GAAP.
"Consolidated Total Assets" means, on any date, the total
assets of the Company and its Restricted Subsidiaries on such date
determined on a consolidated basis in accordance with GAAP.
"Current Debt" means, with respect to any Person, Indebtedness
of such Person which, by its terms or by the terms of any instrument or
agreement relating thereto, matures on demand or within one year or less
from the date of creation thereof and is not directly or indirectly
renewable or extendible at the option of the obligor in respect thereof to
a date one year or more from such date, provided that Indebtedness
outstanding under a revolving credit or similar agreement which obligates
the lender or lenders to extend credit over a period of one year or more
shall constitute Funded Debt and not Current Debt, even though such
Indebtedness by its terms matures on demand or within one year from such
date.
"Default" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice
or both, become an Event of Default.
"Default Rate" means that rate of interest that is the greater
of (i) 2% per annum above the rate of interest stated in clause (a) of the
first paragraph of the Notes or (ii) 2% over the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York from time to time
in New York City as its Prime Rate.
"Environmental Laws" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants, franchises, licenses,
agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the en-
vironment, including but not limited to those related to hazardous sub-
stances or wastes, air emissions and discharges to waste or public
systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promul-
gated thereunder from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the
Company under section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Funded Debt" means, with respect to any Person, all
Indebtedness of such Person which by its terms or by the terms of any
instrument or agreement relating thereto matures, or which is otherwise
payable or unpaid, one year or more from, or is directly or indirectly
renewable or extendible at the option of the obligor in respect thereof to
a date one year or more (including, without limitation, an option of such
obligor under a revolving credit or similar agreement obligating the
lender or lenders to extend credit over a period of one year or more)
from, the date of the creation thereof.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Company or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"Guaranty" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in
effect guaranteeing any Indebtedness, dividend or other obligation of any
other Person in any manner, whether directly or indirectly, including
(without limitation) obligations incurred through an agreement, contingent
or otherwise, by such Person:
(a) to purchase such Indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment
of such Indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make
available funds for the purchase or payment of such indebtedness or
obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness
or obligation of the ability of any other Person to make payment of
the Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor
under any Guaranty, the Indebtedness or other obligations that are the
subject of such Guaranty shall be assumed to be direct obligations of such
obligor.
"holder" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company
pursuant to Section 13.1.
"Indebtedness"with respect to any Person means, at any time,
without duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or
arising under any conditional sale or other title retention agreement
with respect to any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(d) all its liabilities in respect of promissory notes or
instruments serving a similar function; and
(e) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (d) hereof.
"Institutional Investor" means (a) any original purchaser of a
Note, (b) any holder of a Note holding more than 5% of the aggregate
principal amount of the Notes then outstanding, and (c) any bank, trust
company, savings and loan association or other financial institution, any
pension plan, any investment company, any insurance company, any broker or
dealer, or any other similar financial institution or entity, regardless
of legal form.
"Investment" means any loan, advance, extension of credit or
contribution of capital or any other investment in or to, or purchase or
other acquisition of stock, notes, debentures or other securities of, any
Person.
"Lien" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or
title of any vendor, lessor, lender or other secured party to or of such
Person under any conditional sale or other title retention agreement or
Capital Lease, upon or with respect to any property or asset of such
Person (including in the case of stock, stockholder agreements, voting
trust agreements and all similar arrangements).
"Make-Whole Amount" is defined in Section 8.6.
"Material" means material in relation to the business,
operations, affairs, financial condition, assets, or properties of the
Company and its Restricted Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or
properties of the Company and its Restricted Subsidiaries taken as a
whole, or (b) the ability of the Company to perform its obligations under
the Agreement and the Notes, or (c) the validity or enforceability of the
Agreement or the Notes.
"Memorandum" is defined in Section 5.3 of the Agreement.
"Multiemployer Plan" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"Notes" is defined in Section 1 of the Agreement.
"Officer's Certificate" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose
responsibilities extend to the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"Permitted Investment" means (a) Investments (including leverage
lease and affordable housing tax credit transactions) of the Company and
its Restricted Subsidiaries existing as of the date of this Agreement and
set forth on Schedule 10.7 to the Agreement, and (b) other Investments
consisting of: (i) direct obligations of the United States of America or
any agency of the United States of America or obligations guaranteed by
the United States of America, so long as such obligations or guaranty
shall have the benefit of the full faith and credit of the United States
of America, in each case maturing in eighteen months or less from the date
of acquisition; (ii) state, municipal or corporate debt obligations
maturing in eighteen months or less from the date of acquisition and rated
"A" or better (or the equivalent) by Standard & Poor's Rating Group or
Moody's Investors Service, Inc.; (iii) investments in bankers acceptances,
Eurodollar deposits or certificates of deposits maturing within eighteen
months from the date of issuance thereof and issued by, or any demand
deposits in, any United States commercial bank with capital and surplus
of not less than $250,000,000 or any foreign bank with a capital and
surplus of not less than $1.0 billion with a branch in the United States;
(iv) preferred stock rated "BBB" or better by Standard & Poor's Rating
Group or Moody's Investors Service, Inc.; (v) loans or advances in the
ordinary course of business to suppliers, franchisees, officers, directors
and employees incidental to carrying on the business of the Company or any
Restricted Subsidiary (including employee relocation loans); (vi)
receivables arising from the sale of goods and services in the ordinary
course of business of the Company and its Restricted Subsidiaries; (vii)
loans to and advances from Restricted Subsidiaries in the usual course of
business; (viii) Investments in any Restricted Subsidiary or any Person
which, after giving effect to such Investment, would be a Restricted
Subsidiary; (ix) Investments in money market funds; and (x) other
Investments not listed above which do not exceed, in the aggregate, 10% of
Consolidated Net Worth at any time.
"Person" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the
Company or any ERISA Affiliate or with respect to which the Company or any
ERISA Affiliate may have any liability.
"Priority Debt" means (i) Indebtedness of the Company secured
by Liens permitted under clause (viii) of Section 10.4 of the Agreement,
and (ii) Indebtedness of Restricted Subsidiaries, except Indebtedness owed
to the Company.
"property" or "properties" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible,
choate or inchoate.
"Purchaser" and "Purchasers" are defined in the first sentence
of the Agreement.
"QPAM Exemption" means Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.
"Required Holders" means, at any time, the holders of at least
51% in principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Company, any Restricted Subsidiary or any
Affiliate).
"Responsible Officer" means any Senior Financial Officer and any
other officer of the Company with responsibility for the administration of
the relevant portion of the Agreement.
"Restricted Payment" means any dividend or other distribution or
payment on the capital stock or other equity interests of the Company or
any Restricted Subsidiary, whether in cash or in property (except
distributions solely in shares of such capital stock or equity interests),
and any redemption, purchase, retirement or other acquisition of the
capital stock or other equity interests of the Company or any Restricted
Subsidiary or of warrants, rights or other options to acquire such capital
stock or other equity interests, excluding any dividends, distributions or
payments to, or redemptions, purchases, retirements or other acquisitions
from, the Company or a Wholly-Owned Restricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Senior Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or assistant treasurer of the
Company.
"Senior Funded Debt" means Funded Debt of the Company and its
Restricted Subsidiaries other than Subordinated Funded Debt.
"Series 2007 Notes" means the Company's 6.50% Senior Notes due
December 15, 2007, in the original aggregate principal amount of
$40,000,000, issued pursuant to the Series 2007 Note Purchase Agreement.
"Series 2007 Note Purchase Agreement" means the Note Purchase
Agreement, dated as of the date of the Agreement, among the Company and
the purchasers listed on Schedule A attached thereto, providing for the
purchase and sale of the Series 2007 Notes.
"Significant Subsidiary" means at any time any Subsidiary that
would at such time constitute a "significant subsidiary" (as such term is
defined in Regulation S-X of the Securities and Exchange Commission as in
effect on the date of the Closing) of the Company.
"Subordinated Funded Debt" means any Funded Debt of the Company
and its Restricted Subsidiaries which is subordinated in right of payment
to the Notes pursuant to a subordination agreement, in form and substance
approved in writing by the Required Holders, and which has a maturity
extending beyond final maturity of the Notes.
"Subsidiary" means any corporation, association or other
business entity in which the Company or one or more of its Subsidiaries or
the Company and one or more of its Subsidiaries owns sufficient equity or
voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership or joint
venture if more than a 50% interest in the profits or capital thereof is
owned by the Company or one or more of its Subsidiaries or the Company and
one or more of its Subsidiaries (unless such partnership can and does
ordinarily take major business actions without the prior approval of the
Company or one or more of its Subsidiaries).
"Total Capitalization" means, on any date, the sum of (i)
Consolidated Funded Debt on such date, (ii) the deferred income tax
liability of the Company and each Restricted Subsidiary on such date,
determined on a consolidated basis in accordance with GAAP, and (iii)
Consolidated Net Worth on such date.
"Unrestricted Subsidiary" means any Subsidiary designated as an
"Unrestricted Subsidiary" at any time by the Company in a writing
delivered to the holders of the Notes and not thereafter designated as a
"Restricted Subsidiary" by the Company in a writing delivered to the
holders of the Notes; provided that the Company may so designate a
Subsidiary as an Unrestricted Subsidiary or designate an Unrestricted
Subsidiary as a Restricted Subsidiary only if (i) at the time of any such
designation of a Subsidiary as an Unrestricted Subsidiary, the Subsidiary
so designated neither owns, directly or indirectly, any Funded Debt or
capital stock of any other Restricted Subsidiary, and (ii) after giving
effect to such designation of a Subsidiary as an Unrestricted Subsidiary
or of an Unrestricted Subsidiary as a Restricted Subsidiary (x) the
Company could incur an additional $1.00 of Senior Funded Debt pursuant to
clauses (a) and (b) of Section 10.3(ii) of the Agreement, and (y) no
Default or Event of Default would exist. Once a Subsidiary is designated
an Unrestricted Subsidiary, it may thereafter be designated as a
Restricted Subsidiary but after being so designated as a Restricted
Subsidiary such Subsidiary may not again be designated as an Unrestricted
Subsidiary. As of the time of Closing, no Subsidiary is an Unrestricted
Subsidiary.
"Wholly-Owned Restricted Subsidiary" means, at any time, any
Restricted Subsidiary one hundred percent (100%) of all of the equity
interests (except directors' qualifying shares) and voting interests of
which are owned by any one or more of the Company and the Company's other
Wholly-Owned Restricted Subsidiaries at such time.
<PAGE>
[FORM OF NOTE]
BANDAG, INCORPORATED
6.41% SENIOR NOTE DUE DECEMBER 15, 2002
No. R-2002-_ [DATE]
$[_______] PPN 059815 A* 1
FOR VALUE RECEIVED, the undersigned, Bandag, Incorporated
(herein called the "Company"), a corporation organized and existing under
the laws of the State of Iowa hereby promises to pay to
[___________________________], or registered assigns, the principal sum of
[___________________________] DOLLARS on December 15, 2002, with interest
(computed on the basis of a 360-day year of twelve 30-day months) (a) on
the unpaid balance thereof at the rate of 6.41% per annum from the date
hereof, payable semiannually, on the 15th day of June and December in each
year, commencing with the June or December next succeeding the date
hereof, until the principal hereof shall have become due and payable, and
(b) to the extent permitted by law on any overdue payment (including any
overdue prepayment) of principal, any overdue payment of interest and any
overdue payment of any Make-Whole Amount (as defined in the Note Purchase
Agreement referred to below), payable semiannually as aforesaid (or, at
the option of the registered holder hereof, on demand), at a rate per
annum from time to time equal to the greater of (i) 8.41% or (ii) 2% over
the rate of interest publicly announced by Morgan Guaranty Trust Company
of New York from time to time in New York City, New York as its Prime
Rate.
Payments of principal of, interest on and any Make-Whole Amount
with respect to this Note are to be made in lawful money of the United
States of America at Muscatine, Iowa or at such other place as the Company
shall have designated by written notice to the holder of this Note as
provided in the Note Purchase Agreement referred to below.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to the Note Purchase Agreement, dated as of
December 15, 1997 (as from time to time amended, the "Note Purchase
Agreement"), among the Company and the respective Purchasers named therein
and is entitled to the benefits thereof. Each holder of this Note will be
deemed, by its acceptance hereof, (i) to have agreed to the confiden-
tiality provisions set forth in Section 20 of the Note Purchase Agreement
and (ii) to have made the representation set forth in Section 6.2 of the
Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of
transfer duly executed, by the registered holder hereof or such holder's
attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee.
Prior to due presentment for registration of transfer, the Company may
treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.
This Note is subject to optional prepayment, in whole or from
time to time in part, at the times and on the terms specified in the Note
Purchase Agreement, but not otherwise.
If an Event of Default, as defined in the Note Purchase
Agreement, occurs and is continuing, the principal of this Note may be
declared or otherwise become due and payable in the manner, at the price
(including any applicable Make-Whole Amount) and with the effect provided
in the Note Purchase Agreement.
This Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by the law of the State of
Illinois excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than
such State.
BANDAG, INCORPORATED
By_________________________
Title:
and
By_________________________
Title:
<PAGE>
FORM OF OPINION OF SPECIAL COUNSEL
TO THE COMPANY
Matters To Be Covered In
Opinion of Special Counsel To the Company
1. Each of the Company and its Significant Subsidiaries being
duly incorporated, validly existing and in good standing and having
requisite corporate power and authority to issue and sell the Notes and to
execute and deliver the documents.
2. Each of the Company and its Significant Subsidiaries being
duly qualified and in good standing as a foreign corporation in such
jurisdictions as may be requested by the Purchasers.
3. Due authorization and execution of the documents and such
documents being legal, valid, binding and enforceable.
4. No conflicts with charter documents, laws or other
agreements.
5. All consents required to issue and sell the Notes and to
execute and deliver the documents having been obtained.
6. No litigation questioning validity of documents.
7. The Notes not requiring registration under the Securities
Act of 1933, as amended; no need to qualify an indenture under the Trust
Indenture Act of 1939, as amended.
8. No violation of Regulations G, T or X of the Federal
Reserve Board.
9. Company not an "investment company", or a company
"controlled" by an "investment company", under the Investment Company Act
of 1940, as amended.
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
[TO BE PROVIDED]
Execution Copy
BANDAG, INCORPORATED
$40,000,000
6.50% Senior Notes due December 15, 2007
_______________
NOTE PURCHASE AGREEMENT
_______________
Dated December 15, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
1. AUTHORIZATION OF NOTES . . . . . . . . . . . . . . . . . . . . . . 1
2. SALE AND PURCHASE OF NOTES . . . . . . . . . . . . . . . . . . . . 1
3. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . 2
4.1. Representations and Warranties . . . . . . . . . . . . . . . 2
4.2. Performance; No Default . . . . . . . . . . . . . . . . . . 2
4.3. Compliance Certificates . . . . . . . . . . . . . . . . . . 3
4.4. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . 3
4.5. Purchase Permitted By Applicable Law, etc. . . . . . . . . . 3
4.6. Sale of Other Notes . . . . . . . . . . . . . . . . . . . . 3
4.7. Payment of Special Counsel Fees . . . . . . . . . . . . . . 4
4.8. Private Placement Number . . . . . . . . . . . . . . . . . . 4
4.9. Changes in Corporate Structure . . . . . . . . . . . . . . . 4
4.10. Proceedings and Documents . . . . . . . . . . . . . . . . . 4
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . 4
5.1. Organization; Power and Authority . . . . . . . . . . . . . 4
5.2. Authorization, etc. . . . . . . . . . . . . . . . . . . . . 5
5.3. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4. Organization and Ownership of Shares of Subsidiaries . . . . 5
5.5. Financial Statements . . . . . . . . . . . . . . . . . . . . 6
5.6. Compliance with Laws, Other Instruments, etc. . . . . . . . 6
5.7. Governmental Authorizations, etc. . . . . . . . . . . . . . 7
5.8. Litigation; Observance of Statutes and Orders . . . . . . . 7
5.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.10. Title to Property; Leases . . . . . . . . . . . . . . . . . 7
5.11. Licenses, Permits, etc. . . . . . . . . . . . . . . . . . . 8
5.12. Compliance with ERISA . . . . . . . . . . . . . . . . . . . 8
5.13. Private Offering by the Company . . . . . . . . . . . . . . 9
5.14. Use of Proceeds; Margin Regulations . . . . . . . . . . . . 9
5.15. Existing Indebtedness . . . . . . . . . . . . . . . . . . . 9
5.16. Foreign Assets Control Regulations, etc. . . . . . . . . . . 10
5.17. Status under Certain Statutes . . . . . . . . . . . . . . . 10
6. REPRESENTATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . 10
6.1. Purchase for Investment . . . . . . . . . . . . . . . . . . 10
6.2. Source of Funds . . . . . . . . . . . . . . . . . . . . . . 10
7. INFORMATION AS TO COMPANY . . . . . . . . . . . . . . . . . . . . 12
7.1. Financial and Business Information . . . . . . . . . . . . . 12
7.2. Officer's Certificate . . . . . . . . . . . . . . . . . . . 14
7.3. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . 15
8. PREPAYMENT OF THE NOTES . . . . . . . . . . . . . . . . . . . . . 15
8.1. Required Prepayments . . . . . . . . . . . . . . . . . . . . 15
8.2. Optional Prepayments with Make-Whole Amount . . . . . . . . 15
8.3. Allocation of Partial Prepayments . . . . . . . . . . . . . 16
8.4. Maturity; Surrender, etc. . . . . . . . . . . . . . . . . . 16
8.5. Purchase of Notes . . . . . . . . . . . . . . . . . . . . . 16
8.6. Make-Whole Amount . . . . . . . . . . . . . . . . . . . . . 17
9. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 18
9.1. Compliance with Law . . . . . . . . . . . . . . . . . . . . 18
9.2. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.3. Maintenance of Properties . . . . . . . . . . . . . . . . . 19
9.4. Payment of Taxes and Other Claims . . . . . . . . . . . . . 19
9.5. Corporate Existence, etc. . . . . . . . . . . . . . . . . . 20
10. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 20
10.1. Transactions with Affiliates . . . . . . . . . . . . . . . . 20
10.2. Merger, Consolidation and Disposition of Assets . . . . . . 20
10.3. Limitations on Indebtedness.22
10.4. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . 23
10.5. Priority Debt. . . . . . . . . . . . . . . . . . . . . . . . 25
10.6. Sale and Leaseback. . . . . . . . . . . . . . . . . . . . . 25
10.7. Limitation on Investments. . . . . . . . . . . . . . . . . . 25
10.8. Restricted Payments. . . . . . . . . . . . . . . . . . . . . 25
10.9. Line of Business. . . . . . . . . . . . . . . . . . . . . . 25
10.10.Subsidiary Dividend Restrictions. . . . . . . . . . . . . . 25
11. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 26
12. REMEDIES ON DEFAULT, ETC. . . . . . . . . . . . . . . . . . . . . 28
12.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 28
12.2. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . 29
12.3. Rescission . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.4. No Waivers or Election of Remedies, Expenses, etc. . . . . . 29
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES . . . . . . . . . . 30
13.1. Registration of Notes . . . . . . . . . . . . . . . . . . . 30
13.2. Transfer and Exchange of Notes . . . . . . . . . . . . . . . 30
13.3. Replacement of Notes . . . . . . . . . . . . . . . . . . . . 31
14. PAYMENTS ON NOTES . . . . . . . . . . . . . . . . . . . . . . . . 31
14.1. Place of Payment . . . . . . . . . . . . . . . . . . . . . . 31
14.2. Home Office Payment . . . . . . . . . . . . . . . . . . . . 31
15. EXPENSES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.1. Transaction Expenses . . . . . . . . . . . . . . . . . . . . 32
15.2. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 32
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 32
17. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . 33
17.1. Requirements . . . . . . . . . . . . . . . . . . . . . . . . 33
17.2. Solicitation of Holders of Notes . . . . . . . . . . . . . . 33
17.3. Binding Effect, etc. . . . . . . . . . . . . . . . . . . . . 34
17.4. Notes held by Company, etc. . . . . . . . . . . . . . . . . 34
18. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19. REPRODUCTION OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . 35
20. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 35
21. SUBSTITUTION OF PURCHASER . . . . . . . . . . . . . . . . . . . . 36
22. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 37
22.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . 37
22.2. Payments Due on Non-Business Days . . . . . . . . . . . . . 37
22.3. Severability . . . . . . . . . . . . . . . . . . . . . . . . 37
22.4. Construction . . . . . . . . . . . . . . . . . . . . . . . . 37
22.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 37
22.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 38
SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of
Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.11 -- Patents, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness
SCHEDULE 10.4 -- Existing Liens
SCHEDULE 10.7 -- Existing Investments
EXHIBIT 1 -- Form of 6.50% Senior Note due December 15, 2007
EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
<PAGE>
BANDAG, INCORPORATED
2905 North Highway 61
Muscatine, IA 52671
6.50% Senior Notes due December 15, 2007
December 15, 1997
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Bandag, Incorporated, an Iowa corporation (the "Company"),
agrees with each of the purchasers listed in the attached Schedule A
(individually, a "Purchaser" and collectively, the "Purchasers") as
follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $40,000,000
aggregate principal amount of its 6.50% Senior Notes due December 15, 2007
(the "Notes", such term to include any such notes issued in substitution
therefor pursuant to Section 13 of this Agreement). The Notes shall be
substantially in the form set out in Exhibit 1, with such changes
therefrom, if any, as may be approved by the Purchasers and the Company.
Certain capitalized terms used in this Agreement are defined in Schedule
B; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to each Purchaser and each Purchaser will
purchase from the Company, at the Closing provided for in Section 3, Notes
in the principal amount specified opposite such Purchaser's name in
Schedule A at the purchase price of 100% of the principal amount thereof.
The obligations of each respective Purchaser hereunder are several and not
joint obligations and no Purchaser shall have any liability to any Person
for the performance or non-performance by any other Purchaser hereunder.
3. CLOSING.
The sale and purchase of the Notes to be purchased by the
Purchasers shall occur at the offices of Schiff Hardin & Waite, 7200 Sears
Tower, 233 S. Wacker Drive, Chicago, Illinois 60606 at 10:00 a.m., Central
Standard time, at a closing (the "Closing") on December 15, 1997. At the
Closing the Company will deliver to each Purchaser the Notes to be pur-
chased by such Purchaser in the form of a single Note (or such greater
number of Notes in denominations of at least $500,000 as such Purchaser
may request or as may be specified on Schedule A) dated the date of the
Closing and registered in such Purchaser's name (or in the name of its
nominee), against delivery by such Purchaser to the Company or its order
of immediately available funds in the amount of the purchase price there-
for by wire transfer of immediately available funds for the account of the
Company to account number 98655, at The Northern Trust Company, 50 South
LaSalle Street, Chicago, IL 60675; ABA number 071000152. If at the
Closing the Company shall fail to tender such Notes to a Purchaser as
provided above in this Section 3, or any of the conditions specified in
Section 4 shall not have been fulfilled to the satisfaction of a
Purchaser, such Purchaser shall, at its election, be relieved of all
further obligations under this Agreement, without thereby waiving any
rights it may have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Each Purchaser's obligation to purchase and pay for the Notes to
be sold to it at the Closing is subject to the fulfillment to such
Purchaser's satisfaction, prior to or at the Closing, of the following
conditions:
4.1. Representations and Warranties.
The representations and warranties of the Company in this Agree-
ment shall be correct when made and at the time of the Closing in all
Material respects.
4.2. Performance; No Default.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be
performed or complied with by it prior to or at the Closing and after
giving effect to the issue and sale of the Notes (and the application of
the proceeds thereof as contemplated by Schedule 5.14) no Default or Event
of Default shall have occurred and be continuing.
4.3. Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to
each Purchaser an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have
been fulfilled.
(b) Secretary's Certificate. The Company shall have delivered
to each Purchaser a certificate certifying as to the resolutions attached
thereto and other corporate proceedings relating to the authorization,
execution and delivery of the Notes and the Agreements.
4.4. Opinions of Counsel.
Each Purchaser shall have received opinions in form and
substance satisfactory to it, dated the date of the Closing (a) from Foley
& Lardner, counsel for the Company, covering the matters set forth in
Exhibit 4.4(a) and covering such other matters incident to the
transactions contemplated hereby as the Purchasers or their respective
counsel may reasonably request (and the Company hereby instructs its
counsel to deliver such opinion to the Purchasers) and (b) from the
Purchasers' special counsel in connection with such transactions, sub-
stantially in the form set forth in Exhibit 4.4(b) and covering such other
matters incident to such transactions as the Purchasers may reasonably
request.
4.5. Purchase Permitted By Applicable Law, etc.
On the date of the Closing each Purchaser's purchase of Notes
shall (i) be permitted by the laws and regulations of each jurisdiction to
which such Purchaser is subject, without recourse to provisions (such as
Section 1405(a)(8) of the New York Insurance Law) permitting limited
investments by insurance companies without restriction as to the character
of the particular investment, (ii) not violate any applicable law or
regulation (including, without limitation, Regulation G, T or X of the
Board of Governors of the Federal Reserve System) and (iii) not subject
such Purchaser to any tax, penalty or liability under or pursuant to any
applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by any Purchaser, such Purchaser shall have
received an Officer's Certificate certifying as to such matters of fact as
such Purchaser may reasonably specify to enable it to determine whether
such purchase is so permitted.
4.6. Sale of Other Notes.
(a) Contemporaneously with the Closing with respect to each
Purchaser, the Company shall sell to each other Purchaser and each other
Purchaser shall purchase the Notes to be purchased by it at the Closing as
specified in Schedule A.
(b) Contemporaneously with the Closing the Company shall sell
to the purchasers of the Series 2002 Notes and the purchasers of the
Series 2002 Notes shall purchase the Series 2002 Notes to be purchased by
them as specified in Schedule A of the Series 2002 Note Purchase
Agreement.
4.7. Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company
shall have paid on or before the Closing the fees, charges and disburse-
ments of the Purchasers' special counsel referred to in Section 4.4 to the
extent reflected in a statement of such counsel rendered to the Company at
least one Business Day prior to the Closing.
4.8. Private Placement Number.
A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained
for the Notes.
4.9. Changes in Corporate Structure.
Except as specified in Schedule 4.9, the Company shall not have
changed its jurisdiction of incorporation or been a party to any merger or
consolidation and shall not have succeeded to all or any substantial part
of the liabilities of any other entity, at any time following the date of
the most recent financial statements referred to in Schedule 5.5.
4.10. Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be satisfactory to each
Purchaser and its special counsel, and each Purchaser and its special
counsel shall have received all such counterpart originals or certified or
other copies of such documents as it or they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
5.1. Organization; Power and Authority.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation,
and is duly qualified as a foreign corporation and is in good standing in
each jurisdiction in which such qualification is required by law, other
than those jurisdictions as to which the failure to be so qualified or in
good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Company has the corporate
power and authority to own or hold under lease the properties it purports
to own or hold under lease, to transact the business it transacts and
proposes to transact, to execute and deliver this Agreement and the Notes
and to perform the provisions hereof and thereof.
5.2. Authorization, etc.
This Agreement and the Notes have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each Note will
constitute, a legal, valid and binding obligation of the Company enforce-
able against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights generally and (ii) general principles of equity
(regardless of whether such enforceability is considered in a proceeding
in equity or at law).
5.3. Disclosure.
The Company, through its agent, William Blair & Company, L.L.C.,
has delivered to each Purchaser a copy of a Confidential Placement
Memorandum, dated November 1997 (the "Memorandum"), relating to the
transactions contemplated hereby. Except as disclosed in Schedule 5.3,
this Agreement, the Memorandum, the documents, certificates or other
writings identified in Schedule 5.3 and the financial statements listed in
Schedule 5.5, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under
which they were made. Except as disclosed in the Memorandum or as
expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings identified therein, or in the financial
statements listed in Schedule 5.5, since December 31, 1996, there has been
no change in the financial condition, operations, business or properties
of the Company or any of its Subsidiaries except changes that individually
or in the aggregate would not reasonably be expected to have a Material
Adverse Effect.
5.4. Organization and Ownership of Shares of Subsidiaries.
(a) Schedule 5.4 is (except as noted therein) a complete and
correct list of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary. As of the date of Closing, all Subsidiaries of the
Company will be Restricted Subsidiaries.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being owned
by the Company and its Subsidiaries have been validly issued, are fully
paid and nonassessable and are owned by the Company or another Subsidiary
free and clear of any Lien (except as otherwise disclosed in Schedule
5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation
duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to
which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate power and
authority to own or hold under lease the properties it purports to own or
hold under lease and to transact the business it transacts and proposes to
transact.
5.5. Financial Statements.
The Company has delivered to each Purchaser copies of the
financial statements of the Company and its Subsidiaries listed on
Schedule 5.5. All of said financial statements (including in each case
the related schedules and notes) fairly present in all material respects
the consolidated financial position of the Company and its Subsidiaries as
of the respective dates specified in such Schedule and the consolidated
results of their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consistently
applied throughout the periods involved except as set forth in the notes
thereto (subject, in the case of any interim financial statements, to
normal year-end adjustments).
5.6. Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by the Company of this
Agreement and the Notes will not (i) contravene, result in any breach of,
or constitute a default under, or result in the creation of any Lien in
respect of any property of the Company or any Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement,
lease, corporate charter or by-laws, or any other Material agreement or
instrument to which the Company or any Subsidiary is bound or by which the
Company or any Subsidiary or any of their respective properties may be
bound or affected, (ii) conflict with or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree, or ruling
of any court, arbitrator or Governmental Authority applicable to the
Company or any Subsidiary or (iii) violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to the
Company or any Subsidiary relying, in part, as to compliance with federal
and state securities laws, on the representation of the Purchasers
contained in Section 6.1.
5.7. Governmental Authorizations, etc.
No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in
connection with the execution, delivery or performance by the Company of
this Agreement or the Notes.
5.8. Litigation; Observance of Statutes and Orders.
(a) There are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the Company
or any Subsidiary or any property of the Company or any Subsidiary in any
court or before any arbitrator of any kind or before or by any
Governmental Authority that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under
any order, judgment, decree or ruling of any court, arbitrator or Govern-
mental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
5.9. Taxes.
The Company and its Subsidiaries have filed all income tax
returns that are required to have been filed in any jurisdiction, and have
paid all taxes shown to be due and payable on such returns and all other
taxes and assessments payable by them, to the extent such taxes and
assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (i) the amount of which
is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which the Company or
a Subsidiary, as the case may be, has established adequate reserves in
accordance with GAAP. The Federal income tax liabilities of the Company
and its Subsidiaries have been determined by the Internal Revenue Service
and paid for all fiscal years up to and including the fiscal year ended
December 31, 1993.
5.10. Title to Property; Leases.
The Company and its Subsidiaries have good and sufficient title
to their respective Material properties, including all such properties
reflected in the most recent audited balance sheet referred to in Section
5.5 or purported to have been acquired by the Company or any Subsidiary
after said date (except as sold or otherwise disposed of in the ordinary
course of business), in each case free and clear of Liens prohibited by
this Agreement, except for those defects in title and Liens that,
individually or in the aggregate, would not have a Material Adverse
Effect. All Material leases are valid and subsisting and are in full
force and effect in all material respects.
5.11. Licenses, Permits, etc.
Except as disclosed in Schedule 5.11, the Company and its
Subsidiaries own or possess all licenses, permits, franchises,
authorizations, patents, copyrights, service marks, trademarks and trade
names, or rights thereto, that are Material, without known conflict with
the rights of others, except for those conflicts that, individually or in
the aggregate, would not have a Material Adverse Effect.
5.12. Compliance with ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for
such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any ERISA Affiliate has incurred any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and
no event, transaction or condition has occurred or exists that would
reasonably be expected to result in the incurrence of any such liability
by the Company or any ERISA Affiliate, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or any ERISA
Affiliate, in either case pursuant to Title I or IV of ERISA or to such
penalty or excise tax provisions or to Section 401(a)(29) or 412 of the
Code, other than such liabilities or Liens as would not be individually or
in the aggregate Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as of
the end of such Plan's most recently ended plan year on the basis of the
actuarial assumptions specified for funding purposes in such Plan's most
recent actuarial valuation report, did not exceed the aggregate current
value of the assets of such Plan allocable to such benefit liabilities.
The term "benefit liabilities" has the meaning specified in section 4001
of ERISA and the terms "current value" and "present value" have the
meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multi-
employer Plans that individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined
as of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage
mandated by section 4980B of the Code) of the Company and its Subsidiaries
is not Material.
(e) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any transaction
that is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to sec-
tion 4975(c)(1)(A)-(D) of the Code. The representation by the Company in
the first sentence of this Section 5.12(e) is made in reliance upon and
subject to the accuracy of the Purchasers' representations in Section 6.2
as to the sources of the funds to be used to pay the purchase price of the
Notes to be purchased by the Purchasers.
5.13. Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has offered
the Notes or any similar securities for sale to, or solicited any offer to
buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than the Purchasers, the purchasers of
Series 2002 Notes and not more than 60 other Institutional Investors, each
of which has been offered the Notes or the Series 2002 Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf
has taken, or will take, any action that would subject the issuance or
sale of the Notes to the registration requirements of Section 5 of the
Securities Act.
5.14. Use of Proceeds; Margin Regulations.
The Company will apply the proceeds of the sale of the Notes as
set forth in Schedule 5.14. No part of the proceeds from the sale of the
Notes hereunder will be used, directly or indirectly, for the purpose of
buying or carrying any margin stock within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System (12 CFR 207), or for
the purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Company in a violation of Regulation X of
said Board (12 CFR 224) or to involve any broker or dealer in a violation
of Regulation T of said Board (12 CFR 220). Margin stock does not consti-
tute more than 25% of the value of the consolidated assets of the Company
and its Subsidiaries and the Company does not have any present intention
that margin stock will constitute more than 25% of the value of such
assets. As used in this Section, the terms "margin stock" and "purpose of
buying or carrying" shall have the meanings assigned to them in said
Regulation G.
5.15. Existing Indebtedness.
Except as described therein, Schedule 5.15 sets forth a complete
and correct list of all outstanding Indebtedness of the Company and its
Subsidiaries as of November 30, 1997, since which date there has been no
Material change in the amounts, interest rates, sinking funds, installment
payments or maturities of the Indebtedness of the Company or its
Subsidiaries. Neither the Company nor any Subsidiary is in default and no
waiver of default is currently in effect, in the payment of any principal
or interest on any Indebtedness of the Company or such Subsidiary and no
event or condition exists with respect to any Indebtedness of the Company
or any Subsidiary that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such
Indebtedness to become due and payable before its stated maturity or
before its regularly scheduled dates of payment.
5.16. Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Company hereunder nor its
use of the proceeds thereof will violate the Trading with the Enemy Act,
as amended, or any of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or
any enabling legislation or executive order relating thereto.
5.17. Status under Certain Statutes.
Neither the Company nor any Subsidiary is subject to regulation
under the Investment Company Act of 1940, as amended, the Public Utility
Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.
6. REPRESENTATIONS OF THE PURCHASERS.
6.1. Purchase for Investment.
Each Purchaser represents that it is purchasing the Notes for
its own account or for one or more separate accounts maintained by it or
for the account of one or more pension or trust funds and not with a view
to the distribution thereof, provided that the disposition of its or their
property shall at all times be within its or their control. Each
Purchaser understands that the Notes have not been registered under the
Securities Act and may be resold only if registered pursuant to the provi-
sions of the Securities Act or if an exemption from registration is
available, except under circumstances where neither such registration nor
such an exemption is required by law, and that the Company is not required
to register the Notes.
6.2. Source of Funds.
Each Purchaser represents that at least one of the following
statements is an accurate representation as to each source of funds (a
"Source") to be used by it to pay the purchase price of the Notes to be
purchased by such Purchaser hereunder:
(a) The Source of funds being used by such Purchaser to pay the
purchase price of the Notes being purchased by such Purchaser
hereunder constitutes assets: (i) allocated to the "insurance company
general account" of such Purchaser (as such term is defined under
Section V of the United States Department of Labor's Prohibited
Transaction Class Exemption "TCE" 95-60), and as of the date of the
purchase of the Notes such Purchaser satisfies all of the applicable
requirements for relief under Section I and IV of PTCE 95-60, (ii)
allocated to a separate account maintained by such Purchaser in which
no employee benefit plan, other than employee benefit plans
identified on a list which has been furnished by such Purchaser to
the Company, participates to the extent of 10% or more, or (iii) of
an investment fund, the assets of which do not include assets of any
employee benefit plan within the meaning of ERISA.
(b) The Source is either (i) an insurance company pooled
separate account, within the meaning of Prohibited Transaction
Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank
collective investment fund, within the meaning of the PTE 91-38
(issued July 12, 1991) and, except as such Purchaser has disclosed to
the Company in writing pursuant to this paragraph (b), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
(c) The Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets
that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained
by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of
the total client assets managed by such QPAM, the conditions of Part
I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM
nor a person controlling or controlled by the QPAM (applying the
definition of "control" in Section V(e) of the QPAM Exemption) owns a
5% or more interest in the Company and (i) the identity of such QPAM
and (ii) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company
in writing pursuant to this paragraph (c); or
(d) The Source is a governmental plan; or
(e) The Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e); or
(f) The Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall have
the respective meanings assigned to such terms in Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1. Financial and Business Information.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal
year), duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Restricted Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries, for such quarter and (in the case of
the second and third quarters) for the portion of the fiscal
year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments;
(b) Annual Statements -- within 105 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Restricted Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and accompanied by an opinion thereon of
independent certified public accountants of recognized national
standing, which opinion shall state that such financial statements
present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and
cash flows and have been prepared in conformity with GAAP, and that
the examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted
auditing standards, and that such audit provides a reasonable basis
for such opinion in the circumstances;
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice
or proxy statement sent by the Company or any Restricted Subsidiary
to public security holders generally, and (ii) each regular or
periodic report, each registration statement that shall have become
effective (without exhibits except as expressly requested by such
holder), and each final prospectus and all amendments thereto filed
by the Company or any Restricted Subsidiary with the Securities and
Exchange Commission or with any national securities exchange;
(d) Notice of Default or Event of Default -- promptly, and in
any event within five days, after a Responsible Officer becoming
aware of the existence of any Default or Event of Default, a written
notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect
thereto;
(e) ERISA Matters -- promptly, and in any event within five
days, after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to
take with respect thereto:
(i) with respect to any Plan, any reportable event, as
defined in section 4043(b) of ERISA and the regulations there-
under, for which notice thereof has not been waived pursuant to
such regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan, or the receipt by the
Company or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by the PBGC with respect to
such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on any
of the rights, properties or assets of the Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or such penalty or
excise tax provisions, if such liability or Lien, taken together
with any other such liabilities or Liens then existing, would
reasonably be expected to have a Material Adverse Effect; and
(f) Information Required by Rule 144A -- upon the request of
the holder of any Note, provide such holder, and any qualified
institutional buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be
necessary in order to permit compliance with the information
requirements of Rule 144A under the Securities Act in connection with
the resale of Notes, except at such times as the Company is subject
to the reporting requirements of section 13 or 15(d) of the Exchange
Act. For the purposes of this paragraph 7.1(f), the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A
under the Securities Act.
(g) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes.
7.2. Officer's Certificate.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied
by a certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was
in compliance with the requirements of Section 10.2 through Section
10.7 hereof, inclusive, during the quarterly or annual period covered
by the statements then being furnished (including with respect to
each such Section, where applicable, the calculations of the maximum
or minimum amount, ratio or percentage, as the case may be, permissi-
ble under the terms of such Sections, and the calculation of the
amount, ratio or percentage then in existence); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be
made, under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall
not have disclosed the existence during such period of any condition
or event that constitutes a Default or an Event of Default or, if any
such condition or event existed or exists (including, without
limitation, any such event or condition resulting from the failure of
the Company or any Subsidiary to comply with any Environmental Law),
specifying the nature and period of existence thereof and what action
the Company shall have taken or proposes to take with respect
thereto.
7.3. Inspection.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior
notice to the Company, to visit the principal executive office of the
Company, to discuss the affairs, finances and accounts of the Company
and its Subsidiaries with the Company's officers, and, with the
consent of the Company (which consent will not be unreasonably with-
held) to visit the other offices and properties of the Company and
each Subsidiary, all at such reasonable times and as often as may be
reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists, at
the expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to
make copies and extracts therefrom, and to discuss their respective
affairs, finances and accounts with their respective officers and
independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and
accounts of the Company and its Subsidiaries), all at such times and
as often as may be requested.
8. PREPAYMENT OF THE NOTES.
8.1. Required Prepayments.
Beginning on December 15, 2001 and on each December 15th
thereafter to and including December 15, 2006, the Company will prepay
$5,714,285.71 aggregate principal amount (or such lesser principal amount
as shall then be outstanding) of the Notes at par and without payment of
the Make-Whole Amount or any premium, provided that upon any partial
purchase of the Notes permitted by Section 8.5, the principal amount of
each required prepayment of the Notes becoming due under this Section 8.1
on and after the date of such prepayment or purchase shall be reduced in
the same proportion as the aggregate unpaid principal amount of the Notes
is reduced as a result of such prepayment or purchase. The entire
outstanding principal amount of the Notes shall be paid on the maturity
date of the Notes.
8.2. Optional Prepayments with Make-Whole Amount.
The Company may, at its option, upon notice as provided below,
prepay at any time after the first anniversary of the Closing all, or from
time to time any part of, the Notes, in an amount not less than 5% of the
aggregate principal amount of the Notes then outstanding in the case of a
partial prepayment, at 100% of the principal amount so prepaid, plus the
Make-Whole Amount determined for the prepayment date with respect to such
principal amount. The Company will give each holder of Notes written no-
tice of each optional prepayment under this Section 8.2 not less than 30
days and not more than 60 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the aggregate
principal amount of the Notes to be prepaid on such date, the principal
amount of each Note held by such holder to be prepaid (determined in
accordance with Section 8.3), and the interest to be paid on the
prepayment date with respect to such principal amount being prepaid, and
shall be accompanied by a certificate of a Senior Financial Officer as to
the estimated Make-Whole Amount due in connection with such prepayment
(calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business
Days prior to such prepayment, the Company shall deliver to each holder of
Notes a certificate of a Senior Financial Officer specifying the
calculation of such Make-Whole Amount as of the specified prepayment date.
8.3. Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes, the princi-
pal amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time outstanding in proportion, as nearly as practicable, to
the respective unpaid principal amounts thereof not theretofore called for
prepayment.
8.4. Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this Section
8, the principal amount of each Note to be prepaid shall mature and become
due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any. From and after such date, unless the Company
shall fail to pay such principal amount when so due and payable, together
with the interest and Make-Whole Amount, if any, as aforesaid, interest on
such principal amount shall cease to accrue. Any Note paid or prepaid in
full shall be surrendered to the Company and canceled and shall not be
reissued, and no Note shall be issued in lieu of any prepaid principal
amount of any Note.
8.5. Purchase of Notes.
The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any
of the outstanding Notes except (a) upon the payment or prepayment of the
Notes in accordance with the terms of this Agreement and the Notes or
(b) pursuant to an offer to purchase made by the Company or an Affiliate
pro rata to the holders of all Notes at the time outstanding upon the same
terms and conditions. Any such offer shall provide each holder with suf-
ficient information to enable it to make an informed decision with respect
to such offer, and shall remain open for at least 30 Business Days. If
the holders of more than 5% of the principal amount of the Notes then
outstanding accept such offer, the Company shall promptly notify the
remaining holders of such fact and the expiration date for the acceptance
by holders of Notes of such offer shall be extended by the number of days
necessary to give each such remaining holder at least 15 Business Days
from its receipt of such notice to accept such offer. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any
such Notes.
8.6. Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the
Remaining Scheduled Payments with respect to the Called Principal of such
Note over the amount of such Called Principal, provided that the Make-
Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.2
or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
"Discounted Value" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from their
respective scheduled due dates to the Settlement Date with respect to
such Called Principal, in accordance with accepted financial practice
and at a discount factor (as adjusted to reflect the same periodic
basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal
of any Note, 0.5% over the yield to maturity implied by (a) the
yields reported, as of 10:00 A.M. (New York City time) on the second
Business Day preceding the Settlement Date with respect to such
Called Principal, on the display designated as "Page 678" on the Dow
Jones Markets, Inc. services (Telerate) (or such other display as may
replace Page 678 on the Dow Jones Markets, Inc. services (Telerate))
for actively traded U.S. Treasury securities having a maturity equal
to the Remaining Average Life of such Called Principal as of such
Settlement Date, or (b) if such yields are not reported as of such
time or the yields reported as of such time are not ascertainable,
the Treasury Constant Maturity Series Yields reported, for the latest
day for which such yields have been so reported as of the second
Business Day preceding the Settlement Date with respect to such
Called Principal, in Federal Reserve Statistical Release H.15 (519)
(or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date.
Such implied yield will be determined, if necessary, by (1) convert-
ing U.S. Treasury bill quotations to bond-equivalent yields in
accordance with accepted financial practice and (2) interpolating
linearly between (A) the actively traded U.S. Treasury security with
the duration closest to and greater than the Remaining Average Life
and (B) the actively traded U.S. Treasury security with the duration
closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) the principal
component of each Remaining Scheduled Payment with respect to such
Called Principal by (b) the number of years (calculated to the
nearest one-twelfth year) that will elapse between the Settlement
Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with re-
spect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, provided that if such
Settlement Date is not a date on which interest payments are due to
be made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount
of interest accrued to such Settlement Date and required to be paid
on such Settlement Date pursuant to Section 8.2 or 12.1.
"Settlement Date" means, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or has become or is declared to be
immediately due and payable pursuant to Section 12.1, as the context
requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. Compliance with Law.
The Company will, and will cause each of its Restricted Sub-
sidiaries to, comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without
limitation, Environmental Laws, and will obtain and maintain in effect all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties
or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances
or governmental rules or regulations or failures to obtain or maintain in
effect such licenses, certificates, permits, franchises and other
governmental authorizations would not reasonably be expected, individually
or in the aggregate, to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the
Company and its Restricted Subsidiaries taken as a whole.
9.2. Insurance.
The Company will, and will cause each of its Restricted Sub-
sidiaries to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses
against such casualties and contingencies, of such types, on such terms
and in such amounts (including deductibles and co-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case
of entities of established reputations engaged in the same or a similar
business and owning and operating similar properties, provided that such
insurance is commercially available; and further provided that the Company
and its Restricted Subsidiaries may maintain a system or systems of self-
insurance in accordance with good business practice if adequate reserves
are maintained with respect thereto.
9.3. Maintenance of Properties.
The Company will, and will cause each of its Restricted Sub-
sidiaries to, maintain, preserve and keep, or cause to be maintained,
preserved and kept, their respective properties in good repair, working
order and condition (ordinary wear and tear excepted), and will, and will
cause each of its Restricted Subsidiaries to, make all repairs,
replacements, additions and betterments, as needed, so that the efficiency
thereof shall be maintained, provided that this Section shall not prevent
the Company or any Restricted Subsidiary from discontinuing the operation
and the maintenance of any of its properties if such discontinuance is
desirable in the conduct of its business and the Company has concluded
that such discontinuance would not, individually or in the aggregate, have
a materially adverse effect on the business, operations, affairs,
financial condition, properties or assets of the Company and its
Restricted Subsidiaries taken as a whole.
9.4. Payment of Taxes and Other Claims.
The Company will, and will cause each of its Restricted Sub-
sidiaries to, file all income tax or similar tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be
due and payable on such returns and all other taxes, assessments,
governmental charges, or levies and all claims for labor, materials and
supplies payable by any of them, to the extent such taxes, assessments,
charges, levies and claims have become due and payable and before they
have become delinquent, provided that neither the Company nor any
Restricted Subsidiary need pay any such tax, assessment, charge, levy or
claim if (i) the amount, applicability or validity thereof is contested
by the Company or such Restricted Subsidiary on a timely basis in good
faith and in appropriate proceedings that will prevent the forfeiture or
sale of any property, and the Company or Restricted Subsidiary has estab-
lished adequate reserves therefor in accordance with GAAP on the books of
the Company or such Restricted Subsidiary or (ii) the nonpayment of all
such taxes, assessments, charges, levies and claims in the aggregate would
not reasonably be expected to have a materially adverse effect on the
business, operations, affairs, financial condition, properties or assets
of the Company and its Restricted Subsidiaries taken as a whole.
9.5. Corporate Existence, etc.
Subject to Section 10.2, the Company will, and will cause each
of its Restricted Subsidiaries to, at all times preserve and keep in full
force and effect its corporate existence (except in the case of a merger
of a Restricted Subsidiary into the Company or into a Wholly-Owned
Restricted Subsidiary) and all of its rights and franchises unless, in the
good faith judgment of the Company, the termination of or failure to
preserve and keep in full force and effect such right or franchise would
not, individually or in the aggregate, have a materially adverse effect on
the business, operations, affairs, financial condition, properties or
assets of the Company and its Restricted Subsidiaries taken as a whole.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are out-
standing:
10.1. Transactions with Affiliates.
The Company will not, and will not permit any Restricted Sub-
sidiary to, enter into directly or indirectly any transaction (including,
without limitation, the purchase, lease, sale or exchange of properties of
any kind or the rendering of any service) with any Affiliate, except
pursuant to the reasonable requirements of the Company's or such
Restricted Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Restricted Subsidiary than would be
obtainable in a comparable arm's-length transaction with a Person not an
Affiliate; provided that the Company or a Restricted Subsidiary may enter
into any transaction with an Affiliate so long as such transaction,
together with any other related transactions, would not reasonably be
expected to have a materially adverse effect on the business, operations,
affairs, financial condition, properties or assets of the Company and its
Restricted Subsidiaries taken as a whole.
10.2. Merger, Consolidation and Disposition of Assets
The Company will not, and will not permit any Restricted
Subsidiary to, merge or consolidate with any Person, or sell, transfer,
lease or otherwise dispose of any substantial portion of its properties to
any Person, except that:
(i) any corporation may be merged into any Restricted
Subsidiary and any Restricted Subsidiary may consolidate with or
merge into, or sell, lease or otherwise dispose of its properties as
an entirety or substantially as an entirety to, the Company, another
Restricted Subsidiary or any corporation, so long as immediately
after the consummation thereof (a) the Company shall be entitled to
incur an additional $1.00 of Senior Funded Debt under clauses (a) and
(b) of Section 10.3(ii), (b) the Company is in compliance with the
provisions of Section 10.4 and (c) no Default or Event of Default
shall exist;
(ii) any corporation may be merged into the Company and the
Company may consolidate with or merge into, or sell or otherwise
dispose of its properties as an entirety or substantially as an
entirety to, any solvent corporation organized and existing under the
laws of the United States or any State thereof (including the
District of Columbia) which expressly assumes in writing (in form and
substance reasonably satisfactory to the Required Holders and
executed and delivered to each holder of any Note) the due and
punctual payment of the principal of, and interest and Make-Whole
Amount on, the Notes and the due and punctual performance of the
obligations of the Company under this Agreement and under the Notes,
so long as immediately after the consummation thereof (a) the
surviving entity or such corporation to which such properties are
sold or otherwise disposed of, as the case may be, shall be entitled
to incur an additional $1.00 of Senior Funded Debt under clauses (a)
and (b) of Section 10.3(ii), (b) the surviving entity or such
corporation, as the case may be, is in compliance with the provisions
of Section 10.4 and (c) no Default or Event of Default shall exist;
(iii) the Company or any Restricted Subsidiary may sell,
lease or otherwise dispose of any of its assets in the ordinary
course of its business;
(iv) the Company or any Restricted Subsidiary may, on one
occasion in one transaction or group of related transactions, sell,
transfer, lease or otherwise dispose of properties at fair market
value, so long as (a) the aggregate net proceeds received by the
Company and its Restricted Subsidiaries from all properties sold,
transferred, leased or otherwise disposed of in such transaction or
group of transactions does not exceed 20% of the Company's
Consolidated Total Assets as of the end of the fiscal year of the
Company most recently ended prior to the date of such transaction,
(b) prior to or promptly after the consummation of such transaction
the Company shall have notified each holder of any Note that the
Company has effected a transaction pursuant to this clause (iv),
together with a description of such transaction, and (c) immediately
after the consummation of such transaction (1) the Company shall be
entitled to incur an additional $1.00 of Senior Funded Debt under
clauses (a) and (b) of Section 10.3(ii), (2) the Company is in
compliance with the provisions of Section 10.4, and (3) no Default or
Event of Default shall exist; and
(v) in addition to transactions permitted by clauses (i), (ii),
(iii) or (iv) of this Section 10.2, the Company or any Restricted
Subsidiary may sell or otherwise dispose of any of its properties at
fair market value so long as (a) the net proceeds received by the
Company and its Restricted Subsidiaries from such sale or other
disposition, together with (x) the aggregate net proceeds received by
the Company and its Restricted Subsidiaries from all sales, leases
and other dispositions of properties (excluding sales of inventory
and other properties sold in the ordinary course of its business)
during the 12 consecutive calendar months immediately preceding such
sale or other disposition and (y) the aggregate fair market value of
all the properties of any Restricted Subsidiary which the Company had
designated as an Unrestricted Subsidiary during such 12 consecutive
calendar months, shall not exceed 10% of Consolidated Total Assets as
of the end of the fiscal year of the Company most recently ended
prior to the date of such transaction, and (b) immediately after the
consummation of such transaction (1) the Company shall be entitled to
incur an additional $1.00 of Senior Funded Debt under clauses (a) and
(b) of Section 10.3(ii), (2) the Company is in compliance with the
provisions of Section 10.4, and (3) no Default or Event of Default
shall exist.
For purposes of this Section 10.2, a "substantial portion" of
the properties of the Company or any Restricted Subsidiary shall mean
properties which, together with all properties sold, transferred or
otherwise disposed of in any related transactions, have a book value, in
the aggregate, greater than or equal to 10% of the Consolidated Total
Assets as of the end of the fiscal year most recently ended. No sale,
transfer, lease or other disposition permitted under this Section 10.2
shall have the effect of releasing the Company or any successor
corporation that shall theretofore have become such in the manner
prescribed in this Section 10.2 from its liability under this Agreement or
the Notes.
10.3. Limitations on Indebtedness.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume, Guaranty or
otherwise become directly or indirectly liable with respect to any Current
Debt or Funded Debt, other than:
(i) the Notes, the Series 2002 Notes and all Funded Debt
outstanding as of the date of this Agreement and identified on
Schedule 5.15 hereto;
(ii) Funded Debt of the Company or any Restricted Subsidiary
(including any Funded Debt secured by Liens permitted under Section
10.4) if immediately after giving effect thereto (a) the ratio of
Consolidated Senior Funded Debt to Total Capitalization would not
exceed 60% and (b) the ratio of Consolidated Funded Debt to Total
Capitalization would not exceed 65%;
(iii) Current Debt of the Company or any Restricted
Subsidiary (including any Current Debt secured by Liens permitted
under Section 10.4), provided that during the 12 month period
immediately preceding each day such Current Debt is outstanding,
there shall have been a period of 30 consecutive days during which,
on each day during such 30 day period, the aggregate amount of all
outstanding Current Debt of the Company and its Restricted
Subsidiaries did not exceed the amount of additional Senior Funded
Debt that the Company could have (but did not) incur under clauses
(a) and (b) of Section 10.3(ii); and
(iv) Funded Debt and Current Debt of a Restricted Subsidiary
owed to the Company or to a Wholly-Owned Restricted Subsidiary.
provided, however, that, in each case, after giving effect to such Funded
Debt or Current Debt, the Company shall be in compliance with the
provisions of Section 10.5 hereof.
For the purposes of this Section 10.3, any Person becoming a
Restricted Subsidiary after the date hereof shall be deemed, at the time
it becomes a Restricted Subsidiary, to have incurred all of its then
existing Funded Debt and Current Debt, and any Person extending, renewing
or refunding any Funded Debt or Current Debt shall be deemed to have
incurred such Funded Debt or Current Debt at the time of such extension,
renewal or refunding.
10.4. Limitation on Liens.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly create, incur, assume or permit to
exist (upon the happening of a contingency or otherwise) any Lien on or
with respect to any property (including, without limitation, any document
or instrument in respect of goods or accounts receivable) of the Company
or any Restricted Subsidiary, whether now owned or held or hereafter
acquired, or any income or profits therefrom, (whether or not provision is
made for the equal and ratable securing of the Notes in accordance with
the last paragraph of this Section 10.4), or assign or otherwise convey
any right to receive income or profits, except:
(i) Liens on property of the Company or a Restricted Subsidiary
existing as of the date of this Agreement and which are either (a)
identified on Schedule 10.4 hereto or (b) Liens which do not secure
Indebtedness and which, in the aggregate, are not Material;
(ii) Liens, pledges or deposits in connection with worker's
compensation, social security, unemployment insurance, to secure the
performance of letters of credit, bids, tenders, sales contracts,
leases, subleases granted to others, statutory obligations, surety,
appeal and performance bonds and other similar obligations not
incurred in connection with borrowing money, the obtaining of
advances or the payment of the deferred purchase price of property;
(iii) Liens for taxes, assessments or governmental charges
or levies or construction or materialmen's or warehousemen's liens
securing obligations not overdue, or if overdue, being contested in
good faith by appropriate proceedings that will prevent the
forfeiture or sale of any property, provided that adequate reserves
are established in accordance with GAAP on the books of the Company
or a Restricted Subsidiary;
(iv) attachment, judgment and other similar Liens arising in
connection with court proceedings, provided the execution or other
enforcement of such Lien(s) is effectively stayed and the claims
secured thereby are being contested in good faith in such manner that
the property subject to such Lien(s) is not subject to forfeiture or
sale, and further provided that adequate reserves are established in
accordance with GAAP on the books of the Company or a Restricted
Subsidiary;
(v) encumbrances in the nature of zoning restrictions,
easements, rights and restrictions of record on the use of real
property, landlord's and lessor's liens in the ordinary course of
business, which do not materially impair the Company's or a
Restricted Subsidiary's use thereof;
(vi) Liens, including Capital Leases, securing Indebtedness for
the acquisition or construction of real property, leasehold
improvements, equipment or other tangible assets provided that (a)
such Liens are limited to the property acquired or constructed with
the proceeds of the Indebtedness secured thereby and the amount of
such Indebtedness is limited to the cost or value of such property,
and (b) after giving effect thereto, the Company could incur an
additional $1.00 of Senior Funded Debt under clauses (a) and (b) of
Section 10.3(ii) and no Default or Event of Default shall exist;
(vii) Liens existing on property at the time of the
acquisition by the Company or its Restricted Subsidiaries of such
property (or of the entity owning such property) provided that the
Lien does not extend to any other property of the Company or its
Restricted Subsidiaries; and
(viii) other Liens securing Funded Debt or Current Debt
permitted to be incurred under the provisions of Section 10.3 hereof,
provided that, after giving effect to such Funded Debt or Current
Debt, the Company shall be in compliance with the provisions of
Section 10.5 hereof.
If, notwithstanding the prohibition contained herein, the
Company shall, or shall permit any of its Restricted Subsidiaries to,
directly or indirectly create, incur, assume or permit to exist any Lien,
other than those Liens permitted by the provisions of clauses (i) through
(viii) of this Section 10.4, it will make or cause to be made effective
provision whereby the Notes will be secured equally and ratably with any
and all other obligations thereby secured, such security to be pursuant to
agreements reasonably satisfactory to the Required Holders and, in any
such case, the Notes shall have the benefit, to the fullest extent that,
and with such priority as, the holders of the Notes may be entitled under
applicable law, of an equitable Lien on such property. Such violation of
this Section 10.4 will constitute a Default, whether or not provision is
made for an equal and ratable Lien pursuant to this paragraph.
10.5. Priority Debt.
The Company will not at any time permit Priority Debt to exceed
15% of Consolidated Total Assets.
10.6. Sale and Leaseback.
The Company will not, and will not permit any Restricted
Subsidiary to, sell or transfer any property (other than real property) to
any Person (other than to the Company or a Wholly-Owned Restricted
Subsidiary) and thereupon lease, as lessee, the same property unless such
lease constitutes a Capital Lease and the incurrence of the Indebtedness
evidenced thereby shall be permitted under Section 10.3.
10.7. Limitation on Investments.
The Company will not, and will not permit any Restricted
Subsidiary to, make or suffer to exist any Investment other than Permitted
Investments.
10.8. Restricted Payments.
The Company will not, and will not permit any Restricted
Subsidiary to, declare or make any Restricted Payment unless, immediately
after giving effect thereto, (a) no Default or Event of Default would
exist and (b) the Company could incur an additional $1.00 of Senior Funded
Debt under clauses (a) and (b) of Section 10.3(ii).
10.9. Line of Business.
The Company will not, and will not permit any Restricted
Subsidiary to, engage to any substantial extent in any business other than
the business in which the Company and its Subsidiaries in the aggregate
are engaged on the date of this Agreement as described in the Memorandum.
10.10. Subsidiary Dividend Restrictions.
The Company will not, and will not permit any Restricted
Subsidiary to, enter into, or be otherwise subject to, any contract or
agreement (including its certificate of incorporation or other
organization document) which limits the amount of, or otherwise imposes
restriction on the payment of, dividends by such Restricted Subsidiary.
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal of or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than ten Business Days after the same becomes due and
payable; or
(c) the Company defaults in the performance of or compliance
with any term contained in Sections 10.1 through 10.10 and such
default is not remedied within 30 days after the earlier of (i) a
Responsible Officer obtaining actual knowledge of such default and
(ii) the Company receiving written notice of such default from any
holder of a Note (any such written notice to be identified as a
"notice of default" and to refer specifically to this paragraph (c)
of Section 11); or
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in para-
graphs (a), (b) and (c) of this Section 11) and such default is not
remedied within 30 days after the earlier of (i) a Responsible Offi-
cer obtaining actual knowledge of such default and (ii) the Company
receiving written notice of such default from any holder of a Note
(any such written notice to be identified as a "notice of default"
and to refer specifically to this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incor-
rect in any material respect on the date as of which made; or
(f) (i) the Company or any Restricted Subsidiary is in default
(as principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount of
at least $10,000,000 beyond any period of grace provided with respect
thereto, or (ii) the Company or any Restricted Subsidiary is in
default in the performance of or compliance with any term of any
evidence of any Indebtedness in an aggregate outstanding principal
amount of at least $10,000,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a
consequence of such default or condition such Indebtedness has
become, or has been declared due and payable (or to be repurchased by
the Company or any Restricted Subsidiary) before its stated maturity
or before its regularly scheduled dates of payment; provided however,
that this clause (f) shall not apply to any Indebtedness which is
payable solely out of the property or assets of a partnership, joint
venture or similar entity (which is not a Restricted Subsidiary) in
which the Company or any Restricted Subsidiary is a participant, or
is secured by a mortgage on the property or assets owned or held by
such partnership, joint venture or other entity, if there is no
recourse to or liability of the Company or any Restricted Subsidiary
for the payment of such Indebtedness; or
(g) the Company or any Restricted Subsidiary (i) is generally
not paying, or admits in writing its inability to pay, its debts as
they become due, (ii) files, or consents by answer or otherwise to
the filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or
to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an
assignment for the benefit of its creditors, (iv) consents to the ap-
pointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, (v) is adjudicated as insolvent or to be
liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(h) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of
its Restricted Subsidiaries, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief
or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Company or any of its
Restricted Subsidiaries, or any such petition shall be filed against
the Company or any of its Restricted Subsidiaries and such petition
shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 are rendered against one or more
of the Company and its Restricted Subsidiaries and which judgments
are not, within 60 days after entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within 60 days after the
expiration of such stay; or
(j) (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably
expected to be filed with the PBGC or the PBGC shall have instituted
proceedings under ERISA section 4042 to terminate or appoint a
trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject of
any such proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of ERISA)
under all Plans, determined in accordance with Title IV of ERISA,
shall exceed $10,000,000, (iv) the Company or any ERISA Affiliate
shall have incurred or is reasonably expected to incur any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (v) the
Company or any ERISA Affiliate withdraws from any Multiemployer Plan,
or (vi) the Company or any Restricted Subsidiary establishes or
amends any employee welfare benefit plan that provides post-
employment welfare benefits in a manner that would increase the
liability of the Company or any Restricted Subsidiary thereunder; and
any such event or events described in clauses (i) through (vi) above,
either individually or together with any other such event or events,
would reasonably be expected to have a Materially Adverse Effect.
12. REMEDIES ON DEFAULT, ETC.
12.1. Acceleration.
(a) If an Event of Default with respect to the Company de-
scribed in paragraph (g) or (h) of Section 11 (other than an Event of De-
fault described in clause (i) of paragraph (g) or described in clause (vi)
of paragraph (g) by virtue of the fact that such clause encompasses clause
(i) of paragraph (g)) has occurred, all the Notes then outstanding shall
automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 51% in principal amount of
the Notes at the time outstanding may at any time at its or their option,
by notice or notices to the Company, declare all the Notes then out-
standing to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of
Notes at the time outstanding affected by such Event of Default may at any
time, at its or their option, by notice or notices to the Company, declare
all the Notes held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus (x) all accrued
and unpaid interest thereon and (y) the Make-Whole Amount determined in
respect of such principal amount (to the full extent permitted by applica-
ble law), shall all be immediately due and payable, in each and every case
without presentment, demand, protest or further notice, all of which are
hereby waived. The Company acknowledges, and the parties hereto agree,
that each holder of a Note has the right to maintain its investment in the
Notes free from repayment by the Company (except as herein specifically
provided for) and that the provision for payment of a Make-Whole Amount by
the Company in the event that the Notes are prepaid or are accelerated as
a result of an Event of Default, is intended to provide compensation for
the deprivation of such right under such circumstances.
12.2. Other Remedies.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any
Note at the time outstanding may proceed to protect and enforce the rights
of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement
contained herein or in any Note, or for an injunction against a violation
of any of the terms hereof or thereof, or in aid of the exercise of any
power granted hereby or thereby or by law or otherwise.
12.3. Rescission.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less
than 51% in principal amount of the Notes then outstanding, by written no-
tice to the Company, may rescind and annul any such declaration and its
consequences if (a) the Company has paid all overdue interest on the
Notes, all principal of and Make-Whole Amount, if any, on any Notes that
are due and payable and are unpaid other than by reason of such declara-
tion, and all interest on such overdue principal and Make-Whole Amount, if
any, and (to the extent permitted by applicable law) any overdue interest
in respect of the Notes, at the Default Rate, (b) all Events of Default
and Defaults, other than non-payment of amounts that have become due
solely by reason of such declaration, have been cured or have been waived
pursuant to Section 17, and (c) no judgment or decree has been entered for
the payment of any monies due pursuant hereto or to the Notes. No re-
scission and annulment under this Section 12.3 will extend to or affect
any subsequent Event of Default or Default or impair any right consequent
thereon.
12.4. No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or
remedies. No right, power or remedy conferred by this Agreement or by any
Note upon any holder thereof shall be exclusive of any other right, power
or remedy referred to herein or therein or now or hereafter available at
law, in equity, by statute or otherwise. Without limiting the obligations
of the Company under Section 15, the Company will pay to the holder of
each Note on demand such further amount as shall be sufficient to cover
all costs and expenses of such holder incurred in any enforcement or
collection under this Section 12, including, without limitation,
reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. Registration of Notes.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The
name and address of each holder of one or more Notes, each transfer
thereof and the name and address of each transferee of one or more Notes
shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be
registered shall be deemed and treated as the owner and holder thereof for
all purposes hereof, and the Company shall not be affected by any notice
or knowledge to the contrary. The Company shall give to any holder of a
Note that is an Institutional Investor promptly upon request therefor, a
complete and correct copy of the names and addresses of all registered
holders of Notes.
13.2. Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office of
the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of
such Note or his attorney duly authorized in writing and accompanied by
the address for notices of each transferee of such Note or part thereof),
the Company shall execute and deliver, at the Company's expense (except as
provided below), one or more new Notes (as requested by the holder
thereof) in exchange therefor, in an aggregate principal amount equal to
the unpaid principal amount of the surrendered Note. Each such new Note
shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit 1. Each such new Note shall be dated
and bear interest from the date to which interest shall have been paid on
the surrendered Note or dated the date of the surrendered Note if no
interest shall have been paid thereon. The Company may require payment of
a sum sufficient to cover any stamp tax or governmental charge imposed in
respect of any such transfer of Notes. Notes shall not be transferred in
denominations of less than $500,000, provided that if necessary to enable
the registration of transfer by a holder of its entire holding of Notes,
one Note may be in a denomination of less than $500,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its
nominee), shall be deemed to have made the representation set forth in
Section 6.2.
13.3. Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation
of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and
such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such
Note is, or is a nominee for, an original Purchaser or another holder
of a Note with a minimum net worth of at least $25,000,000, such
original Purchaser's or other Note holder's own unsecured agreement
of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof,
a new Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or
dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.
14. PAYMENTS ON NOTES.
14.1. Place of Payment.
Subject to Section 14.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall
be made in Muscatine, Iowa at the principal office of the Company in such
jurisdiction. The Company may at any time, by notice to each holder of a
Note, change the place of payment of the Notes so long as such place of
payment shall be either the principal office of the Company in such
jurisdiction or the principal office of a bank or trust company in such
jurisdiction.
14.2. Home Office Payment.
So long as a Purchaser or nominee of a Purchaser shall be the
holder of any Note, and notwithstanding anything contained in Section 14.1
or in such Note to the contrary, the Company will pay all sums becoming
due on such Note for principal, Make-Whole Amount, if any, and interest by
the method and at the address specified for such purpose below such
Purchaser's name in Schedule A, or by such other method or at such other
address as such Purchaser shall have from time to time specified to the
Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that
concurrently with or reasonably promptly after payment or prepayment in
full of any Note, such Purchaser shall surrender such Note for
cancellation, to the Company at its principal executive office or at the
place of payment most recently designated by the Company pursuant to
Section 14.1. Prior to any sale or other disposition of any Note held by
such Purchaser or such Purchaser's nominee such Purchaser will, at its
election, either endorse thereon the amount of principal paid thereon and
the last date to which interest has been paid thereon or surrender such
Note to the Company in exchange for a new Note or Notes pursuant to
Section 13.2. The Company will afford the benefits of this Section 14.2
to any Institutional Investor that is the direct or indirect transferee of
any Note purchased by a Purchaser under this Agreement and that has made
the same agreement relating to such Note as the Purchasers have made in
this Section 14.2.
15. EXPENSES, ETC.
15.1. Transaction Expenses.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including
reasonable attorneys' fees of a special counsel and, if reasonably
required, local or other counsel) incurred by each Purchaser or holder of
a Note in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of this Agreement or
the Notes (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (a) the costs and expenses
incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the Notes or in
responding to any subpoena or other legal process or informal investi-
gative demand issued in connection with this Agreement or the Notes, or by
reason of being a holder of any Note, and (b) the costs and expenses,
including financial advisors' fees, incurred in connection with the
insolvency or bankruptcy of the Company or any Subsidiary or in connection
with any work-out or restructuring of the transactions contemplated hereby
and by the Notes. The Company will pay, and will save each Purchaser and
each other holder of a Note harmless from, all claims in respect of any
fees, costs or expenses if any, of brokers and finders (other than those
retained by such Purchaser).
15.2. Survival.
The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes, and the
termination of this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the
purchase or transfer by any Purchaser of any Note or portion thereof or
interest therein and the payment of any Note, and may be relied upon by
any subsequent holder of a Note, regardless of any investigation made at
any time by or on behalf of any Purchaser or any other holder of a Note.
All statements contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant to this Agreement shall be deemed
representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between each respective Purchaser and
the Company and supersede all prior agreements and understandings relating
to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1. Requirements.
This Agreement and the Notes may be amended, and the observance
of any term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company
and the Required Holders, except that (i) no amendment or waiver of any of
the provisions of Section 1, 2, 3, 4, 5, 6, or 21 hereof, or any defined
term (as it is used therein), will be effective as to any Purchaser unless
consented to by such Purchaser in writing, and (ii) no such amendment or
waiver may, without the written consent of the holder of each Note at the
time outstanding affected thereby, (a) subject to the provisions of Sec-
tion 12 relating to acceleration or rescission, change the amount or time
of any prepayment or payment of principal of, or reduce the rate or change
the time of payment or method of computation of interest or of the Make-
Whole Amount on, the Notes, (b) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any
such amendment or waiver, or (c) amend any of Sections 8, 11(a), 11(b),
12, 17 or 20.
17.2. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a decision
is required, to enable such holder to make an informed and considered
decision with respect to any proposed amendment, waiver or consent in
respect of any of the provisions hereof or of the Notes. The Company will
deliver executed or true and correct copies of each amendment, waiver or
consent effected pursuant to the provisions of this Section 17 to each
holder of outstanding Notes promptly following the date on which it is
executed and delivered by, or receives the consent or approval of, the
requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any
holder of Notes as consideration for or as an inducement to the entering
into by any holder of Notes or any waiver or amendment of any of the terms
and provisions hereof unless such remuneration is concurrently paid, or
security is concurrently granted, on the same terms, ratably to each
holder of Notes then outstanding even if such holder did not consent to
such waiver or amendment.
17.3. Binding Effect, etc.
Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon
them and upon each future holder of any Note and upon the Company without
regard to whether such Note has been marked to indicate such amendment or
waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of
dealing between the Company and the holder of any Note nor any delay in
exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any holder of such Note. As used herein, the term
this "Agreement" and references thereto shall mean this Agreement as it
may from time to time be amended or supplemented.
17.4. Notes held by Company, etc.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to
be given under this Agreement or the Notes, or have directed the taking of
any action provided herein or in the Notes to be taken upon the direction
of the holders of a specified percentage of the aggregate principal amount
of Notes then outstanding, Notes directly or indirectly owned by the
Company, any Restricted Subsidiary or any of its Affiliates shall be
deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be
in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return
receipt requested (postage prepaid), or (c) by a recognized overnight
delivery service (with charges prepaid). Any such notice must be sent:
(i) if a Purchaser or its nominee, to such Purchaser or its
nominee at the address specified for such communications in Schedule
A, or at such other address as such Purchaser or its nominee shall
have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of Garold L. Oliver,
Assistant Treasurer, or at such other address as the Company shall
have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually
received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may
hereafter be executed, (b) documents received by any Purchaser at the
Closing (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to
any Purchaser, may be reproduced by such Purchaser by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and such Purchaser may destroy any original document so
reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not
such reproduction was made by such Purchaser in the regular course of
business) and any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could contest
the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential Information"
means information delivered to a Purchaser by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and
that was clearly marked or labeled or otherwise adequately identified when
received by such Purchaser as being confidential information of the
Company or such Subsidiary, provided that such term does not include
information that (a) was publicly known or otherwise known to such
Purchaser prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by such Purchaser or any person
acting on its behalf, (c) otherwise becomes known to such Purchaser other
than through disclosure by the Company or any Subsidiary or (d)
constitutes financial statements delivered to such Purchaser under
Section 7.1 that are otherwise publicly available. Such Purchaser will
maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by it in good faith to protect
confidential information of third parties delivered to such Purchaser,
provided that a Purchaser may deliver or disclose Confidential Information
to (i) its directors, officers, employees, agents, attorneys and
affiliates, (to the extent such disclosure reasonably relates to the
administration of the investment represented by such Purchaser's Notes),
(ii) its financial advisors and other professional advisors who agree to
hold confidential the Confidential Information substantially in accordance
with the terms of this Section 20, (iii) any other holder of any Note,
(iv) any Institutional Investor to which such Purchaser sells or offers
to sell such Note or any part thereof or any participation therein (if
such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this
Section 20), (v) any Person from which such Purchaser offers to purchase
any security of the Company (if such Person has agreed in writing prior to
its receipt of such Confidential Information to be bound by the provisions
of this Section 20), (vi) any federal or state regulatory authority having
jurisdiction over such Purchaser, (vii) the National Association of
Insurance Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about such
Purchaser's investment portfolio, or (viii) any other Person to which such
delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to such
Purchaser is, (x) in response to any subpoena or other legal process,
(y) in connection with any litigation to which such Purchaser is a party
or (z) if an Event of Default has occurred and is continuing, to the
extent such Purchaser may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under such Purchaser's Notes and
this Agreement. Each holder of a Note, by its acceptance of a Note, will
be deemed to have agreed to be bound by and to be entitled to the benefits
of this Section 20 as though it were a party to this Agreement. On
reasonable request by the Company in connection with the delivery to any
holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that
is a party to this Agreement or its nominee), such holder will enter into
an agreement with the Company embodying the provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER.
Each Purchaser shall have the right to substitute any one of its
affiliates as the purchaser of the Notes that it has agreed to purchase
hereunder, by written notice to the Company, which notice shall be signed
by both such Purchaser and such affiliate, shall contain such affiliate's
agreement to be bound by this Agreement and shall contain a confirmation
by such affiliate of the accuracy with respect to it of the repre-
sentations set forth in Section 6. Upon receipt of such notice, wherever
the word "Purchaser" or "Purchasers" is used in this Agreement with
respect to such Purchaser (other than in this Section 21), such word shall
be deemed to refer to such affiliate in lieu of such Purchaser. In the
event that such affiliate is so substituted as a purchaser hereunder and
such affiliate thereafter transfers to such Purchaser all of the Notes
then held by such affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "Purchaser" or "Purchasers" is used in this
Agreement with respect to such Purchaser (other than in this Section 21),
such words shall no longer be deemed to refer to such affiliate, but shall
refer to such Purchaser, and such Purchaser shall have all the rights of
an original holder of the Notes under this Agreement.
22. MISCELLANEOUS.
22.1. Successors and Assigns.
All covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit
of their respective successors and assigns (including, without limitation,
any subsequent holder of a Note) whether so expressed or not.
22.2. Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or
interest on any Note that is due on a date other than a Business Day shall
be made on the next succeeding Business Day without including the
additional days elapsed in the computation of the interest payable on such
next succeeding Business Day.
22.3. Severability.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted
by law) not invalidate or render unenforceable such provision in any other
jurisdiction.
22.4. Construction.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other
covenant contained herein, so that compliance with any one covenant shall
not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person.
22.5. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall
constitute one instrument. Each counterpart may consist of a number of
copies hereof, each signed by less than all, but together signed by all,
of the parties hereto.
22.6. Governing Law.
This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the
State of Illinois excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction
other than such State.
* * * * *
If you are in agreement with the foregoing, please sign the form
of agreement on the accompanying counterpart of this Agreement and return
it to the Company, whereupon the foregoing shall become a binding
agreement between all Purchasers so signing such form and the Company.
Very truly yours,
BANDAG, INCORPORATED
By___________________________
Name:_________________________
Title:________________________
and
By___________________________
Name:_________________________
Title:________________________
The foregoing is hereby
agreed to as of the
date thereof.
NATIONWIDE LIFE INSURANCE COMPANY
By______________________________
Name:____________________________
Title:___________________________
STATE FARM LIFE INSURANCE COMPANY
By________________________________
Name:__________________________
Title:_________________________
and
By__________________________________
Name:__________________________
Title:_________________________
WOODMEN OF THE WORLD LIFE INSURANCE SOCIETY
By__________________________________
Name:__________________________
Title:_________________________
and
By__________________________________
Name:__________________________
Title:_________________________
AMERICAN FAMILY LIFE INSURANCE COMPANY
By__________________________________
Name:__________________________
Title:_________________________
BERKSHIRE LIFE INSURANCE COMPANY
By__________________________________
Name:__________________________
Title:_________________________
THE SECURITY MUTUAL LIFE INSURANCE
COMPANY OF LINCOLN, NEBRASKA
By__________________________________
Name:__________________________
Title:_________________________
<PAGE>
INFORMATION RELATING TO PURCHASERS
Aggregate
Principal Amount
of
Notes to be Note
Purchased Denomination(s)
NATIONWIDE LIFE INSURANCE COMPANY $10,000,000 $10,000,000
(1) All payments on account of
Notes held by such Purchaser
shall be made by wire transfer
of immediately available funds
for credit to:
The Bank of New York
(ABA No.: 021-000-018)
BNF: IOC566
F/A/O Nationwide Life Insurance
Company
Attn: P&I Department
Each such wire transfer shall
set forth the name of the
Company, a reference to "6.50%
Senior Notes due December 15,
2007, PPN 059815 A@ 9, and the
due date and application (as
among principal, interest and
Make-Whole Amount) of the
payment being made.
(2) Address for all notices
relating to payments:
Nationwide Life Insurance Company
c/o The Bank of New York
P.O. Box 19266
Attn: P&I Department
Newark, New Jersey 07195
With a copy to:
Nationwide Life Insurance Company
Attn: Investment Accounting
One Nationwide Plaza (1-32-05)
Columbus, Ohio 43215-2220
(3) Address for all other
communications and notices:
Nationwide Life Insurance Company
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-
Income Securities
(4) Tax Identification No.: 31-4156830
Aggregate
Principal
Amount of
Notes to be Note
Purchased Denomination(s)
WOODMEN OF THE WORLD $10,000,000 $10,000,000
LIFE INSURANCE SOCIETY
(1) All payments on account of Notes
held by such Purchaser shall be made
by wire transfer of immediately
available funds for credit to:
Account No. 1-487-477-7-0730
First Bank, N.A., 1700 Farnam Street
Omaha, Nebraska 68102, For the
Account of WOW
(ABA No.: 104000029)
Each such wire transfer shall set
forth the name of the Company, a
reference to "6.50% Senior Notes due
December 15, 2007, PPN 059815 A@ 9,
and the due date and application (as
among principal, interest and Make-
Whole Amount) of the payment being
made.
(2) Address for all notices relating to
payments:
Woodmen of the World
Life Insurance Society
1700 Farnam Street
Omaha, Nebraska 68102
Attention: Securities Department
Telephone: (402) 271-7873
Telecopier: (402) 342-5136
(3) Address for all other communications
and notices:
Woodmen of the World
Life Insurance Society
1700 Farnam Street
Omaha, Nebraska 68102
Attention: Securities Department
Telephone: (402) 271-7873
Telecopier: (402) 342-5136
(4) Telephonic notices of prepayment to
be given on or before the date
written notice of prepayment is
given to:
Securities Department
Telephone: (402) 271-7873
Telecopier: (402) 342-5136
(5) Tax Identification No.: 47-0339250
Aggregate
Principal
Amount of
Notes to be Note
Purchased Denomination(s)
STATE FARM LIFE INSURANCE COMPANY $8,000,000 $8,000,000
(1) All payments on account of Notes
held by such Purchaser shall be
made by wire transfer of
immediately available funds for
credit to:
The Chase Manhattan Bank
ABA No.: 021000021
SSG Private Income Processing
A/C #900-9-000200
For Credit To Account Number G06893
Ref. PPN 059815 A@ 9, 6.50%
Bandag, Incorporated Series B
Senior Notes
Rate: 6.50%
Maturity Date: December 15, 2007
(2) Address for all payment notices
and communications:
State Farm Life Insurance Company
Investment Accounting Dept. D-3
One State Farm Plaza
Bloomington, Illinois 61710
(3) Address for all other
communications and notices:
State Farm Life Insurance Company
Investment Dept. E-10
One State Farm Plaza
Bloomington, Illinois 61710
(4) Tax Identification No.: 37-0533090
Aggregate
Principal
Amount of
Notes to be Note
Purchased Denomination(s)
AMERICAN FAMILY LIFE INSURANCE COMPANY $7,000,000 $7,000,000
(1) All payments on account of Notes
held by such Purchaser shall be
made by wire transfer of
immediately available funds for
credit to:
Firstar Bank Milwaukee, N.A.
Account of Firstar Trust Company
ABA #075000022
For Credit To Account #112-950-027
Trust Account 000018012500 for
AFLIC-Traditional Portfolio
Attn: Accounting Department
Each such wire transfer shall set
forth the name of the Company, a
reference to "6.50% Senior Notes
due December 15, 2007, PPN 059815
A@ 9, and the due date and
application (as among principal,
interest and Make-Whole Amount)
of the payment being made.
(2) Address for all notices and
communications, including payment
notices:
AMERICAN FAMILY LIFE INSURANCE COMPANY
6000 American Parkway
Madison, Wisconsin 53783-0001
Attn: Investment Division -
Private Placements
(3) Note to be registered in nominee
name:
BAND & Co.
(4) Tax Identification No. 39-6040365
Aggregate
Principal
Amount of
Notes to be Note
Purchased Denomination(s)
BERKSHIRE LIFE INSURANCE COMPANY $3,000,000 $3,000,000
(1) All payments on account of Notes
held by such Purchaser shall be
made by wire transfer of
immediately available funds for
credit to:
Berkshire Life Insurance Company
Account Number 002-4-020877
The Chase Manhattan Bank, N.A.
Funds Transfer Services
4 New York Plaza, 15th Floor
New York, New York 10004
Attn: Operations Manager
` ABA #021000021
Each such wire transfer shall set
forth the name of the Company, a
reference to "6.50% Senior Notes
due December 15, 2007, PPN 059815
A@ 9, and the due date and
application (as among principal,
interest and Make-Whole Amount) of
the payment being made.
(2) Address for all notices and
communications, including payment
notices:
Berkshire Life Insurance Company
Attention: Securities Department
700 South Street
Pittsfield, Massachusetts 01201
(3) Tax Identification No.: 04-1083480
Aggregate
Principal
Amount of
Notes to be Note
Purchased Denomination(s)
THE SECURITY MUTUAL LIFE INSURANCE $2,000,000 $2,000,000
COMPANY OF LINCOLN, NEBRASKA
(1) All payments on account of Notes
held by such Purchaser shall be
made by wire transfer of
immediately available funds at the
opening of business on the due
date for credit to:
National Bank of Commerce
13th and O Street
Lincoln, Nebraska
ABA No. 1040-00045
Account of: Security Mutual Life
Account of: 40-797-624
Each such wire transfer shall set
forth the name of the Company, a
reference to "6.50% Senior Notes
due December 15, 2007, PPN 059815
A@ 9, and the due date and
application (as among principal,
interest and Make-Whole Amount) of
the payment being made.
(2) Address for all payment notices
and communications:
The Security Mutual Life
Insurance Company of
Lincoln, Nebraska
200 Centennial Mall North
Lincoln, Nebraska 68508
Attention: Investment Division
Fax: (402-434-9599)
Phone: (402-434-9500)
(3) Address for all other notices and
communications:
The Security Mutual Life
Insurance Company of
Lincoln, Nebraska
200 Centennial Mall North
Lincoln, Nebraska 68508
(4) Tax Identification No.: 47-0293990
<PAGE>
DEFINED TERMS
As used herein, the following terms have the respective meanings
set forth below or set forth in the Section of the Agreement following
such term:
"Affiliate" means any Person (other than the Company or a
Restricted Subsidiary) which, directly or indirectly, controls, is
controlled by or is under direct or indirect common control with the
Company or a Restricted Subsidiary or which beneficially owns or holds or
has the power to direct the voting power of 20% or more of the voting
stock of the Company or a Restricted Subsidiary, and any director or
executive officer of the Company or a Restricted Subsidiary. As used in
this definition, "Control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities,
by contract or otherwise.
"Agreement" as defined in Section 17.3.
"Business Day" means (a) for the purposes of Section 8.6 of the
Agreement only, any day other than a Saturday, a Sunday or a day on which
commercial banks in New York City, New York, are required or authorized to
be closed, and (b) for the purposes of any other provision of the
Agreement, any day other than a Saturday, a Sunday or a day on which
commercial banks in New York City, New York, or Des Moines, Iowa are
required or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of
an asset and the incurrence of a liability in accordance with GAAP.
"Closing" is defined in Section 3 of the Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from
time to time.
"Company" means Bandag, Incorporated, an Iowa corporation.
"Confidential Information" is defined in Section 20 of the
Agreement.
"Consolidated Funded Debt" means, on any date, the sum of all
Consolidated Senior Funded Debt on such date and all Consolidated
Subordinated Funded Debt on such date.
"Consolidated Net Worth" means, on any date, the total
shareholders' equity of the Company and its Restricted Subsidiaries
(including any preferred shareholders' equity) on such date, determined on
a consolidated basis in accordance with GAAP .
"Consolidated Senior Funded Debt" means, on any date, all Senior
Funded Debt of the Company and its Restricted Subsidiaries on such date
after eliminating inter-company items in accordance with GAAP.
"Consolidated Subordinated Funded Debt" means, on any date, all
Subordinated Funded Debt of the Company and its Restricted Subsidiaries on
such date after eliminating inter-company items in accordance with GAAP.
"Consolidated Total Assets" means, on any date, the total
assets of the Company and its Restricted Subsidiaries on such date
determined on a consolidated basis in accordance with GAAP.
"Current Debt" means, with respect to any Person, Indebtedness
of such Person which, by its terms or by the terms of any instrument or
agreement relating thereto, matures on demand or within one year or less
from the date of creation thereof and is not directly or indirectly
renewable or extendible at the option of the obligor in respect thereof to
a date one year or more from such date, provided that Indebtedness
outstanding under a revolving credit or similar agreement which obligates
the lender or lenders to extend credit over a period of one year or more
shall constitute Funded Debt and not Current Debt, even though such
Indebtedness by its terms matures on demand or within one year from such
date.
"Default" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice
or both, become an Event of Default.
"Default Rate" means that rate of interest that is the greater
of (i) 2% per annum above the rate of interest stated in clause (a) of the
first paragraph of the Notes or (ii) 2% over the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York from time to time
in New York City as its Prime Rate.
"Environmental Laws" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants, franchises, licenses,
agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the en-
vironment, including but not limited to those related to hazardous sub-
stances or wastes, air emissions and discharges to waste or public
systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promul-
gated thereunder from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the
Company under section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Funded Debt" means, with respect to any Person, all
Indebtedness of such Person which by its terms or by the terms of any
instrument or agreement relating thereto matures, or which is otherwise
payable or unpaid, one year or more from, or is directly or indirectly
renewable or extendible at the option of the obligor in respect thereof to
a date one year or more (including, without limitation, an option of such
obligor under a revolving credit or similar agreement obligating the
lender or lenders to extend credit over a period of one year or more)
from, the date of the creation thereof.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Company or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"Guaranty" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in
effect guaranteeing any Indebtedness, dividend or other obligation of any
other Person in any manner, whether directly or indirectly, including
(without limitation) obligations incurred through an agreement, contingent
or otherwise, by such Person:
(a) to purchase such Indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment
of such Indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make
available funds for the purchase or payment of such indebtedness or
obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness
or obligation of the ability of any other Person to make payment of
the Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor
under any Guaranty, the Indebtedness or other obligations that are the
subject of such Guaranty shall be assumed to be direct obligations of such
obligor.
"holder" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company
pursuant to Section 13.1.
"Indebtedness"with respect to any Person means, at any time,
without duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or
arising under any conditional sale or other title retention agreement
with respect to any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(d) all its liabilities in respect of promissory notes or
instruments serving a similar function; and
(e) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (d) hereof.
"Institutional Investor" means (a) any original purchaser of a
Note, (b) any holder of a Note holding more than 5% of the aggregate
principal amount of the Notes then outstanding, and (c) any bank, trust
company, savings and loan association or other financial institution, any
pension plan, any investment company, any insurance company, any broker or
dealer, or any other similar financial institution or entity, regardless
of legal form.
"Investment" means any loan, advance, extension of credit or
contribution of capital or any other investment in or to, or purchase or
other acquisition of stock, notes, debentures or other securities of, any
Person.
"Lien" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or
title of any vendor, lessor, lender or other secured party to or of such
Person under any conditional sale or other title retention agreement or
Capital Lease, upon or with respect to any property or asset of such
Person (including in the case of stock, stockholder agreements, voting
trust agreements and all similar arrangements).
"Make-Whole Amount" is defined in Section 8.6.
"Material" means material in relation to the business,
operations, affairs, financial condition, assets, or properties of the
Company and its Restricted Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or
properties of the Company and its Restricted Subsidiaries taken as a
whole, or (b) the ability of the Company to perform its obligations under
the Agreement and the Notes, or (c) the validity or enforceability of the
Agreement or the Notes.
"Memorandum" is defined in Section 5.3 of the Agreement.
"Multiemployer Plan" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"Notes" is defined in Section 1 of the Agreement.
"Officer's Certificate" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose
responsibilities extend to the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"Permitted Investment" means (a) Investments (including leverage
lease and affordable housing tax credit transactions) of the Company and
its Restricted Subsidiaries existing as of the date of this Agreement and
set forth on Schedule 10.7 to the Agreement, and (b) other Investments
consisting of: (i) direct obligations of the United States of America or
any agency of the United States of America or obligations guaranteed by
the United States of America, so long as such obligations or guaranty
shall have the benefit of the full faith and credit of the United States
of America, in each case maturing in eighteen months or less from the date
of acquisition; (ii) state, municipal or corporate debt obligations
maturing in eighteen months or less from the date of acquisition and rated
"A" or better (or the equivalent) by Standard & Poor's Rating Group or
Moody's Investors Service, Inc.; (iii) investments in bankers acceptances,
Eurodollar deposits or certificates of deposits maturing within eighteen
months from the date of issuance thereof and issued by, or any demand
deposits in, any United States commercial bank with capital and surplus of
not less than $250,000,000 or any foreign bank with a capital and surplus
of not less than $1.0 billion with a branch in the United States; (iv)
preferred stock rated "BBB" or better by Standard & Poor's Rating Group or
Moody's Investors Service, Inc.; (v) loans or advances in the ordinary
course of business to suppliers, franchisees, officers, directors and
employees incidental to carrying on the business of the Company or any
Restricted Subsidiary (including employee relocation loans); (vi)
receivables arising from the sale of goods and services in the ordinary
course of business of the Company and its Restricted Subsidiaries; (vii)
loans to and advances from Restricted Subsidiaries in the usual course of
business; (viii) Investments in any Restricted Subsidiary or any Person
which, after giving effect to such Investment, would be a Restricted
Subsidiary; (ix) Investments in money market funds; and (x) other
Investments not listed above which do not exceed, in the aggregate, 10% of
Consolidated Net Worth at any time.
"Person" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the
Company or any ERISA Affiliate or with respect to which the Company or any
ERISA Affiliate may have any liability.
"Priority Debt" means (i) Indebtedness of the Company secured
by Liens permitted under clause (viii) of Section 10.4 of the Agreement,
and (ii) Indebtedness of Restricted Subsidiaries, except Indebtedness owed
to the Company.
"property" or "properties" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible,
choate or inchoate.
"Purchaser" and "Purchasers" are defined in the first sentence
of the Agreement.
"QPAM Exemption" means Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.
"Required Holders" means, at any time, the holders of at least
51% in principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Company, any Restricted Subsidiary or any
Affiliate).
"Responsible Officer" means any Senior Financial Officer and any
other officer of the Company with responsibility for the administration of
the relevant portion of the Agreement.
"Restricted Payment" means any dividend or other distribution or
payment on the capital stock or other equity interests of the Company or
any Restricted Subsidiary, whether in cash or in property (except
distributions solely in shares of such capital stock or equity interests),
and any redemption, purchase, retirement or other acquisition of the
capital stock or other equity interests of the Company or any Restricted
Subsidiary or of warrants, rights or other options to acquire such capital
stock or other equity interests, excluding any dividends, distributions or
payments to, or redemptions, purchases, retirements or other acquisitions
from, the Company or a Wholly-Owned Restricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Senior Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or assistant treasurer of the
Company.
"Senior Funded Debt" means Funded Debt of the Company and its
Restricted Subsidiaries other than Subordinated Funded Debt.
"Series 2002 Notes" means the Company's 6.41% Senior Notes due
December 15, 2002, in the original aggregate principal amount of
$60,000,000, issued pursuant to the Series 2002 Note Purchase Agreement.
"Series 2002 Note Purchase Agreement" means the Note Purchase
Agreement, dated as of the date of the Agreement, among the Company and
the purchasers listed on Schedule A attached thereto, providing for the
purchase and sale of the Series 2002 Notes.
"Significant Subsidiary" means at any time any Subsidiary that
would at such time constitute a "significant subsidiary" (as such term is
defined in Regulation S-X of the Securities and Exchange Commission as in
effect on the date of the Closing) of the Company.
"Subordinated Funded Debt" means any Funded Debt of the Company
and its Restricted Subsidiaries which is subordinated in right of payment
to the Notes pursuant to a subordination agreement, in form and substance
approved in writing by the Required Holders, and which has a maturity
extending beyond final maturity of the Notes.
"Subsidiary" means any corporation, association or other
business entity in which the Company or one or more of its Subsidiaries or
the Company and one or more of its Subsidiaries owns sufficient equity or
voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership or joint
venture if more than a 50% interest in the profits or capital thereof is
owned by the Company or one or more of its Subsidiaries or the Company and
one or more of its Subsidiaries (unless such partnership can and does
ordinarily take major business actions without the prior approval of the
Company or one or more of its Subsidiaries).
"Total Capitalization" means, on any date, the sum of (i)
Consolidated Funded Debt on such date, (ii) the deferred income tax
liability of the Company and each Restricted Subsidiary on such date,
determined on a consolidated basis in accordance with GAAP, and (iii)
Consolidated Net Worth on such date.
"Unrestricted Subsidiary" means any Subsidiary designated as an
"Unrestricted Subsidiary" at any time by the Company in a writing
delivered to the holders of the Notes and not thereafter designated as a
"Restricted Subsidiary" by the Company in a writing delivered to the
holders of the Notes; provided that the Company may so designate a
Subsidiary as an Unrestricted Subsidiary or designate an Unrestricted
Subsidiary as a Restricted Subsidiary only if (i) at the time of any such
designation of a Subsidiary as an Unrestricted Subsidiary, the Subsidiary
so designated neither owns, directly or indirectly, any Funded Debt or
capital stock of any other Restricted Subsidiary, and (ii) after giving
effect to such designation of a Subsidiary as an Unrestricted Subsidiary
or of an Unrestricted Subsidiary as a Restricted Subsidiary (x) the
Company could incur an additional $1.00 of Senior Funded Debt pursuant to
clauses (a) and (b) of Section 10.3(ii) of the Agreement, and (y) no
Default or Event of Default would exist. Once a Subsidiary is designated
an Unrestricted Subsidiary, it may thereafter be designated as a
Restricted Subsidiary but after being so designated as a Restricted
Subsidiary such Subsidiary may not again be designated as an Unrestricted
Subsidiary. As of the time of Closing, no Subsidiary is an Unrestricted
Subsidiary.
"Wholly-Owned Restricted Subsidiary" means, at any time, any
Restricted Subsidiary one hundred percent (100%) of all of the equity
interests (except directors' qualifying shares) and voting interests of
which are owned by any one or more of the Company and the Company's other
Wholly-Owned Restricted Subsidiaries at such time.
<PAGE>
[FORM OF NOTE]
BANDAG, INCORPORATED
6.50% SENIOR NOTE DUE DECEMBER 15, 2007
No. R-2007-__ [DATE]
$[_______] PPN 059815 A@ 9
FOR VALUE RECEIVED, the undersigned, Bandag, Incorporated
(herein called the "Company"), a corporation organized and existing under
the laws of the State of Iowa hereby promises to pay to
[___________________________], or registered assigns, the principal sum of
[___________________________] DOLLARS on December 15, 2007, with interest
(computed on the basis of a 360-day year of twelve 30-day months) (a) on
the unpaid balance thereof at the rate of 6.50% per annum from the date
hereof, payable semiannually, on the 15th day of June and December in each
year, commencing with the June or December next succeeding the date
hereof, until the principal hereof shall have become due and payable, and
(b) to the extent permitted by law on any overdue payment (including any
overdue prepayment) of principal, any overdue payment of interest and any
overdue payment of any Make-Whole Amount (as defined in the Note Purchase
Agreement referred to below), payable semiannually as aforesaid (or, at
the option of the registered holder hereof, on demand), at a rate per
annum from time to time equal to the greater of (i) 8.50% or (ii) 2% over
the rate of interest publicly announced by Morgan Guaranty Trust Company
of New York from time to time in New York City, New York as its Prime
Rate.
Payments of principal of, interest on and any Make-Whole Amount
with respect to this Note are to be made in lawful money of the United
States of America at Muscatine, Iowa or at such other place as the Company
shall have designated by written notice to the holder of this Note as
provided in the Note Purchase Agreement referred to below.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to the Note Purchase Agreement, dated as of
December 15, 1997 (as from time to time amended, the "Note Purchase
Agreement"), among the Company and the respective Purchasers named therein
and is entitled to the benefits thereof. Each holder of this Note will be
deemed, by its acceptance hereof, (i) to have agreed to the confiden-
tiality provisions set forth in Section 20 of the Note Purchase Agreement
and (ii) to have made the representation set forth in Section 6.2 of the
Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of
transfer duly executed, by the registered holder hereof or such holder's
attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee.
Prior to due presentment for registration of transfer, the Company may
treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.
The Company will make required prepayments of principal on the
dates and in the amount specified in the Note Purchase Agreement. This
Note is also subject to optional prepayment, in whole or from time to time
in part, at the times and on the terms specified in the Note Purchase
Agreement, but not otherwise.
If an Event of Default, as defined in the Note Purchase
Agreement, occurs and is continuing, the principal of this Note may be
declared or otherwise become due and payable in the manner, at the price
(including any applicable Make-Whole Amount) and with the effect provided
in the Note Purchase Agreement.
This Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by the law of the State of
Illinois excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than
such State.
BANDAG, INCORPORATED
By_________________________
Title:
and
By_________________________
Title:
<PAGE>
FORM OF OPINION OF SPECIAL COUNSEL
TO THE COMPANY
Matters To Be Covered In
Opinion of Special Counsel To the Company
1. Each of the Company and its Significant Subsidiaries being
duly incorporated, validly existing and in good standing and having
requisite corporate power and authority to issue and sell the Notes and to
execute and deliver the documents.
2. Each of the Company and its Significant Subsidiaries being
duly qualified and in good standing as a foreign corporation in such
jurisdictions as may be requested by the Purchasers.
3. Due authorization and execution of the documents and such
documents being legal, valid, binding and enforceable.
4. No conflicts with charter documents, laws or other
agreements.
5. All consents required to issue and sell the Notes and to
execute and deliver the documents having been obtained.
6. No litigation questioning validity of documents.
7. The Notes not requiring registration under the Securities
Act of 1933, as amended; no need to qualify an indenture under the Trust
Indenture Act of 1939, as amended.
8. No violation of Regulations G, T or X of the Federal
Reserve Board.
9. Company not an "investment company", or a company
"controlled" by an "investment company", under the Investment Company Act
of 1940, as amended.
<PAGE>
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
[TO BE PROVIDED]
EXHIBIT 10.9
AGREEMENT
THIS AGREEMENT made this 21 day of May, 1997, by and between
BANDAG, INCORPORATED, an Iowa Corporation ("Bandag"), and WILLIAM A.
SWEATMAN ("Sweatman").
WHEREAS, Sweatman has been employed by Bandag in an executive
capacity for a number of years; and
WHEREAS, the parties hereto desire to cease this relationship
under the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
following mutual agreements, it is agreed between the parties hereto as
follows:
1. Sweatman agrees to consult with an attorney prior to
signing this agreement and shall have twenty-one (21) days within which to
consider this agreement. If this agreement is signed by Sweatman, he may
revoke this agreement within seven (7) days following signing of this
agreement by Bandag and this agreement will become effective and
enforceable on, but not before, the date on which the seven-(7)-day
revocation period has expired.
2. Sweatman has resigned the position of Vice-President, North
American Sales of Bandag effective January 20, 1997, but has continued as
an employee of Bandag at an annual salary of $255,665 and shall continue
as an employee as herein provided until he accepts other employment.
Notwithstanding Sweatman's employment by another employer, he shall still
continue to receive the severance payments provided for under paragraph 3
of this agreement.
3. Bandag agrees to pay Sweatman payments in the aggregate
amount of $766,995 during the period from June 1, 1997, through May 30,
2002, subject to withholding of applicable federal and state taxes and
subject to Sweatman's performance of his obligations under this agreement.
The payments provided for in this paragraph shall be made notwithstanding
Sweatman's acceptance of other employment not in violation of paragraph 11
herein. In addition to the above payments, Bandag shall within two weeks
of the last payment being made to Sweatman under this agreement, remit to
Sweatman or to his Individual Retirement Account ("IRA") a lump sum
representing the then present value of all Pension Plan and 401-K Benefits
that would have accrued with respect to the above payments in the event
Sweatman had not accepted other employment and had remained employed by
Bandag until May 30, 2002. Present value as used in this paragraph shall
be determined by using the short term (monthly) Applicable Federal Rates
as published by the Internal Revenue Service for the month preceding the
month of payment.
4. Bandag shall retain an outplacement agency (selected by
Sweatman) and pay the reasonable cost thereof through April 30, 1998.
5. Bandag shall reimburse Sweatman for moving household goods
from Muscatine, Iowa, to a new residence selected by Sweatman upon
termination of his employment with Bandag. Such reimbursement payments
shall be on a "grossed up" full tax effect basis.
6. Sweatman and his eligible dependents shall continue to
receive full benefits under the group insurance plans of Bandag until his
commencement of employment and qualification for immediate coverage under
the plans of another employer, provided that the insurance coverage under
the new employer's plan shall be equal to or exceed the insurance coverage
under the Bandag plan. In the event that the insurance coverage provided
by Sweatman's new employer is less than the coverage under the Bandag
plan, then he may elect for himself and his dependents to continue to be
covered under the Bandag plan via COBRA (premiums paid by Bandag) until
May 30, 2002, and after that date Sweatman may continue medical and dental
coverage under COBRA with Bandag paying on behalf of Sweatman any COBRA
payments that may be due.
7. Subject to the performance by Bandag of its obligations
under this agreement, Sweatman agrees as to Bandag and all corporations,
divisions, subsidiaries, parent organizations, directors, officers,
shareholders, employees, agents, consultants, predecessors, successors,
assigns, heirs, or other entities or persons that are now, have been, or
may in the future be directly or indirectly related to or affiliated with
Bandag in any way (the "Releasees") that he unconditionally releases,
discharges, waives, and promises not to sue with respect to all claims,
demands, actions, causes of action, rights, obligations, liabilities,
damages or losses of any kind, known or unknown, fixed or contingent
("claims"), that he may have or subsequently claim to have against the
Releasees or any one of them relating to his employment with Bandag or his
separation from that employment, which released Claims include but are not
limited to all Claims arising under any constitution, law, statute,
ordinance, regulation, rule, guideline, or common-law theory and
specifically all Claims arising under all employment, discrimination, or
wrongful discharge laws, regulations, or common-law theories, including
but not limited to the Age Discrimination in Employment Act of 1967, the
Iowa Statutes, the Employment Retirement Income Security Act of 1974, the
Civil Rights Act of 1866, the Civil Rights Act of 1964, the Civil Rights
Act of 1991, and the Americans with Disabilities Act of 1990 (all as
amended from time to time). He agrees that he cannot and will not bring
any lawsuit or charges on his behalf, whether civil, criminal, or
administrative, against the Releasees or any one of them with respect to
such released Claims, and that he unconditionally releases, discharges,
waives, and gives up his right to accept any relief obtained by any other
party on his behalf with respect to such released Claims.
8. Bandag and Sweatman agrees to keep substantive matters
concerning this Agreement, including the circumstances surrounding the
Agreement and the contents of this Agreement confidential. Bandag
understands that Sweatman may disclose the terms of this Agreement with
his wife, attorney, financial advisor or accountant of choice, but shall
specifically instruct these individuals that this information is
confidential and that they shall not relay this information to any other
individuals.
9. Bandag shall indemnify and hold Sweatman harmless from and
against all liability, recoveries of judgment, claims and demands asserted
against him arising out of his acts as an officer and employee of Bandag
during the period of his employment and shall furnish him at Bandag's
expense with legal counsel and expense reimbursement in connection with
any such claims against him. Bandag acknowledges that Sweatman has
cooperated to the fullest extent possible in the preparation and
presentation by Bandag of its prosecution and defense of claims presently
pending. Sweatman agrees that in the event Bandag becomes involved in any
other legal or administrative claims or other proceedings relating to
events that occurred during his employment with Bandag, he will cooperate
to the fullest extent possible, subject however to the work requirements
of his then current employment demands, in the preparation and
presentation by Bandag of its prosecution or defense, including but not
limited to the signing of affidavits or other documents providing
information requested by Bandag.
10. Subject to the performance by Sweatman of his obligations
under this agreement, Bandag unconditionally releases, discharges, waives,
and promises not to sue with respect to all claims, demands, actions,
causes of action, rights, obligations, liabilities, damages, or losses of
any kind, known or unknown, fixed or contingent that Bandag may have or
subsequently claim to have against Sweatman relating to his employment
with Bandag or his separation from that employment.
11. Sweatman agrees that he shall not, prior to January 22,
1999 (without express written consent of Bandag) engage directly or
indirectly, whether as an employee, consultant or independent contractor,
alone or in conjunction with others in any venture, or in the manufacture,
sale, distribution of any machinery, equipment or product relating
thereto, which is in competition with the process, products or retreading
system, of Bandag. This covenant not to compete shall extend to any
geographical area within North America in which the products of Bandag or
any Bandag affiliate are manufactured or marketed into any customers or
markets of Bandag or any Bandag affiliates which now exist. The parties
agree that the aforementioned covenant not to compete shall be subject to
specific performance in any jurisdiction in North America in which Bandag
conducts business. This covenant not to compete is subject to the
performance by Bandag of its obligations under this agreement.
12. Bandag agrees to furnish Sweatman with a letter of
reference from Martin G. Carver, Chairman, President and CEO ("Carver") in
the form of the attached letter of recommendation. Bandag represents that
Carver is prepared and will also issue subsequent letters of
recommendation to specific employers upon request by Sweatman, which
letters will be highly favorable to Sweatman.
13. Bandag shall pay the reasonable attorneys' fees incurred by
Sweatman for counsel and review in connection with this agreement.
14. Any controversy or claim arising out of, or relating to,
this Agreement, or its breach, shall be settled by arbitration in
accordance with the then governing rules of the American Arbitration
Association. Judgment upon the award rendered may be entered and enforced
in any court of competent jurisdiction. The arbitrator(s) shall have the
power and authority to award attorneys fees and costs in the event of a
breach of this agreement to the prevailing party.
15. This agreement constitutes the entire agreement between the
parties and shall be binding upon the successors and assigns of the
parties hereto.
IN WITNESS WHEREOF, the parties have executed this agreement as
of the day and year first above written.
/s/ William Sweatman
William A. Sweatman
BANDAG, INCORPORATED
By: /s/ John A. Lodge 5/21/97
<PAGE>
MEMORANDUM OF INTERPRETATION
In order to avoid any confusion or future misunderstandings as
to the scope of the non-compete provision in paragraph 11 of this
Agreement between Bandag, Incorporated and William A. Sweatman made as of
the 21 day of May, 1997, the parties agree to the following
interpretation:
I. The non-compete provision shall not prevent Sweatman from
becoming an employee, equity owner, or affiliate of a
Bandag franchise provided such franchisee, its
subsidiaries, affiliates, and/or commonly-owned or
controlled entities are one hundred percent Bandag.
Further, the non-compete provision does not prevent
Sweatman from becoming a Bandag franchisee alone or in
conjunction with other provided that such other parties are
one hundred percent Bandag.
II. The non-compete provision does prohibit Sweatman from
engagement with new tire companies, whether as an employee,
consultant, or independent contractor.
Dated this 21 day of May, 1997.
/s/ William Sweatman
William A. Sweatman
BANDAG, INCORPORATED
By:
/s/ John A. Lodge
<PAGE>
May 29, 1997
Mr. William A. Sweatman
519 Berry Avenue
Muscatine, IA 52761
Dear Bill:
This letter clarifies paragraph 3 of the Agreement between Bandag,
Incorporated and yourself dated the 21 day of May, 1997, concerning the
scheduling of payments in the aggregate of $766,995.00. The
aforementioned aggregate payment shall commence June 1, 1997 and shall be
paid to you in semimonthly installments of $9,833.27; provided, however,
that for a period of thirty (30) days prior to December 31 of each year,
commencing 1997, (until such time as the total amount of the aggregate
payments has been paid to you) you may notify Bandag, Incorporated in
writing of your election to either decrease the payments or accelerate the
receipt of the payments for the following year, including the payment of
the then remaining sum due to you under the Agreement. If your notice to
Bandag, Incorporated states that you wish to accelerate all future
payments, Bandag, Incorporated will accelerate payments for the year
following any such election by you. Any election to accelerate payment to
you shall be irrevocable as to such payment when made, but you shall be
able to exercise such election for payments due on any subsequent year.
All of the above-discussed payments are subject to withholding of
applicable federal and state taxes.
Thank you for your cooperation and best wishes to you in your search for
new endeavors.
Dated this 21 day of May, 1997.
Bandag, Incorporated
By: /s/ John A. Lodge /s/ William Sweatman
John A. Lodge William A. Sweatman
Vice President
Employee Services
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The Company has the following subsidiaries including significant
subsidiaries as defined in Regulation S-X, each incorporated in the
jurisdiction stated opposite its name. All of the following subsidiaries
are 100% owned by the Company. The Company has additional subsidiaries
which, if considered in the aggregate as a single subsidiary, would not
constitute a "significant subsidiary" as such term is defined in
Regulation S-X.
Name of Subsidiary Jurisdiction of Incorporation
Bandag A.G. . . . . . . . . . . . . . . . . . Switzerland
Bandag Canada Ltd. . . . . . . . . . . . . . . . . . Canada
Bandag Europe N.V. . . . . . . . . . . . . . . . . Belgium
Bandag Licensing Corporation. . . . . . . . . . . . . Iowa
Bandag Incorporated of S.A.
(Proprietary) Limited . . . . . . . . . . . . South Africa
Bandag New Zealand Limited . . . . . . . . . . New Zealand
Bandag do Brasil Ltda . . . . . . . . . . . . . . . . Brazil
Bandag B.V. . . . . . . . . . . . . . . . . . . Netherlands
Bandag de Mexico, S.A. de C.V. . . . . . . . . . . . Mexico
BTC, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware
Tire Distribution Systems, Inc. . . . . . . . . . . Delaware
J.W. Brewer Tire Co., Inc. . . . . . . . . . . . . Colorado
Joe Esco Tire Co. . . . . . . . . . . . . . . . . Oklahoma
Sound Tire, Inc. . . . . . . . . . . . . . . . . Washington
Southern Tire Mart, Inc. . . . . . . . . . . . Mississippi
Universal Tire, Inc. . . . . . . . . . . . . . . Tennessee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS AND THE UNAUDITED
CONSOLIDATED CONDENSED BALANCE SHEETS OF THE REGISTRANT FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 196,400
<SECURITIES> 1,575
<RECEIVABLES> 231,648
<ALLOWANCES> 12,707
<INVENTORY> 107,523
<CURRENT-ASSETS> 598,994
<PP&E> 459,446
<DEPRECIATION> 261,846
<TOTAL-ASSETS> 899,904
<CURRENT-LIABILITIES> 306,542
<BONDS> 123,195
0
0
<COMMON> 22,814
<OTHER-SE> 6,052
<TOTAL-LIABILITY-AND-EQUITY> 463,414
<SALES> 822,523
<TOTAL-REVENUES> 931,702
<CGS> 482,387
<TOTAL-COSTS> 482,387
<OTHER-EXPENSES> 243,060
<LOSS-PROVISION> 3,491
<INTEREST-EXPENSE> 3,339
<INCOME-PRETAX> 202,916
<INCOME-TAX> 80,922
<INCOME-CONTINUING> 121,994
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,994
<EPS-PRIMARY> 5.35
<EPS-DILUTED> 5.33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS AND THE UNAUDITED
CONSOLIDATED CONDENSED BALANCE SHEETS OF THE REGISTRANT FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 31,453
<SECURITIES> 2,089
<RECEIVABLES> 206,732
<ALLOWANCES> 13,320
<INVENTORY> 58,932
<CURRENT-ASSETS> 341,700
<PP&E> 394,592
<DEPRECIATION> 249,457
<TOTAL-ASSETS> 588,342
<CURRENT-LIABILITIES> 139,214
<BONDS> 10,125
0
0
<COMMON> 22,923
<OTHER-SE> 4,069
<TOTAL-LIABILITY-AND-EQUITY> 588,342
<SALES> 756,925
<TOTAL-REVENUES> 768,999
<CGS> 442,149
<TOTAL-COSTS> 442,149
<OTHER-EXPENSES> 194,834
<LOSS-PROVISION> 3,289
<INTEREST-EXPENSE> 1,236
<INCOME-PRETAX> 130,780
<INCOME-TAX> 49,176
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,604
<EPS-PRIMARY> 3.46
<EPS-DILUTED> 3.44
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS AND THE UNAUDITED
CONSOLIDATED CONDENSED BALANCE SHEETS OF THE REGISTRANT FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 31,017
<SECURITIES> 9,773
<RECEIVABLES> 200,000
<ALLOWANCES> 12,327
<INVENTORY> 53,063
<CURRENT-ASSETS> 328,458
<PP&E> 382,255
<DEPRECIATION> 237,405
<TOTAL-ASSETS> 554,159
<CURRENT-LIABILITIES> 122,034
<BONDS> 11,857
0
0
<COMMON> 24,178
<OTHER-SE> 358,307
<TOTAL-LIABILITY-AND-EQUITY> 554,159
<SALES> 740,363
<TOTAL-REVENUES> 755,274
<CGS> 442,837
<TOTAL-COSTS> 442,837
<OTHER-EXPENSES> 155,362
<LOSS-PROVISION> 1,964
<INTEREST-EXPENSE> 1,959
<INCOME-PRETAX> 155,116
<INCOME-TAX> 58,089
<INCOME-CONTINUING> 97,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,027
<EPS-PRIMARY> 3.84
<EPS-DILUTED> 3.82
</TABLE>
