EXHIBIT 2.2
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HCC INDUSTRIES INC.
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SUBORDINATED NOTE AGREEMENT
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Dated as of February 14, 1997
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TABLE OF CONTENTS
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BACKGROUND................................................... 1
ARTICLE I Definitions....................................... 2
SECTION 1.1. Interpretation........................ 2
SECTION 1.2. Definitions........................... 2
ARTICLE II Successor Company................................ 25
SECTION 2.1. When the Company May Merge or
Transfer Assets..................... 25
ARTICLE III Sale of the Notes............................... 26
SECTION 3.1. Sale of the Notes Pursuant to Main
Transaction Agreement............... 26
SECTION 3.2. Legend for the Notes.................. 27
SECTION 3.3. Mandatory Repayment of the Notes...... 27
SECTION 3.4. Mandatory Prepayment of the Notes..... 27
SECTION 3.5. Optional Prepayment of the Notes
Within 180 Days of Closing.......... 27
SECTION 3.6. Optional Prepayment of the Notes
Following Fifth Anniversary
of Closing.......................... 28
SECTION 3.7. Optional Prepayment of the Notes
Following Public Offering........... 28
SECTION 3.8. Prepayment Right of Holders Upon
Change of Control................... 29
SECTION 3.9. Allocation of Prepayments............. 31
SECTION 3.10. Notice of Prepayment of the Notes..... 31
SECTION 3.11 Restrictions on Optional Prepayments.. 31
SECTION 3.12. Method of Payment on the Notes........ 31
ARTICLE IV Covenants........................................ 32
SECTION 4.1. Payment of the Notes.................. 32
SECTION 4.2. Limitation on Debt.................... 32
SECTION 4.3. Limitation on Restricted Payments..... 37
SECTION 4.4. Limitation on Restrictions on
Distributions from Subsidiaries
of the Company...................... 41
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SECTION 4.5. Limitation on Transactions with
Affiliates.......................... 42
SECTION 4.6. Foreign Investment in Real Property
Tax Act of 1980..................... 44
SECTION 4.7. Notice of Default..................... 44
SECTION 4.8. Authorizations and Approvals.......... 44
SECTION 4.9. Provision of Periodic Financial
Information......................... 44
ARTICLE V Events of Default; Remedies....................... 45
SECTION 5.1. Events of Default..................... 45
SECTION 5.2. Acceleration.......................... 48
SECTION 5.3. Rights and Remedies Cumulative........ 48
SECTION 5.4. Delay or Omission Not Waiver.......... 49
SECTION 5.5. Waiver of Stay or Extension Laws...... 49
SECTION 5.6. Waiver of Past Defaults............... 49
SECTION 5.7. Rights of Holders To Receive Payment.. 50
ARTICLE VI Subordination.................................... 50
SECTION 6.1. Agreement To Subordinate.............. 50
SECTION 6.2. Liquidation, Dissolution, Bankruptcy.. 50
SECTION 6.3. Default on Senior Debt................ 51
SECTION 6.4. Acceleration of Payment of Notes and
Exercise of Remedies................ 53
SECTION 6.5. When Distribution Must Be Paid Over... 53
SECTION 6.6. Subrogation........................... 53
SECTION 6.7. Relative Rights....................... 54
SECTION 6.8. Subordination May Not Be Impaired
by Company.......................... 55
SECTION 6.9. Reinstatement......................... 55
SECTION 6.10. Proofs of Claim....................... 55
SECTION 6.11. Non-Impairment........................ 55
SECTION 6.12. No Modification....................... 56
SECTION 6.13. Waivers............................... 56
SECTION 6.14. Enforcement of Rights................. 57
ARTICLE VII Transfer of the Notes........................... 57
SECTION 7.1 Restriction on Transfer............... 57
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SECTION 7.2. Registration of Transfer.............. 57
SECTION 7.3. Register.............................. 58
ARTICLE VIII Termination.................................... 58
SECTION 8.1. Termination........................... 58
SECTION 8.2. Liability............................. 59
ARTICLE IX Amendments....................................... 59
SECTION 9.1. Amendments............................ 59
SECTION 9.2. Revocation and Effect of Consents
and Waivers......................... 60
SECTION 9.3. Notation on or Exchange of Notes...... 61
SECTION 9.4. Payment for Consent................... 61
ARTICLE X Miscellaneous..................................... 61
SECTION 10.1. Notices............................... 61
SECTION 10.2 Consent to Payment of Installment
Amount.............................. 62
SECTION 10.3. Parties............................... 63
SECTION 10.4. Governing Law......................... 63
SECTION 10.5. Replacement Note...................... 63
SECTION 10.6. Successors and Assigns................ 63
SECTION 10.7. Severability Clause................... 63
SECTION 10.8. Further Assurances.................... 64
SECTION 10.9. Entire Agreement...................... 64
SECTION 10.10. Headings.............................. 64
SECTION 10.11. Counterparts.......................... 64
ARTICLE XI Indemnification.................................. 64
SECTION 11.1. Indemnity of Holders of the Notes
by the Company...................... 64
SCHEDULE 1 Purchaser Information
EXHIBIT A Form of Note
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SUBORDINATED NOTE AGREEMENT
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SUBORDINATED NOTE AGREEMENT dated as of February 14, 1997 (this
"Agreement"), by and among HCC Industries Inc., a Delaware corporation (the
"Company"), Windward/Merchant L.P., a Delaware limited partnership
("Windward/Merchant"), Windward/Merban L.P., a Delaware limited partnership
("Windward/Merban"), and Metropolitan Life Insurance Company, a New York
corporation ("Metropolitan Life") (Windward/Merchant, Windward/Merban and
Metropolitan Life, each a "Purchaser" and, collectively, the "Purchasers").
BACKGROUND
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WHEREAS, pursuant to the First Amendment and Restatement of the Stock
Purchase and Sale Agreement, dated as of December 23, 1996 (the "Main
Transaction Agreement"), by and among the Company, HCC Windward L.L.C., a
Delaware limited liability company ("HCC Windward"), Windward Capital
Associates, L.P., a Delaware limited partnership ("Windward"), Windward/Park
HCC, L.L.C., a Delaware limited liability company ("Windward/Park"),
Windward/Merchant, Windward/Merban (Windward, Windward/Park, Windward/Merchant,
and Windward/Merban, collectively, the "Windward Entities"), Metropolitan Life
and each of the Sellers party thereto, upon the terms and subject to the
conditions set forth therein, among other things, (a) the Company intends to
repurchase from the Sellers, and the Sellers intend to sell to the Company,
245,972 shares of common stock, par value $.10 per share, of the Company, and
(b) the Company intends to issue to the Windward Entities, and the Windward
Entities intend to acquire from the Company, 96,335 shares of Common Stock (as
defined in the Main Transaction Agreement) (such shares, representing 67% of
the Company's total outstanding capital stock (without giving effect to the
exercise of any outstanding options)) and contingent anti-dilution warrants (the
"Mezzanine Warrants") to purchase up to 1,461 shares of Common Stock on the
terms and conditions set forth therein; and
WHEREAS, as part of the closing of the transactions contemplated
pursuant to the Main Transaction Agreement and upon the terms and subject to the
condi-
tions set forth herein and therein, the Company shall issue and sell to the
Purchasers $22,500,000 principal amount of its 12% Subordinated Notes Due 2004
(the "Notes"), and the Purchasers shall purchase the Notes from the Company, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and agreements contained
in this Agreement, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:
ARTICLE I
Definitions
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SECTION 1.1. Interpretation. For all purposes of this Agreement and the
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Notes, except as otherwise expressly provided or unless the context otherwise
requires:
(a) the terms defined in this Article and elsewhere in this Agreement
include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles that are consistently applied, and, except as otherwise herein
expressly provided, the term "generally accepted accounting principles"
with respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted in the United States
as of the Closing Date (as defined herein); and
(c) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
SECTION 1.2. Definitions.
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"Acquired Debt" means Debt of a Subsidiary of the Company issued and
outstanding on or prior to the
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date on which such Subsidiary was acquired by either the Company or any other
Subsidiary of the Company (other than Debt issued as consideration in, or to
provide all or any portion of the funds or credit support utilized in, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Subsidiary of the Company became a Subsidiary or was acquired by either the
Company or any other Subsidiary of the Company).
"Affiliate" of any specified Person means (i) any other Person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified Person or (ii) any other Person who is a director or
officer (A) of such specified Person, (B) of any Subsidiary of such specified
Person or (C) of any Person described in clause (i) above. For purposes of this
definition, control of a Person means the direct or indirect power to direct or
cause the direction of the management and policies of such Person whether
through the ownership of Voting Stock, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means, with respect to the Credit Agreement in effect as of
the Closing Date, Fleet Capital Corporation (or any successor as agent under the
Credit Agreement in effect as of the Closing Date) as agent for the Banks, and,
with respect to any agreement issued as a renewal, refinancing or replacement
thereof, any agent or trustee under such renewal, refinancing or replacement
agreement.
"Agreement" means this Subordinated Note Agreement among the Company
and the Purchasers and all schedules and Exhibits attached hereto.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) of
shares of Capital Stock of a Subsidiary of the Company, property or other assets
(each referred to for the purposes of this definition as a "disposition") by the
Company or any of its Subsidiaries (including any disposition by means of a
merger, consolidation or similar transaction) other than (i) a disposition by
any of the Company's Subsidiaries to
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the Company or by the Company or any of its Subsidiaries to any of the Company's
Wholly Owned Subsidiaries, (ii) a disposition at fair market value (as
determined in good faith by the Board of Directors) of obsolete assets in the
ordinary course of business and (iii) a disposition subject to Article II
(except to the extent the Company disposes of substantially all (but not all) of
its assets, in which event the assets not so disposed of shall be deemed as
having been sold by the Company).
"Average Life" means, as of the date of determination, with respect
to any Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of
the products of the numbers of years from the date of determination to the
dates of each successive scheduled sinking fund, serial maturity or other
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (ii) the sum of
all such payments.
"Bankruptcy Law" means Xxxxx 00, Xxxxxx Xxxxxx Code, or any similar
Federal or state law for the relief of debtors.
"Beneficial Owner", and terms having similar import, means any direct
or indirect "beneficial owner", as such term is defined in Rules 13d-3 and 13d-5
under the Exchange Act (except that, for purposes of clause (iii) of the
definition of "Change of Control", a person shall be deemed to have "Beneficial
Ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time). The
Permitted Holders shall be deemed to Beneficially Own all the Voting Stock of a
corporation held by any other corporation (such other corporation, the "parent
corporation") so long as the Permitted Holders Beneficially Own, directly or
indirectly, in the aggregate a majority of the voting power of the Voting Stock
of the parent corporation.
"Board of Directors" means, with respect to any Person, such Person's
Board of Directors or any committee thereof duly authorized to act on behalf of
such Board of Directors.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of
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the Company, depending upon the context in which such term is used, to have been
duly adopted by such Board of Directors of the Company and to be in full force
and effect on the date of such certification and delivered to the Purchasers.
"Business Day" means each day which is not a Saturday or Sunday or a
day on which banking institutions are not required to be open in the State of
New York.
"Capital Lease Obligations" means, with respect to any Person, any
lease of any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with generally accepted accounting principles, either would
be required to be classified and accounted for as a capital lease (a "Capital
Lease") on a balance sheet of such Person or otherwise be disclosed as such in a
note to such balance sheet; the amount of such obligation shall be the
capitalized amount thereof, determined in accordance with generally accepted
accounting principles; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, contingent share issuances,
participations or other equivalents of or interests in (however designated)
equity of such Person, including any Preferred Stock, but excluding any debt
securities convertible into or exchangeable for such equity.
"Change of Control" means the occurrence of any of the following
events:
(i) prior to the first Public Equity Offering of the Company, the
Permitted Holders cease to be the Beneficial Owners of a majority in the
aggregate of the total voting power of the Voting Stock of the Company,
whether as a result of an issuance of securities of the Company, any
merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities or otherwise; or
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(ii) prior to the first Public Equity Offering of the Company, any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than a "person" or "group" consisting of one or
more Permitted Holders, is or becomes the Beneficial Owner of Voting Stock
which represents a percentage of the total voting power of the Voting Stock
of the Company which is greater than that percentage of the total voting
power of the Voting Stock of the Company which the Investor Group in the
aggregate Beneficially Owns; provided that at such time the Investor Group
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does not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of Directors of
the Company; and provided further that the provisions of this clause (ii)
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shall only constitute a "Change of Control" in the event that those
Investor Holders (as defined below) which hold a majority in principal
amount of all Notes which are held by Investor Holders, deliver notice to
the Company that they deem a Change of Control to have occurred pursuant to
this clause (ii) (for purposes of this definition of "Change of Control",
the term "Investor Holders" shall mean those Holders which are members of
the Investor Group); or
(iii) after the first Public Equity Offering of the Company, any
"person" or "group" (as defined in clause (ii) above), other than a
"person" or "group" consisting of one or more Permitted Holders, is or
becomes the Beneficial Owner of Voting Stock which represents a percentage
of the total voting power of the Voting Stock of the Company which is (A)
greater than twenty five percent (25%) or more of the total voting power of
the Voting Stock of the Company and (B) greater than that percentage of the
total voting power of the Voting Stock of the Company which the Permitted
Holders in the aggregate Beneficially Own; provided that at such time the
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Permitted Holders do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors of the Company; or
(iv) after the first Public Equity Offering of the Company, during
any one-year period, individuals
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who at the beginning of such period constituted the Board of Directors of
the Company (together with any new directors whose election by such Board
of Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office;
provided that no Change of Control shall be deemed to have occurred solely as a
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result of the Stockholders Agreement.
"Closing" and "Closing Date" shall have the same respective meanings
as set forth in the Main Transaction Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated EBITDA Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the period of the
most recent four consecutive fiscal quarters ending at least 45 days prior to
the date of such determination to (ii) Consolidated Interest Expense for such
four fiscal quarters; provided that, and without duplication, (A) if the
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Company or any of its Restricted Subsidiaries has issued any Debt since the
beginning of such period that remains outstanding (other than Debt issued under
a revolving credit or similar arrangement for working capital purposes or for
capital improvement purposes) on the last day of such period or if the
transaction giving rise to the need to calculate the Consolidated EBITDA
Coverage Ratio is an issuance of Debt, or both, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect on a pro forma
basis to such Debt as if such Debt had been issued on the first day of such
period; (B) if since the beginning of such period the Company or any of its
Restricted Subsidiaries shall have made any Asset Disposition, (x) the EBITDA
for such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such peri-
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od, or increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period and (y) Consolidated Interest Expense for
such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Debt of the Company or any of its
Restricted Subsidiaries repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Dispositions for such period (or, if the Capital
Stock of any of the Company's Restricted Subsidiaries is sold, the Consolidated
Interest Expense for such period directly attributable to the Debt of such
Restricted Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Debt after such sale); (C) if since
the beginning of such period the Company or any of its Restricted Subsidiaries
(by merger or otherwise) shall have made an Investment in any of the Company's
Subsidiaries (or any person which becomes a Subsidiary of the Company) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the issuance of any Debt, but without
regard to clause (ii) of the proviso to the definition of "Consolidated Net
Income") as if such Investment or acquisition occurred on the first day of such
period; (D) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary of the Company or was merged with or into the
Company or any of its Restricted Subsidiaries since the beginning of such
period) shall have made any Asset Disposition or any Investment that would have
required an adjustment pursuant to clause (B) or (C) above if made by the
Company or any of its Restricted Subsidiaries during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition or Investment occurred on
the first day of such period; (E) there shall be excluded from Consolidated
Interest Expense any Consolidated Interest Expense related to any amount of Debt
that was outstanding during such four-fiscal-quarter period or thereafter but
that is not outstanding or is to be repaid on the date of determination, except
for Consolidated Interest Expense ac-
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crued during such four-fiscal-quarter period under a revolving credit or similar
arrangement; and (F) with respect to any such four-fiscal-quarter period
commencing prior to the Recapitalization, the Recapitalization shall be deemed
to have taken place on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto, and the amount of
Consolidated Interest Expense associated with any Debt issued in connection
therewith, the pro forma calculations shall be determined in good faith by a
responsible financial or accounting Officer of the Company, which determination
shall, if the Holders of a majority of the principal amount in the Notes so
request, be confirmed by the independent accountants of the Company. If any
Debt bears a floating rate of interest and is being given pro forma effect, the
interest on such Debt shall be calculated as if the rate in effect on the date
of determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Debt if such Interest
Rate Agreement has a remaining term in excess of twelve months).
"Consolidated Income Tax Expense" means, for any period, the
consolidated provision for income taxes of the Company and its consolidated
Restricted Subsidiaries for such period determined in accordance with
generally accepted accounting principles.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles, including (i) interest expense attributable to capital
leases, (ii) capitalized interest to the extent actually paid, (iii) non-cash
interest expense, (iv) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (v)
interest actually paid by the Company or any such Restricted Subsidiary under
any guarantee of Debt or other obligation of any other Person, (vi) net costs
under Interest Rate Agreements (including amortization of fees), (vii) Preferred
Stock dividends in respect of all Preferred Stock of the Company's Restricted
Subsidiaries and Redeemable Stock of the Company held by Persons other than the
Company or a
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Wholly Owned Subsidiary of the Company and (viii) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
the Company and its consolidated Subsidiaries) in connection with loans
incurred by such plan or trust to purchase newly issued or treasury shares of
the Company; provided that non-cash interest expense accrued on unpaid dividends
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applicable to the Company's Preferred Stock shall be excluded from the
calculation of Consolidated Interest Expense; provided further that the
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calculation of Consolidated Interest Expense shall exclude (x) any amount of
interest expense of any Restricted Subsidiary of the Company if the net income
(or loss) of such Restricted Subsidiary is excluded in the calculation of
Consolidated Net Income pursuant to clauses (i) or (iii) of the definition
thereof (but only in the same proportion as the net income (or loss) of such
Restricted Subsidiary is excluded from the calculation of Consolidated Net
Income pursuant to clauses (i) or (iii) of the definition thereof) and (y) any
premiums, fees and expenses (and any amortization thereof) payable in
connection with the Recapitalization, all as determined on a consolidated basis
in conformity with generally accepted accounting principles.
"Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its consolidated Restricted Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles (other than any net income (or loss) of any Unrestricted
Subsidiary); provided that there shall not be included in such Consolidated Net
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Income (without duplication):
(i) any net income (or loss) of any Person if such Person is not a
Restricted Subsidiary of the Company, except that the Company's equity in
the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary of the Company as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Restricted
Subsidiary of the Company, to the limitations contained in clause (iii)
below); provided that such
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limitation shall not apply to equity income in respect of investments
outstanding as of the Closing Date;
(ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to Section 4.3 hereof, any net income
(or loss) of any Person acquired by the Company or a Restricted Subsidiary
of the Company in a pooling of interests transaction for any period prior
to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary of the Company if
such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by
such Restricted Subsidiary, directly or indirectly, to the Company (other
than general statutory limitations on the payment or making of such
dividends or distributions), except that (A) the Company's equity in the
net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed or available for distribution without restriction by
such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary of the Company as a dividend or other distribution
(subject, in the case of a dividend or other distribution to another
Restricted Subsidiary of the Company, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(iv) any gain (or loss) realized upon the sale or other disposition
of any property, plant or equipment of the Company or its consolidated
Restricted Subsidiaries (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (or loss) realized upon the sale or other
disposition of any Capital Stock of any Person;
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(v) the cumulative effect of a change in accounting principles;
(vi) any extraordinary gains and extraordinary losses;
(vii) any charges, expenses and amortizations which are accelerated
by reason of the payment prior to the maturity thereof of any Debt;
(viii) any fees or expenses (and any amortization thereof) incurred
in connection with, or payable prior to or substantially concurrently with
the closing of the Recapitalization (including, without limitation, any
fees or expenses related to the financing thereof, any fees or expenses of
attorneys, accountants, financial advisors, consultants and other similar
persons incurred in connection therewith and any other such fees and
expenses relating thereto); and
(ix) any non-cash charges reducing the net income of the Company or
any Restricted Subsidiary that relate to the issuance, granting or
modification of Capital Stock, stock options, stock appreciation rights or
any other similar rights to the directors, officers or employees of the
Company or any of its Restricted Subsidiaries, and any cash payments
reducing net income of the Company or any of its Restricted Subsidiaries
that relate to stock options, stock appreciation rights or any other
similar rights, to the extent such cash payments do not come within any of
the Restricted Payment exceptions set forth in Section 4.3(b) hereof.
In computing Consolidated Net Income of the Company, (1) the Company shall use
audited financial statements for the portions of the relevant period for which
audited financial statements are available on the date of determination and
unaudited financial statements and other current financial data based on the
books and records of the Company for the remaining portion of such period and
(2) the Company shall be permitted to rely in good faith on the financial
statements and other financial data derived from the books and records of the
Company that are available on the date of determination.
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"Consolidated Net Worth" of any Person means the total of the amounts
shown on the balance sheet of such Person and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, as of the end of the most recent fiscal quarter of such
Person ending at least 45 days prior to the taking of any action for the purpose
of which the determination is being made, as (i) the par or stated value of all
outstanding Capital Stock of such Person, plus (ii) paid-in capital or capital
surplus relating to such Capital Stock, plus (iii) any retained earnings or
earned surplus, less (A) any accumulated deficit, less (B) any amounts
attributable to Redeemable Stock and less (C) any amounts attributable to
Exchangeable Stock.
"Contingent Payment Notes" has the meaning given in the Main
Transaction Agreement.
"Credit Agreement" means the Credit Agreement dated as of February
14, 1997 among the Company, each financial institution which is a party thereto
(collectively, the "Banks"), and Fleet Capital Corporation, as agent for the
Banks, as in effect at the Closing, and as the same may be amended or extended
without increasing the principal amount thereof (except as permitted by Section
4.2(b)(ii) hereof) and as the same may be renewed, refinanced or replaced.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"Debt" of any Person means, without duplication,
(i) the principal of, premium (if any) and interest and related fees
and expenses (if any) in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for
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the payment of which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person;
(iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement;
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction;
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock (but
excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including any guarantees of
such obligations and dividends, but, in each case, only to the extent such
Person is responsible or liable for such obligations or dividends;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
Notwithstanding any of the foregoing provisions of this definition of "Debt",
(1) the amount outstanding at any time of any Debt issued with original issue
discount is
14
the face amount of such Debt less the remaining unamortized portion of the
original issue discount of such Debt at such time as determined in conformity
with generally accepted accounting principles, and (2) Debt shall not include
(A) any liability for federal, state, local or other taxes, (B) trade accounts
payable and other accrued expenses arising in the ordinary course of business,
(C) with respect to the deferred purchase price of property, obligations which
are due within six months after the date of placing such property in service or
taking delivery and title thereto, (D) any obligations of the Company or its
Subsidiaries with respect to the Deferred Payment Amount, or (E) any obligations
of the Company or its Subsidiaries with respect to the Installment Amount. The
amount of Debt of any Person at any date shall be (x) the outstanding balance at
such date of all unconditional obligations as described above, and (y) the
maximum liability determined by such Person's Board of Directors, in good
faith, as reasonably likely to occur, upon the occurrence of the contingency
giving rise to the obligation, of any contingent obligations at such date. For
purposes of determining any particular amount of Debt under Section 4.2 hereof,
(i) obligations of a Person with respect to letters of credit, guarantees or
security interests supporting or relating to any Debt which is otherwise
included in the determination of such particular amount shall not be included,
(ii) Debt permitted under Section 4.2 hereof need not be permitted solely by
reference to one provision permitting such Debt but may be permitted in part by
reference to one such provision and in part by reference to one or more other
provisions of the covenant permitting such Debt, and (iii) in the event that an
item of Debt or portion thereof meets the criteria of more than one of the
types of Debt permitted under Section 4.2 hereof, the Company, in its sole
discretion, may classify such item of Debt or portion thereof in one of such
provisions and only be required to include the amount and type of such Debt or
portion thereof in one of such provisions.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Deferred Payment Amount" has the meaning given in the Main
Transaction Agreement.
15
"EBITDA" for any period means the Consolidated Net Income for such
period (but without giving effect to adjustments, accruals, deductions or
entries resulting from gains or losses from any Asset Dispositions), plus the
following to the extent deducted in calculating such Consolidated Net Income:
(i) Consolidated Income Tax Expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense and (iv) amortization expense and other non-cash charges.
"Equity Holding Company" means any company of which the Company is a
Wholly Owned Subsidiary substantially all of whose assets are comprised of
Capital Stock of the Company.
"Event of Default" has the meaning specified in Section 5.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of the Company
which is neither Exchangeable Stock or Redeemable Stock).
"FIRPTA" means the Foreign Investment in Real Property Tax Act of
1980.
"Financial Advisory Services Agreement" means the Financial Advisory
Services Agreement, dated of even date herewith, between Windward and the
Company.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means any of the Purchasers or such other Persons in whose
name a Note or Notes are registered on the Note Register.
"Installment Amount" has the meaning given in the Main Transaction
Agreement.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, inter-
16
est rate future agreement, interest rate option agreement, interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate hedge agreement or other similar agreement or arrangement as to which such
Person is a party or a beneficiary.
"Investment" in any Person means any loan or advance to, any guarantee
of, any capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any acquisition of any Capital Stock, equity interest,
obligation or other security of, such Person. Investments shall exclude
advances to customers and suppliers in the ordinary course of business. For
purposes of the definition of "Unrestricted Subsidiary" and Section 4.3 hereof,
(i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of the Company at the time that such Subsidiary of the Company
is designated an Unrestricted Subsidiary, and shall exclude the fair market
value of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and
(ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined by the Board of Directors of the Company in good faith.
"Investor Group" means the Windward Entities, Metropolitan Life and
each of their Affiliates.
"Lien" means any mortgage, pledge, security interest, encumbrance,
charge of any kind (including any conditional sale or other title retention
agreement) or other similar lien; provided, however, that neither (i) the rights
-------- -------
of the Sellers or any other Person in the Deferred Payment Amount nor (ii) the
rights of the Sellers, the Escrow Agent (as defined in the Main Transaction
Agreement) or any other Person in the Installment Amount shall be considered to
be a Lien.
"Main Transaction Agreement" has the meaning specified in the first
Whereas clause hereof.
"Make-Whole Price" means the higher of (1) the unpaid principal amount
of the Notes to be prepaid on the
17
Prepayment Date in question (each, a "Determination Date") and (2) the sum of
the respective Payment Values (as defined below) of each prospective interest
payment and the principal payment at maturity in respect of such Notes, in each
case in respect of the principal amount of the Notes so to be prepaid (the
amount of each such payment, a "Payment"). The "Payment Value" of each Payment
shall be determined by discounting such Payment at the Reinvestment Rate (as
defined below), for the period from the scheduled date of such Payment to the
related Determination Date. The "Reinvestment Rate" is the sum of (a) (i) with
respect to any Purchaser or Mezzanine Security Transferee, (x) if the Mezzanine
Return applicable to such Purchaser or Mezzanine Security Transferee as of the
Determination Date is less than twenty two percent (22.0%), 2.25% and (y) if the
Mezzanine Return applicable to such Purchaser or Mezzanine Security Transferee
as of the Determination Date is greater than or equal to twenty two percent
(22%), 2.50%, and (ii) with respect to any Holder other than a Purchaser or a
Mezzanine Security Transferee, 2.50%, and (b) the yield which shall be imputed
from the yields of those actively traded "On The Run" United States Treasury
securities having maturities as close as practicable to the Average Life of the
Notes so to be prepaid, shown on page "USD" of the Bloomberg Financial Markets
Services Screen as of 10 A.M. Eastern Time on the fifth Business Day prior to
the related Determination Date.
"Mezzanine Return" means, with respect to any Purchaser or Mezzanine
Security Transferee, the overall internal rate of return, compounded semi-
annually, as of the date of determination on all Mezzanine Security Units
purchased by such Purchaser on the Closing Date or thereafter purchased by such
Mezzanine Security Transferee, as calculated by the Company. For purposes of
determining the Mezzanine Return, the overall internal rate of return shall be
computed on the basis of semi-annual compounding and measured from the Closing
Date until the date of determination and (a)the purchase price paid by such
Purchaser on the Closing Date for Notes shall be treated as an outflow on the
Closing Date, (b) the purchase price paid by such Purchaser on the Closing Date
for Mezzanine Shares shall be treated as an outflow on the Closing Date, (c) any
distributions received by such Purchaser with respect to Mezzanine Shares prior
to the date of determination shall be treated as inflows on the respec-
18
tive dates of such distributions, (d) any consideration received by such
Purchaser prior to the date of determination as a result of the sale of any
Mezzanine Shares shall be treated as inflows on the respective dates of receipt
of such consideration, (e) any interest payments on the Notes received by such
Purchaser prior to the date of determination shall be treated as inflows on the
respective dates of payment, (f) any payments of principal of, or premium on,
any Notes made by the Company prior to the date of determination shall be
treated as inflows on the respective dates of such payments, (g) all Notes held
by the Purchaser on the date of determination shall be treated as if they were
sold on such date at a purchase price equal to the outstanding principal amount
of such Notes plus accrued but unpaid interest, if any, and (h) all Mezzanine
Shares held by the Purchaser on the date of determination shall be treated as if
they were sold on such date at a purchase price per share calculated as
follows: (x) if (I) the calculation of the Mezzanine Return is being performed
pursuant to Section 3.5 or (II) the calculation of Make-Whole Price is being
performed pursuant to Section 3.6 in connection with a Public Equity Offering of
Capital Stock (other than Common Stock) of the Company or any Equity Holding
Company, at a price equal to the product of (1) 6.5 times (2) the aggregate
amount of EBITDA for the period of the most recent four consecutive fiscal
quarters ending at least 45 days prior to the date of such determination divided
by (3) aggregate number of outstanding shares of Common Stock of the Company on
the date of such determination, after giving effect to the issuance of all
shares of Common Stock issuable (A) upon conversion of all convertible
securities outstanding at such time and of all convertible securities issuable
upon the exercise of any warrants, options and other rights outstanding on such
date and (B) upon exercise of all other warrants, options and other rights
outstanding on such date; (y) if the calculation of Make-Whole Price is being
performed pursuant to Section 3.6 in connection with a Public Equity Offering
of shares of Common Stock of the Company or any Equity Holding Company, at a
price equal to the price per share at which shares of Common Stock of the
Company were sold in the relevant Public Equity Offering; and (z) if the
calculation of Mezzanine Return is being performed pursuant to Section 3.7, at a
price equal to (1) if all of the consideration paid in the transaction resulting
in such Change of Control is cash, the price per share of
19
Common Stock paid in such transaction and (2) if any of the consideration paid
in the transaction resulting in such Change of Control is other than cash, the
value per share of Common Stock of such consideration as determined in good
faith by the Board of Directors of the Company, whose determination shall be
evidenced by a Board Resolution; provided that, if any Purchaser transfers one
--------
or more of its Mezzanine Security Units to a Mezzanine Security Transferee (or
any Mezzanine Security Transferee transfers one or more of its Mezzanine
Security Units to a subsequent Mezzanine Security Transferee), the Mezzanine
Return applicable to such Mezzanine Security Transferee shall be calculated
based on all of the Mezzanine Security Units held by such Mezzanine Security
Transferee on the date it became a Mezzanine Security Transferee and all inflows
and outflows described above attributable to the original Purchaser of such
Mezzanine Security Unit(s) (and to any Mezzanine Security Transferee who
previously held such Mezzanine Security Unit(s)) shall be included in the
calculation of such Mezzanine Security Transferee's Mezzanine Return, and
provided further, that any amounts paid by such Mezzanine Security Transferee
-------- -------
to the original Purchaser (or any prior Mezzanine Security Transferee) in
respect of such Mezzanine Security Unit shall be disregarded for purposes of the
calculation of such Mezzanine Security Transferee's Mezzanine Return.
"Mezzanine Security Transferee" has the meaning specified in Section
3.5 hereof.
"Mezzanine Security Unit" means a unit comprised of $1000 principal
amount of Notes, .38284 Mezzanine Shares (and any shares of Common Stock of the
Company or any Equity Holding Company into which such initial .38284 Mezzanine
Shares shall have been converted or for which such initial .38284 Mezzanine
Shares shall have been exchanged) and .06493 Mezzanine Warrants (or such number
of Mezzanine Shares issued pursuant to the exercise of such .06493 Mezzanine
Warrants).
"Mezzanine Shares" means (i) with respect to Windward/Merchant,
156.61818 shares of Common Stock of the Company purchased by Windward/Merchant
on the Closing Date pursuant to the Main Transaction Agreement; (ii) with
respect to Windward/Merban, the 626.47273 shares of Common Stock of the Company
purchased by Windward/Merban on the Closing Date pursuant to the Main
Transaction
20
Agreement; (iii) with respect to Metropolitan Life, the 7,830.90909 shares of
Common Stock of the Company purchased by Windward/Park on the Closing Date
pursuant to the Main Transaction Agreement; and (iv) with respect to any
Mezzanine Security Transferee, the shares of Common Stock of the Company
comprising the Mezzanine Security Units purchased or received by such Mezzanine
Security Transferee, and, in each case, any shares of Common Stock of the
Company or any Equity Holding Company into which the initial Mezzanine Shares
shall have been converted or for which the initial Mezzanine Shares shall have
been exchanged and any shares of Common Stock of the Company or any Equity
Holding Company issued pursuant to the Mezzanine Warrants; provided that, for
purposes of calculating the Mezzanine Return, if any of Windward/Merchant,
Windward/Merban or Windward/Park holds a number of shares of Common Stock of the
Company in excess of the numbers set forth in this definition (after giving
effect to any conversion, exchange or issuance referred to above) and such
Windward Entity sells a portion of its shares of Common Stock of the Company,
all of the shares sold by such Windward Entity shall be deemed to be Mezzanine
Shares until such Windward Entity has sold a number of shares of Common Stock of
the Company equal to all of its Mezzanine Shares (after giving effect to any
conversion, exchange or issuance referred to above).
"Mezzanine Warrants" has the meaning specified in the first Whereas
clause hereof.
"Net Cash Proceeds" means, with respect to any issuance or sale of
Capital Stock of the Company, the cash proceeds of such issuance or sale of
Capital Stock, net of any underwriters' or placement agents' fees, discounts or
commissions related to such issuance or sale.
"Non-Convertible Capital Stock" means, with respect to any
corporation, any non-convertible Capital Stock of such corporation and any
Capital Stock of such corporation convertible solely into non-convertible
Capital Stock of such corporation; provided that Non-Convertible Capital Stock
--------
shall not include any Redeemable Stock or Exchangeable Stock.
"Non-Monetary Default Blockage Period" has the meaning specified in
Section 6.3 hereof.
21
"Non-Recourse Debt" means, with respect to any Person, Debt of such
Person to the extent that, if such Person fails to pay such Debt when due and
the holder thereof obtains a judgment with respect thereto, the holder may not
collect by levy of execution against any general assets of such Person other
than assets securing such Debt; provided, however, that Debt shall not fail to
--------
constitute Non-Recourse Debt by reason of (i) provisions giving recourse to, or
rights against, such Person or any assets thereof upon the happening of certain
specified events, including, without limitation, intentional misrepresentation,
regulatory noncompliance or violation of law, or (ii) any rights the holder
thereof may have under bankruptcy, insolvency, receivership or other proceedings
including by reason of Section 1111(b) of the Federal Bankruptcy Code.
"Note Register" means the register maintained pursuant to Section 7.2
hereof.
"Notes" means the $22,500,000 principal amount of the Company's 12%
Subordinated Notes Due 2004 to be purchased by the Purchasers from the Company
pursuant to this Agreement. "Note" means all or a part of the Notes.
"Officer" means the Chairman of the Board, the President, the Chief
Financial Officer, any Vice President, the Treasurer or the Secretary of the
Company, depending upon the context in which such term is used.
"Pari Passu", as applied to the ranking of any Debt of a Person in
relation to other Debt of such Person, means that each such Debt either (i) is
not subordinated in right of payment to any Debt or (ii) is subordinated in
right of payment to the same Debt as is the other, and is so subordinated to the
same extent, and is not subordinated in right of payment to such other Debt or
to any Debt as to which the other is not so subordinated.
"Payment Default Blockage Period" has the meaning specified in
Section 6.3 hereof.
"Permitted Holders" means the Investor Group and any Permitted
Transferees (as defined in the Stockholders Agreement) thereof.
22
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Prepayment Date" has the meaning specified in Section 3.10 hereof.
"Public Equity Offering" means an underwritten primary, or combined
primary and secondary, public offering of Capital Stock (other than Redeemable
Stock) of the Company (or any entity of which the Company is a Subsidiary, to
the extent the cash proceeds of such offering are contributed to the Company or
used to acquire Capital Stock (other than Redeemable Stock) of the Company)
pursuant to an effective registration statement under the Securities Act, and
any similar private placement of securities effected substantially concurrently
with any such offering.
"Purchasers" has the meaning specified in the first paragraph of this
Agreement.
"Put Purchase Price" has the meaning specified in Section 3.8(a)
hereof.
"Recapitalization" means the transaction contemplated by the Main
Transaction Agreement.
"Redeemable Stock" means any Capital Stock that by its terms or
otherwise is required to be redeemed on or prior to the first anniversary of the
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time on or prior to the first anniversary of the Stated Maturity
of the Notes.
"Restricted Payment" has the meaning specified in Section 4.3(a)
hereof.
23
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Secured Debt" means any Debt of the Company or any Restricted
Subsidiary secured by a Lien on any asset of the Company or any Restricted
Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Senior Debt" means any Debt of the Company and its Subsidiaries to
any Person under the Credit Agreement and each note, guaranty, security
agreement or other loan document executed and delivered by the Company or any
Subsidiary of the Company pursuant to the terms of the Credit Agreement,
including without limitation, any principal, interest (whether accrued prior to
or after the commencement of any insolvency proceeding under any Bankruptcy Law
and whether or not allowed in such proceeding), obligations with respect to
letters of credit and letter of credit guarantees, and all reimbursement and
indemnification obligations thereunder (whether or not matured, unmatured,
liquidated or contingent) of the Company or any of its Subsidiaries and any Debt
of the Company and its Subsidiaries to any Person under any Interest Rate
Agreements required under Section 7.12 of the Credit Agreement.
"Significant Subsidiary" is defined to mean, at any date of
determination, any Subsidiary of the Company that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for
more than ten percent (10%) of the consolidated revenues of the Company or (ii)
as of the end of such fiscal year, was the owner of more than ten percent (10%)
of the consolidated assets of the Company, all as set forth on the most
recently available consolidated financial statements of the Company for such
fiscal year.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which all of the outstanding
principal of such security is due and payable, including pursuant to any
mandatory redemption provision.
24
"Stockholders Agreement" means that certain Stockholders Agreement
(including the Schedules and Exhibits attached thereto), dated of even date
herewith, among the Company, Windward, Windward/Park, Windward/Merchant,
Windward/Merban and the other Stockholders party thereto as such agreement may
be amended, supplemented or otherwise modified from time to time after the date
hereof.
"Subordinated Obligation" means any Debt of the Company (whether
outstanding on the date hereof or hereafter incurred) which is subordinate or
junior in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, a corporation or other
entity (including a partnership) of which a majority of the Capital Stock or
other voting interests having voting power under ordinary circumstances to
elect a majority of the board of directors or otherwise control such Person is
owned by (i) such Person, (ii) such Person and one or more of its Subsidiaries
or (iii) one or more Subsidiaries of such Person.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors of the Company in the manner provided
below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Subsidiary of the Company (including
any newly-acquired or newly-formed Subsidiary of the Company) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Company or any other Subsidiary
of the Company that is not a Subsidiary of the Subsidiary to be so designated;
provided that either (A) the Subsidiary to be so designated has total assets of
--------
$10,000 or less or (B) if such Subsidiary has assets greater than $10,000, that
such designation would be permitted under Section 4.3 hereof. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary of the Company; provided that immediately after giving
--------
effect to such designation (x) the Company could issue $1.00 of additional Debt
under Section 4.2(a) hereof and (y) no Default or Event of Default shall have
occurred and be continuing. Any Subsidiary of the Company may be desig-
25
nated as an Unrestricted Subsidiary (or not so designated) for purposes of this
Agreement without regard to whether such Subsidiary is so designated (or not so
designated) for purposes of any other agreement relating to Debt of the Company
or any of its Subsidiaries.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
"Wholly Owned Subsidiary" means, with respect to any Person, a
Subsidiary of such Person all the Capital Stock of which (other than directors'
qualifying shares) is owned by such Person or another Wholly Owned Subsidiary of
such Person.
"Windward Entities" has the meaning specified in the first Whereas
clause hereof.
ARTICLE II
Successor Company
-----------------
SECTION 2.1. When the Company May Merge or Transfer Assets. (a) The
---------------------------------------------
Company shall not consolidate with or merge with or into, or convey or transfer
or lease all or substantially all of its assets to, another Person unless (i)
the resulting, surviving or transferee Person (if not the Company) shall be a
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia and such entity shall assume in
writing in form satisfactory to the Holders of the Notes all the obligations of
the Company under the Notes and this Agreement, (ii) immediately after giving
effect to such transaction, no Default or Event of Default shall have occurred
and be continuing and either (A) the Company is able to incur at least $1.00 of
additional Debt pursuant to Section 4.2(a) hereof or (B) the resulting,
surviving or transferee Person shall have Consolidated Net Worth in an amount
which is not less than the result of (x) the Consolidated Net Worth of the
Company immediately prior to such transaction, minus (y) the aggregate amount
of Restricted Payments which could have been made by the Company pursuant to
Section 4.3(a) hereof immediately prior to such
26
transaction, but which are not being made as part of such transaction, and (iii)
the Company shall have delivered to the Holders a certificate of an Officer of
the Company stating that such consolidation, merger or transfer complies with
this Agreement.
(b) Notwithstanding the provisions of Section 2.1(a), (i) any
Subsidiary of the Company with a positive net worth may consolidate with, merge
into or transfer all or part of its properties and assets to the Company;
provided that, in connection with any such transaction, no consideration (other
--------
than common stock in the surviving Person or the Company) shall be issued or
distributed to the stockholders of the Company, and (ii) the provisions of
clause (ii) of Section 2.1(a) above shall not apply if, in the good faith
determination of the Board of Directors of the Company, whose determination
shall be evidenced by a Board Resolution, the principal purpose of such
transaction is to change the state of incorporation of the Company.
ARTICLE III
Sale of the Notes
-----------------
SECTION 3.1. Sale of the Notes Pursuant to Main Transaction
----------------------------------------------
Agreement. Each of the parties hereto acknowledges and agrees that, upon the
terms and subject to the conditions set forth in the Main Transaction Agreement,
the Company shall issue and sell to each Purchaser, and each Purchaser shall,
severally and not jointly, purchase from the Company, that amount of the Notes
set forth opposite such Purchaser's name in Column 4 of Schedule 1, at the
purchase price set forth in Column 5 of Schedule 1. The Company and the
Purchasers shall not take any position on any tax return based on the purchase
prices for the Notes that is inconsistent with any of the purchase prices set
forth in Schedule 1. At the Closing, upon the terms and subject to the
conditions set forth in the Main Transaction Agreement, the Company shall
deliver to each of the Purchasers the Note or Notes purchased by such Purchaser,
registered in the name of such Purchaser and bearing the legend set forth in
Section 3.2, against payment by such Purchaser of the purchase price therefor by
wire transfer of immediately available funds.
27
SECTION 3.2. Legend for the Notes. The certificates representing
--------------------
the Notes will bear a legend reading substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). NO SALE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION OF THIS
CERTIFICATE (OTHER THAN TO THE ISSUER THEREOF) MAY BE MADE UNLESS EITHER
(A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR (B) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT.
SECTION 3.3. Mandatory Repayment of the Notes. The aggregate
--------------------------------
principal amount of the Notes (including all interest and other amounts owed
thereon at such time) shall be paid in full by the Company on April 15, 2004.
SECTION 3.4. Optional Prepayment of the Notes Within 180 Days of
---------------------------------------------------
Closing. Subject to the provisions of Article VIII hereof, the Company may, at
-------
any time on or prior to the date which is 180 days after the Closing Date,
prepay the Notes at any time in whole, but not in part, at a redemption price of
100% of the purchase price of the Notes being prepaid, together with accrued but
unpaid interest, if any; provided that the Company may only prepay the Notes
--------
pursuant to this Section 3.4 if the Company, concurrently therewith, also
repurchases all Mezzanine Shares (including any shares of Common Stock issued
upon the exercise of the Mezzanine Warrants) and all unexercised Mezzanine
Warrants, all in accordance with the terms of Section 7.3 of the Main
Transaction Agreement.
SECTION 3.5. Optional Prepayment of the Notes Following Fifth
------------------------------------------------
Anniversary of Closing. Subject to the provisions of Article VIII hereof, the
----------------------
Company may, at any time after the fifth anniversary of the date hereof, prepay
the Notes at any time in whole or from time to time in part (any such partial
prepayment to be made pro rata amongst the Holders, and in a minimum aggregate
--------
amount of $1,000,000), at the redemption prices (expressed as percentages of
the principal amount of the Notes being prepaid) set forth below, plus interest
accrued thereon (if any) to the Prepayment Date:
28
if the relevant Holder is a Purchaser or is a subsequent Holder who has
purchased one or more entire Mezzanine Security Units (such subsequent
Holder, a "Mezzanine Security Transferee") and the Mezzanine Return
applicable to such Purchaser or Mezzanine Security Transferee as of the
Prepayment Date is less than 22%, if redeemed during the 12-month period
commencing February 14 of the years set forth below:
Year Redemption Price
---- ----------------
2002 110%
2003 105%
2004 100%
if (i) the relevant Holder is not a Purchaser or a Mezzanine Security
Transferee or (ii) the relevant Holder is a Purchaser or a Mezzanine
Security Transferee and the Mezzanine Return applicable to such Purchaser
or Mezzanine Security Transferee as of the Prepayment Date is greater than
or equal to 22%, if redeemed during the 12-month period commencing February
14 of the years set forth below:
Year Redemption Price
---- ----------------
2002 105%
2003 102.5%
2004 100%
SECTION 3.6. Optional Prepayment of the Notes Following Public
-------------------------------------------------
Offering. Subject to the provisions of Article VIII hereof, the Company may, at
--------
any time following the date hereof and up until the fifth anniversary of the
date hereof, prepay the Notes, either in whole or in part (any such partial
prepayment to be made pro rata amongst the Holders, and in a minimum aggregate
--- ----
amount of $1,000,000), with the Net Cash Proceeds of any Public Equity Offering
at the IPO Redemption Value (as defined below). The term "IPO Redemption Value"
shall mean (i) with respect to the first thirty percent (30%) of the principal
amount of the Notes being redeemed, at a redemption price (expressed as a
percentage of the principal amount of the Notes being prepaid) equal to 107%,
plus accrued interest, if any, to the Prepayment Date and (ii) with respect to
the remaining seventy percent (70%) of the principal amount of the Notes being
redeemed, at a redemption price equal to the greater of (A) a redemption
29
price (expressed as a percentage of the principal amount of the Notes being
prepaid) equal to 107%, plus accrued interest, if any, to the Prepayment Date,
and (B) the Make-Whole Price of such Notes, together with accrued interest, if
any, to the Prepayment Date.
SECTION 3.7. Prepayment Right of Holders Upon Change of Control. (a)
--------------------------------------------------
The Company covenants and agrees that, promptly after the occurrence of a Change
of Control but in any event within ten (10) days thereafter, it shall give
written notice thereof to each Holder of a Note. Such notice shall (a) describe
in reasonable detail the facts and circumstances giving rise to such Change of
Control and the effect thereof on the Company, (b) offer to purchase on a date
(the "Change of Control Prepayment Date") which shall be not less than thirty
(30) days nor more than sixty (60) days after the date of such notice, all of
the Notes held by such Holders, (c) request each such Holder to notify the
Company in writing, not less than ten (10) days prior to the Change of Control
Prepayment Date, of its acceptance or rejection of such offer and (d) inform
each such Holder that, upon its receipt of such notice by the Company, failure
to reject such offer in writing on or before the tenth day prior to the Change
of Control Prepayment Date shall be deemed acceptance of such offer. In the
event that the Holders of eighty-five percent (85%) of the outstanding principal
amount of the Notes accept or fail to reject the prepayment offer, the Company
may, but shall not be obligated to, require the remaining Holders to sell all
Notes held by them to the Company as set forth in the prepayment offer and will
notify the remaining Holders of such compelled sale not less than five Business
Days prior to the Change of Control Prepayment Date. The Company covenants and
agrees that it will on the Change of Control Prepayment Date prepay all of the
Notes held by each Holder who has accepted the prepayment offer and each Holder
who has been compelled to accept the prepay ment offer in accordance with
this Section 3.7, by payment of an amount equal to (i) with respect to any
Purchaser, (x) if the Mezzanine Return applicable to such Purchaser or Mezzanine
Security Transferee as of the date of the Change of Control is less than twenty
two percent (22.0%), 103.5% of the principal amount of the Notes being prepaid,
and (y) if the Mezzanine Return applicable to such Purchaser or Mezzanine
Security Transferee as of the date of the Change of Control is greater than or
30
equal to twenty two percent (22%), 100% of the principal amount of the Notes
being prepaid, and (ii) with respect to any Holder other than a Purchaser or a
Mezzanine Security Transferee, 100% of the principal amount of the Notes being
prepaid (each of (i)(x), (i)(y) and (ii), the "Put Purchase Price") together
with interest accrued thereon (if any) to the Change of Control Prepayment Date.
(b) On the Change of Control Prepayment Date, all Notes purchased by
the Company under this Section 3.8 shall be canceled, and the Company shall pay
the Put Purchase Price plus accrued and unpaid interest, if any, to the Holders
entitled thereto. The Company shall comply with Rule 14e-1 under the Exchange
Act (or any successor provision thereof) and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in the event that a Change of Control occurs under this Section 3.7 and the
Company is required to repurchase the Notes as described above; provided that,
--------
notwithstanding anything to the contrary contained in this Section 3.7, the
Company may modify any of the foregoing provisions of this Section 3.7 to the
extent it is advised by independent counsel that such modification is necessary
or appropriate in order to ensure any such compliance.
(c) If any event or circumstance has occurred which would, except for
the provision of notice by the requisite number of Investor Holders, constitute
a Change of Control pursuant to clause (ii) of the definition of "Change of
Control", the Company shall, promptly after the occurrence of such event or
circumstance but in any event within twenty (20) days thereafter, give written
notice thereof to each Holder of a Note.
SECTION 3.8. Allocation of Prepayments. In the event of any
-------------------------
prepayment of less than all of the outstanding Notes pursuant to Sections 3.5 or
3.6 hereof, the Company will allocate the principal amount so to be prepaid (but
only in units of $1,000) among the Holders of Notes in proportion, as nearly as
may be, to the respective unpaid principal amounts of the Notes held by them.
31
SECTION 3.9. Notice of Prepayment of the Notes. In the event that
---------------------------------
the Company intends to effect any prepayment pursuant to Sections 3.4, 3.5 or
3.6 hereof, the Company shall notify the Holders of the Notes being prepaid of
any date set for prepayment (each, a "Prepayment Date") at least five (5)
Business Days but not more than thirty (30) days prior to such Prepayment Date.
Once notice of prepayment of a Note is sent or mailed, such Note shall become
due and payable on the Prepayment Date. On the relevant Prepayment Date, such
Note shall be paid in full plus interest accrued to the Prepayment Date and any
premium required by Section 3.4, 3.5 or 3.6, as applicable, and immediately
after such payment, each Holder shall surrender each of its prepaid Notes to the
Company.
SECTION 3.10. Restrictions on Optional Prepayments.
------------------------------------
Notwithstanding anything in this Agreement to the contrary, the Company may not
make any optional prepayment on the Notes, whether pursuant to Section 3.4, 3.5
or 3.6 or otherwise, and whether in whole or in part, if such prepayment would
result in a Default (as defined in the Credit Agreement) or an Event of Default
(as defined in the Credit Agreement) under the Credit Agreement.
SECTION 3.11. Method of Payment on the Notes. The principal of,
------------------------------
premium, if any, and interest on the Notes shall be payable by check in New York
Clearing House Funds at the principal office of each of the Holders or, at each
Holder's option, by wire transfer in immediately available funds to the account
or accounts previously designated in writing by each of the Holders at least
three (3) Business Days prior to the due date.
ARTICLE IV
Covenants
---------
The Company covenants and agrees with each of the Holders as follows:
SECTION 4.1. Payment of the Notes. (a) The Company shall promptly
--------------------
pay the principal of and interest on the Notes on the date and in the manner
provided herein and in the Notes.
32
(b) The Company shall pay interest on overdue principal of and on
overdue installments of interest on the Notes in the manner provided in the
Notes.
SECTION 4.2. Limitation on Debt. (a) The Company shall not, and
------------------
shall not permit any of its Restricted Subsidiaries to, issue, directly or
indirectly, any Debt unless, after giving effect to the issuance of such Debt
and the receipt and application of the proceeds therefrom, the Consolidated
EBITDA Coverage Ratio exceeds the ratio indicated below for Debt issued in each
period indicated.
Period Ratio
------ -----
February 14, 1997 through December 31, 1998 1.90
January 1, 1999 through December 31, 1999 2.38
January 1, 2000 through December 31, 2000 2.61
on and after January 1, 2001 2.85
If the Company or any of its Restricted Subsidiaries proposes to
issue Debt pursuant to this Section 4.2(a), it shall furnish to the Holders of
the Notes at least five days prior to such issuance a calculation in reasonable
detail, certified by the chief financial officer, treasurer or controller of the
Company, demonstrating compliance with this Section 4.2(a).
(b) Notwithstanding Section 4.2(a), but subject to Section 4.2(c),
the Company and any of its Restricted Subsidiaries may issue the following
Debt:
(i) Debt issued pursuant to the Credit Agreement, Debt under the
Interest Rate Agreements required under Section 7.12 of the Credit
Agreement, Debt evidenced by the Notes, the Contingent Payment Notes and
the Contingent Payment Bonuses (as defined in the Main Transaction
Agreement) and Debt outstanding as of the Closing Date;
(ii) Debt issued in exchange for, or the net proceeds of which are
used to refund or refinance, any Debt permitted by this Section 4.2 (and
any refunding or refinancings thereof); provided that (A) the principal
--------
amount of such new Debt (or, if
33
such new Debt provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration thereof, the
original issue price of such new Debt) so issued, shall not exceed the sum
of (x) the aggregate principal amount (plus premiums, accrued interest,
fees and expenses and all other amounts payable in connection therewith)
of the Debt so exchanged, refunded or refinanced, plus, with respect to
refinancings of the Credit Agreement, the aggregate unused commitment
thereunder, plus (y) $10,000,000 plus (z) any fees and expenses incurred in
connection with the issuance of such new Debt; (B) such new Debt (other
than any Debt issued in exchange for, or the net proceeds of which are used
to refund or refinance, any Senior Debt) (1) shall not mature prior to the
Stated Maturity of the Debt so exchanged, refunded or refinanced (for
purposes of this section, prepayment offers required by, and made in
accordance with, the terms and conditions of the agreement governing such
new Debt upon the occurrence of any "change of control" (as defined in the
agreement governing such new Debt) shall not be deemed to effect the Stated
Maturity of such new Debt), and (2) shall have an Average Life equal to or
greater than the remaining Average Life of the Debt so exchanged, refunded
or refinanced; (C) unless such new Debt is Senior Debt, such new Debt shall
not expressly prohibit mandatory payments of the Notes or distributions
from any Subsidiary of the Company to the Company to permit the Company to
make such payments, absent an event of default under the agreement
governing such new Debt; and (D) any Debt issued under this subsection in
exchange for, or the net proceeds of which are used to refund or refinance,
any Non-Recourse Debt must also be Non-Recourse Debt; provided, however,
-------- -------
that the foregoing proviso shall not apply to Debt issued to refund,
refinance or replace all Notes then outstanding;
(iii) Debt owed to and held by a Wholly Owned Subsidiary of the
Company, or Debt owed to and held by the Company or any of its Wholly Owned
Subsidiaries; provided that any subsequent issuance or transfer of any
--------
Capital Stock that results in any such Wholly Owned Subsidiary ceasing to
be a Wholly Owned Subsidiary of the Company or any subsequent transfer
34
of such Debt (other than to the Company or a Wholly Owned Subsidiary of the
Company) shall be deemed, in each case, to constitute the issuance of such
Debt by the Company;
(iv) Debt (A) incurred in respect of performance, surety or appeal
bonds provided in the ordnary course of business, (B) incurred under
Hedging Obligations, provided that such agreements do not increase the Debt
of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder, and (C)
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of the
Company or any Restricted Subsidiary of the Company pursuant to such
agreements, in any case issued in connection with the disposition of any
business, assets or Restricted Subsidiary of the Company (other than
guarantees of Debt issued by any Person acquiring all or any portion of
such business, assets or Restricted Subsidiary of the Company for the
purpose of financing such acquisition);
(v) Debt in respect of letters of credit and bankers' acceptances
incurred in the ordinary course of business;
(vi) Acquired Debt;
(vii) Debt issued to finance, directly or indirectly, capital
expenditures of the Company and its Restricted Subsidiaries in an aggregate
principal amount, with respect to each fiscal year, not to exceed the
amount set forth below with respect to such fiscal year (with each such
period being adjusted to correspond to the Borrower's actual fiscal year):
35
Amount Period
------ ------
$ 500,000 From the Closing Date to March 31, 1997
$3,000,000 FYE March 31, 1998
$3,500,000 FYE March 31, 1999
$4,000,000 FYE March 31, 2000
$4,250,000 FYE March 31, 2001
$4,500,000 FYE March 31, 2002
$5,000,000 FYE March 31, 2003
$5,500,000 FYE March 31, 2004;
provided that the amount of Debt which may be issued in any fiscal year of
--------
the Company pursuant to this clause (vii) shall be increased by the amount
of Debt (other than refinancing Debt) which could have been issued in the
prior fiscal year (including by reason of this proviso) of the Company
pursuant to this clause (vii) but which was not so issued;
(viii) Debt represented by the obligations of the Company or any of
its Restricted Subsidiaries to repurchase shares, or cancel or repurchase
options to purchase shares, of the Company's capital stock held by
employees of the Company or any of its Restricted Subsidiaries as set
forth in the agreements under which such employees purchase or hold shares
of the Company's capital stock (as such agreements may be amended),
including, without limitation, the Stockholders Agreement;
(ix) Non-Recourse Debt in an aggregate principal amount not in
excess of $5,000,000; and
(x) In addition to the Debt permitted by clauses (i) through (ix) of
this Section 4.2(b) and by Section 4.2(a) above, Debt in an aggregate
outstanding principal amount which is not at any time in excess of
$5,000,000.
For purposes of clause (ii), Debt may be incurred in exchange for, or to refund
or refinance, operating leases in existence on the date hereof, notwithstanding
the fact that such operating leases do not constitute "Debt", so long as the
incurrence of such Debt would have been permitted under such clause (ii) had the
operating lease in question been a Capital Lease.
36
(c) Notwithstanding the provisions of Section 4.2(b) above, the
Company and its Restricted Subsidiaries shall not issue any Debt pursuant to
Section 4.2(b)(ii) above (A) if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Obligations, unless the provisions of such Debt contain
subordination provisions which, in the aggregate, subordinate such Debt to the
Notes in substantially the same manner as such Subordinated Obligations were
subordinated to the Notes (or in a manner which is more subordinated than such
Subordinated Obligations) or (B) if such Debt is subordinate or junior in any
respect to any Senior Debt, unless such Debt either specifically provides that
such Debt is to rank Pari Passu with the Notes or is expressly subordinated in
---- -----
right of payment to the Notes (provided that, with respect to the provisions of
--------
this clause (B), no effect shall be given to any distinctions between different
categories of unsubordinated Debt which might otherwise exist by reason of (x)
any liens or other encumbrances arising or created in respect of some but not
all unsubordinated Debt, (y) intercreditor agreements between holders of
different classes of unsubordinated Debt or (c) different maturities or
prepayment provisions on any such unsubordinated Debt). Notwithstanding
anything to the contrary set forth in this Section 4.2, the maximum amount of
Debt that the Company or any Restricted Subsidiary may issue pursuant to this
Section 4.2 shall not be deemed to be exceeded due solely to fluctuations in the
exchange rates of currencies. In addition, neither the Company nor any
Restricted Subsidiary shall issue any Secured Debt (other than Debt incurred
pursuant to clauses (i), (ii), (iv), (v), (vi), (vii) and (ix) of Section
4.2(b) above) which is not Senior Debt, unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with such
Secured Debt, to the reasonable satisfaction of Holders of the Notes holding at
least a majority of the outstanding principal amount of the Notes, for so long
as such Secured Debt is secured by a Lien. All references in this Section 4.2
to the principal amount of any Debt shall be deemed, with respect to any Debt
which is Preferred Stock, to refer to the liquidation value of such Preferred
Stock.
SECTION 4.3. Limitation on Restricted Payments. (a) The Company
---------------------------------
shall not, and shall not permit
37
any of its Restricted Subsidiaries to directly or indirectly (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of its Capital
Stock (except dividends or distributions payable solely in its Non-Convertible
Capital Stock or in options, warrants or other rights to purchase its Non-
Convertible Capital Stock and except dividends or distributions payable to the
Company or any of its Restricted Subsidiaries), (ii) purchase, redeem or
otherwise acquire or retire for value any Capital Stock of the Company from any
stockholder of the Company (other than any Restricted Subsidiary of the Company)
other than any purchase, redemption or acquisition of Mezzanine Shares and/or
Mezzanine Warrants made in connection with a prepayment of Notes pursuant to
Section 3.5, (iii) purchase, repurchase, redeem, defease or otherwise acquire
or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of acquisition,
and other than the mandatory purchase, repurchase, redemption or acquisition of
Subordinate Obligations), or (iv) make any Investment in any Affiliate of the
Company, other than any of its Restricted Subsidiaries (after giving effect to
such Investment) and other than in any directors, officers or employees of the
Company or any of its Restricted Subsidiaries (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition, retirement or
Investment being herein referred to as a "Restricted Payment") if at the time
of and after giving effect to such Restricted Payment (the amount of any such
Restricted Payment, if other than cash, as determined by the Board of Directors
of the entity making such Restricted Payment, whose determination shall be
conclusive and evidenced by a Board Resolution):
(x) a Default or Event of Default shall have occurred and be
continuing (or would result there from), or
38
(y) the aggregate amount expended for all Restricted Payments, other
than those Restricted Payments permitted pursuant to clauses (i), (ii), (iii),
(vi), (viii), (ix) and (x) of Section 4.3(b) hereof (the amount so expended, if
other than in cash, to be determined in good faith by the Board of Directors of
the Company, whose determination shall be conclusive and evidenced by a Board
Resolution), after the date of this Agreement shall exceed the sum, without
duplication, of:
(1) fifty percent (50%) of the aggregate amount of the
Consolidated Net Income (or, if the Consolidated Net Income is a loss,
minus 100% of the aggregate amount of the Consolidated Net Income) of the
-----
Company (determined by excluding income resulting from the transfers of
assets received by the Company or a Restricted Subsidiary from an
Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on the first day of the quarter
immediately following the Closing Date and ending on the last day of the
last fiscal quarter preceding the date of determination, plus
----
(2) the aggregate net proceeds (including the fair market value
of noncash proceeds as determined in good faith by the Board of Directors
of the Company) received by the Company from the issuance and sale
permitted by this Agreement of the Capital Stock of the Company (other than
Redeemable Stock), except to the extent such proceeds are applied pursuant
to and in the manner provided in the provisions of Section 4.3(b)(i)
hereof, to a Person who is not a Restricted Subsidiary of the Company or an
Unrestricted Subsidiary of the Company, including an issuance or sale
permitted by this Agreement for cash or other property upon the conversion
of any Debt of the Company subsequent to the Closing Date, or from the
issuance of any options, warrants or other rights to acquire Capital Stock
of the Company (in each case, exclusive of any Redeemable Stock or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of
the Notes), plus
----
39
(3) the amount by which Debt of the Company or any of its
Restricted Subsidiaries is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the issuance of Debt of the Company or any of its Restricted
Subsidiaries convertible or exchangeable for Capital Stock (other than
Redeemable Stock) (less the amount of any cash or the value of any other
property of the Company or any Restricted Subsidiary distributed by the
Company or any Restricted Subsidiary upon such conversion or exchange),
plus
----
(4) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries (other than such Investments made pursuant to
clause (iii) of the second paragraph of Section 4.3(b)) resulting from
payments of interest on Debt, dividends, repayments of loans or advances,
or other transfers of assets, in each case to the Company or any Restricted
Subsidiary from Unrestricted Subsidiaries, or from redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case
as provided in the definition of "Investments"), plus
----
(5) $2,750,000.
(b) The provisions of Section 4.3(a) shall not prohibit:
(i) any purchase, redemption or other acquisition of Capital Stock
or Debt of the Company or any of its Restricted Subsidiaries made in
exchange for, or out of the proceeds of a substantially concurrent sale of,
Capital Stock of the Company (other than Redeemable Stock or Exchangeable
Stock);
(ii) any purchase, redemption or other acquisition of Debt of the
Company or any of its Restricted Subsidiaries made in exchange for, or out
of the proceeds of a substantially concurrent sale of, Debt of the Company
which is permitted to be issued pursuant to Section 4.2;
40
(iii) the making of Investments in Unrestricted Subsidiaries of the
Company in an aggregate amount not to exceed $1,000,000 in each fiscal
year;
(iv) dividends paid within sixty (60) days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this Section;
(v) provided that no Event of Default has occurred and is continuing,
the payment of dividends on the Capital Stock of the Company, following any
public offering of Capital Stock of the Company, of up to six percent (6%)
per annum of the net proceeds thereof received by the Company (provided
that the Company has prepaid or acquired, either pursuant to the provisions
of Section 3.7 hereof or otherwise, at least thirty percent (30%) of the
aggregate principal amount of the Notes outstanding on the Closing Date);
(vi) payments to the Company in respect of Debt of any Restricted
Subsidiary of the Company owed to the Company, or payments to any
Restricted Subsidiary of the Company in respect of Debt of the Company or
another Restricted Subsidiary owed to such Restricted Subsidiary;
(vii) any purchases of Capital Stock made by the Company from
employees or their legal representatives in connection with retirements
of, or terminations of employment of, employees;
(viii) any purchases of Capital Stock of the Company from the
Company's employee stock ownership plan or the estate of any Person who was
a member of management or an employee of the Company with the proceeds of
life insurance purchased by the Company on the life of such Person;
(ix) payment of the Deferred Payment Amount pursuant to, and in
accordance with, Section 2.6 of the Main Transaction Agreement and the
terms of the Deferred Purchase Price Agreement (as defined in the Main
Transaction Agreement);
41
(x) distribution of the Installment Amount pursuant to, and in
accordance with, Section 2.7 of the Main Transaction Agreement and the
terms of the Escrow Agreement (as defined in the Main Transaction
Agreement); and
(xi) payments or distributions pursuant to or in connection with a
consolidation, merger or other transaction that complies with the
provisions of Article II hereof.
SECTION 4.4. Limitation on Restrictions on Distributions from
------------------------------------------------
Subsidiaries of the Company. The Company shall not, and shall not permit any of
---------------------------
its Restricted Subsidiaries to, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or consensual restriction on the
ability of any such Restricted Subsidiary to (a) pay dividends or make any other
distributions on its Capital Stock or pay any Debt or other obligation owed to
the Company or any other Restricted Subsidiary of the Company, (b) make any
loans or advances to the Company or any other Restricted Subsidiary of the
Company or (c) transfer any of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Closing Date (including those arising under or
relating to the Credit Agreement) and any refinancing or refunding thereof
permitted pursuant to Section 4.2 hereof;
(2) any encumbrance or restriction with respect to a Subsidiary of
the Company pursuant to an agreement relating to any Acquired Debt of such
Subsidiary;
(3) any encumbrance or restriction pursuant to an agreement effecting
a refinancing of Debt issued pursuant to an agreement referred to in clause
(1) or (2) of this Section or contained in any amendment to an agreement
referred to in clause (1) or (2) of this Section; provided that the
--------
encumbrances and restrictions contained in any such refinancing agreement
or amendment are, in the determination of the Board of Directors of the
relevant entity, whose determination shall be conclusive and evidenced by a
42
Board Resolution, in the aggregate, not materially less favorable to the
Holders of the Notes than encumbrances and restrictions contained in such
agreements;
(4) in the case of Section 4.4(c) above, any encumbrances or
restrictions (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue
of any transfer of, agreement to transfer, option or right with respect to,
or Lien on, any property or assets of the Company or any of its Restricted
Subsidiaries not otherwise prohibited by this Agreement, (C) arising or
agreed to in the ordinary course of business and that do not, individually
or in the aggregate, detract from the value of property or assets of the
Company or any of its Restricted Subsidiaries in any manner material to the
Company and its Restricted Subsidiaries taken as a whole or (D) on any
property or assets of any Restricted Subsidiary substantially all of whose
assets are secured by Liens not otherwise prohibited by this Agreement;
(5) in the case of Section 4.4(c) above, any restrictions contained
in security agreements or mortgages securing Debt of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages; and
(6) any restriction with respect to a Restricted Subsidiary of the
Company imposed pursuant to an agreement that has been entered into for the
sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary.
SECTION 4.5. Limitation on Transactions with Affiliates. (a) The
------------------------------------------
Company shall not, and shall not permit any of its Subsidiaries to, conduct any
business or enter into any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) or series of related
transactions with any Affiliate of the Company or any owner of five percent (5%)
or more of any class of Capital Stock of the Company
43
or with an Affiliate of any such owner (other than a Subsidiary of the Company
or any employee stock ownership plan for the benefit of the Company's or any of
its Subsidiaries' directors, officers or employees) unless the terms of such
business, transaction or series of transactions are (i) set forth in writing,
(ii) on terms and conditions that are not materially less favorable to the
Company or such Subsidiary than those terms and conditions that would be
obtainable at the time for a comparable transaction or series of similar
transactions in arm's-length dealings with an unrelated third Person and (iii)
if the amount involved in any transaction or series of similar transactions is
in excess of $500,000 in any one instance or are in excess of $1,000,000 in
aggregate over any one-year period, the disinterested members of the Board of
Directors have, by a Board Resolution, determined in good faith that the
criteria set forth in clause (ii) are satisfied.
(b) The provisions of Section 4.5(a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to Section 4.3, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options, stock appreciation rights, stock ownership and similar benefit plans
approved by the Board of Directors, (iii) compensation and benefit arrangements,
and loans and advances to officers and employees, in the ordinary course of
business based on past practice, (iv) the payment of reasonable fees and
expenses to directors of the Company and its Subsidiaries who are not employees
of the Company or its Subsidiaries, (v) any transaction between the Company and
a Subsidiary of the Company or between Subsidiaries of the Company, (vi) any
payments or other transactions pursuant to any tax-sharing agreement between the
Company and any other Person with which the Company files a consolidated tax
return or with which the Company is part of a consolidated group for tax
purposes, (vii) any transaction determined by a nationally recognized
investment banking firm or a nationally recognized accounting firm to be reason
able or fair to the Company or any of its Subsidiaries which is a party thereto,
(viii) any amendment, modification, extension or renewal of any of the
foregoing arrangements; provided that the provisions of any such
--------
amendment, modification, extension or renewal are (1) approved by the
disinterested members of the Board of
44
Directors or (2) determined by a nationally recognized investment banking firm
or a nationally recognized accounting firm to be reasonable or fair to the
Company or any of its Subsidiaries which is a party thereto, (ix) any fees,
expenses or indemnities payable by the Company to Windward pursuant to the terms
of that certain letter agreement, dated of even date herewith, between the
Company and Windward, and (x) any fees, expenses or indemnities payable by the
Company to Windward pursuant to the terms of the Financial Advisory Services
Agreement or any similar agreement entered into after the date of this Agreement
between the Company and Windward.
SECTION 4.6. Foreign Investment in Real Property Tax Act of 1980
----------------------------------------------------
("FIRPTA"). The Company shall not become a "United States real property holding
----------
corporation" within the meaning of Section 897(c)(2) of the Code, except where
it has obtained the prior written consent of Windward/Merban.
SECTION 4.7. Notice of Default. The Company will furnish to each of
-----------------
the Holders of the Notes, within thirty (30) days following the date in which
the Company becomes aware of the existence of any condition or event which
constitutes a Default or an Event of Default, written notice specifying the
nature and period of existence thereof and the action which the Company is
taking or proposes to take with respect thereto.
SECTION 4.8. Authorizations and Approvals. The Company will promptly
----------------------------
make or obtain, from time to time at its own expense, all such governmental
notices, filings, licenses, authorizations, consents, permits and approvals as
may be required to enable it to comply with obligations hereunder and under the
Notes.
SECTION 4.9. Provision of Periodic Financial Information. The
-------------------------------------------
Company shall keep adequate records and books of account with respect to its
business activities in which proper entries are made in accordance with
generally accepted accounting principles reflecting its financial transactions;
and cause to be prepared and furnished to the Holders of the Notes the following
(all to be prepared in accordance with generally accepted accounting principles
applied on a consistent basis, unless the Company's certified public accountants
concur
45
in any change therein and such change is consistent with generally accepted
accounting principles):
(a) not later than 120 days after the close of each fiscal year of
the Company, audited financial statements of the Company and its Subsidiaries
as of the end of such year, on a consolidated and consolidating basis,
certified, in the case of the consolidated statements, by Coopers & Xxxxxxx
L.L.P., or another firm of independent certified public accountants of
recognized standing selected by the Company;
(b) not later than sixty (60) days after the end of each quarterly
accounting period of the Company, unaudited interim financial statements of the
Company and its Subsidiaries as of the end of such period and of the portion of
the Company's financial year then elapsed, on a consolidated basis, certified by
the chief financial officer or treasurer of the Company as prepared in
accordance with generally accepted accounting principles and fairly presenting
in all material respects the consolidated financial position and results of
operations of the Company and its Subsidiaries for such period subject only to
changes from audit and year-end adjustments and except that such statements need
not contain notes;
(c) promptly after the sending or filing thereof, as the case may be,
copies of any proxy statements, financial statements or reports which the
Company has made available to its shareholders generally and copies of any
regular, periodic and special reports or registration statements which the
Company files with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national securities
exchange;
(d) concurrently with the delivery of the financial statements
described in clauses (a) and (b) of this Section 4.11, a certificate of the
Company's chief financial officer, treasurer or controller certifying as to the
Company's compliance with each of the provisions of this Article IV and
illustrating such compliance, with such calculations and other details as may be
reasonably requested by any Holder; and
46
(e) such other information as any Holder, from time to time, may
reasonably request, relating to the Company or its Subsidiaries.
ARTICLE V
Events of Default; Remedies
---------------------------
SECTION 5.1. Events of Default. An "Event of Default" occurs if:
-----------------
(a) the Company defaults in the payment of any interest on any of the
Notes when the same becomes due and payable, whether or not such payment
shall be prohibited by Article VI, and such default continues for fifteen
(15) days; or
(b) the Company defaults in the payment of the principal of any of
the Notes when the same becomes due and payable at the stated maturity,
upon redemption, upon acceleration or otherwise, whether or not such
payment shall be prohibited by Article VI; or
(c) the Company fails to comply with any of the provisions applicable
to it under Article II of this Agreement; or
(d) the Company fails to comply with any of the other provisions
applicable to it under the Notes or as otherwise set forth in this
Agreement (other than as specifically provided in the other clauses of this
Section 5.1) and in each case the failure continues for thirty (30) days;
or
(e) an event of default occurs under any instrument under which
there may be issued, or by which there may be secured or evidenced, any
Debt of the Company or any of its Restricted Subsidiaries which is a
Significant Subsidiary resulting in the acceleration of such Debt, or any
default occurs in payment of any such Debt on the final maturity date
thereof, including pursuant to any mandatory redemption or prepayment
provision, beyond any applicable grace period, if the total of all such
Debt which has been so accelerated and any additional Debt which has not
been paid on the final maturity date
47
thereof shall exceed $5 million, and there shall have been a failure to
obtain rescission or annulment of all such accelerations or to pay in full
the amount in default (together with any applicable interest); or
(f) the Company or any of its Significant Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it in
an involuntary case;
(iii) consents to the appointment of a Custodian of it or for
any substantial part of its property; or
(iv) makes a general assignment for the benefit of its
creditors; or
(g) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any of its Significant
Subsidiaries in an involuntary case;
(ii) appoints a Custodian of the Company or any of its
Significant Subsidiaries or for any substantial part of its property;
or
(iii) orders the winding up or liquidation of the Company or
any of its Significant Subsidiaries,
and the order or decree remains unstayed and in effect for sixty (60) days;
or
(h) any judgment or decree for the payment of money in excess of $5
million or its foreign currency equivalent at the time is entered against
the Company or any of its Significant Subsidiaries and is not discharged
and either (i) an enforcement proceeding has been commenced by any
creditor upon such judgment or decree or (ii) there is a period of
48
sixty (60) days following the entry of such judgment or decree during which
such judgment or decree is not discharged, waived or the execution thereof
stayed; or
(i) the Company, at any time, fails to comply with Section 4.6
hereof.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
A default under clauses (c) or (d) above shall not constitute an Event
of Default until the Holders of a majority in principal amount of the Notes
notify the Company of the default and the Company does not cure the default
within thirty (30) days after receipt of such notice. The notice must specify
the Default and demand that it be remedied.
SECTION 5.2. Acceleration. If an Event of Default (other than an
------------
Event of Default specified in Section 5.1(f) or (g) with respect to the Company)
occurs and is continuing, the Holders of a majority of the principal amount of
the Notes at the time outstanding, by notice to the Company, may declare the
principal of and accrued interest on all the Notes to be due and payable.
Subject to the provisions of Article VI, upon such a declaration such principal
and interest shall be due and payable immediately. If an Event of Default
specified in Section 5.1(f) or 5.1(g) with respect to the Company occurs and is
continuing, then the principal of all of the Notes shall ipso facto become and
---- -----
be immediately due and payable without any declaration or other act on the part
of any Holder of the Notes. The Holders of a majority in principal amount of
the Notes by notice to the Company may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or inter est that has become due solely because of
acceleration. In the event of a declaration of acceleration because an Event of
Default set forth in clause (e), (h) or (i) above has occurred and is
continuing, such declaration of
49
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (e), (h) or (i)
shall be remedied, cured by the Company or waived by the holders of the relevant
Debt within sixty (60) days after the declaration of acceleration with respect
thereto.
SECTION 5.3. Rights and Remedies Cumulative. No right or remedy
------------------------------
herein conferred upon or reserved to the Holders of the Notes is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent or subsequent assertion or
employment of any other appropriate right or remedy.
SECTION 5.4. Delay or Omission Not Waiver. No delay or omission of
----------------------------
the Holders of the Notes to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein. Every right and remedy given
by this Article V or by law to the Holders of the Notes may be exercised from
time to time, and as often as may be deemed expedient, by the Holders of the
Notes.
SECTION 5.5. Waiver of Stay or Extension Laws. The Company covenants
--------------------------------
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of any
Note; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Holder but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 5.6. Waiver of Past Defaults. The Holders of a majority of
-----------------------
the principal amount of the Notes then outstanding by notice to the Company may
waive any existing Default or Event of Default and its conse-
50
quences except a Default or Event of Default arising out of or related to
Section 5.1(a) or (b); provided that Windward/Merban or any Affiliate thereof
--------
may by itself waive any existing Default or Event of Default arising out of or
relating to Section 5.1(i) hereof and its consequences. A Default or Event of
Default and its consequences arising out of or related to Section 5.1(a) or (b)
may be waived only by all of the Holders of the Notes then outstanding by notice
to the Company. When a Default or Event of Default is waived, it is deemed
cured, but no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any consequent right.
SECTION 5.7. Rights of Holders To Receive Payment. Notwithstanding
-------------------------------------
any other provision of this Agreement or the Notes other than Article VI
hereof, the right of any Holder to receive payment of principal of, premium, if
any, and interest on the Notes held by such Holder, on or after the respective
due dates expressed in the Notes, or to bring suit for the enforcement of any
such payment on or after such respective dates, shall not be affected without
the consent of such Holder.
ARTICLE VI
Subordination
-------------
SECTION 6.1. Agreement To Subordinate. The Company agrees, and each
------------------------
Holder of the Notes by accepting a Note agrees, that the indebtedness incurred
under this Agreement or evidenced by the Notes, including without limitation all
indemnification obligations of the Company under Article XI, is subordinated in
right of payment, to the extent and in the manner provided in this Article VI,
to the prior payment in full in cash of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt, and only
indebtedness of the Company which is Senior Debt shall rank senior to the Notes
(and in such case only to the extent and on the terms and conditions set forth
herein).
SECTION 6.2. Liquidation, Dissolution, Bankruptcy. Upon any
-------------------------------------
distribution to creditors of the Company in a liquidation or a total or partial
dissolution of the Company or in a bankruptcy, reorganization, insolven-
51
cy, receivership or similar proceeding relating to the Company or its property:
(1) holders of Senior Debt shall be entitled to receive payment in
full in cash of the Senior Debt or provisions satisfactory to the holders
of Senior Debt shall be made for such payment before the Holders of the
Notes shall be entitled to receive any payment of principal of or interest
on the Notes or in respect of any other obligation arising under this
Agreement; and
(2) until the Senior Debt is paid in full, in cash, any distribution
to which the Holders of the Notes would be entitled but for this Article VI
shall be made to holders of Senior Debt as their interests may appear,
except that the Holders of the Notes may receive securities that are
subordinated to Senior Debt to at least the same extent as the Notes.
SECTION 6.3. Default on Senior Debt. If any Senior Debt is not paid
----------------------
when due and such default is not cured or waived in writing and the holder of
such Senior Debt has not waived in writing the benefits of this sentence, the
Company may not pay principal of or interest on the Notes or make any payment
in respect of any other obligation arising under this Agreement or acquire or
redeem any Notes for cash or property other than Capital Stock of the Company
or securities that are subordinated to Senior Debt to at least the same extent
as the Notes unless and until such default shall have been cured or waived in
writing or shall have ceased to exist or such Senior Debt shall have been
discharged in accordance with its terms or the holders of such Senior Debt shall
have waived in writing the benefit of this sentence, after which the Company
shall resume making any and all required payments in respect of the Notes
including any missed payments. (Such period during which such payments,
acquisitions and redemptions are prohibited being hereinafter referred to as a
"Payment Default Blockage Period"). In addition, during the continuance of any
other event of default with respect to any Senior Debt pursuant to which the
maturity thereof may be accelerated immediately without further notice (except
such notice as may be required to effect such acceleration) or the expiration of
any applicable grace periods, upon the
52
receipt by the Company of written notice thereof from or on behalf of the
holders of at least a majority of the principal amount of such Senior Debt
(taken together as one class) or the Agent on behalf of such holders of Senior
Debt, the Company may not pay principal of or interest on the Notes or make any
payment in respect of any other obligation arising under this Agreement or
acquire or redeem any Notes for cash or property other than Capital Stock of the
Company or securities that are subordinated to Senior Debt to at least the same
extent as the Notes for a period (the "Non-Monetary Default Blockage Period")
commencing on the date of receipt of such notice until the earliest of (x) 180
days thereafter (or, if the holders of the Senior Debt are then stayed from
exercising remedies under the Credit Agreement until the earlier of 240 days
thereafter or the expiration of such stay), (y) the date, if any, on which the
Senior Debt to which such event of default relates is discharged in accordance
with its terms or such event of default is waived in writing by the holders of
such Senior Debt or otherwise cured and (z) the date, if any, on which such Non-
Monetary Default Blockage Period shall have been terminated by written notice to
the Company from or on behalf of such holders of Senior Debt or the Agent on
behalf of such holders of Senior Debt, after which, in the case of clause (x),
(y) or (z), the Company shall, subject to the first sentence of this Section
6.3, resume making any and all required payments in respect of the Notes,
including any missed payments; provided that nothing in this Section shall have
--------
any effect on the rights of the Holders of the Notes to accelerate the maturity
of the Notes pursuant to Section 5.2 (except to the extent otherwise provided in
Section 6.4 below); and provided, further, that, subject to the first sentence
-------- -------
of this Section 6.3, nothing in this sentence shall prevent payment by the
Company on the Notes after 180 days (or up to 240 days, in the circumstances
described above) have passed following notice in writing to the holders of
Senior Debt of such acceleration pursuant to Section 6.4. No more than one
notice of a Non-Monetary Default Blockage Period may be given by or on behalf
of the holders of any Senior Debt or the Agent on behalf of such holders of
Senior Debt in any 365 day period and no more than four (4) such notices in the
aggregate may be given by or on behalf of such holders after the date hereof.
Notwithstanding anything in this Agreement to the contrary, there must be 120
consecutive days in any 365-day period
53
in which no Non-Monetary Default Blockage Period is in effect. No event of
default (other than an event of default arising under the Credit Agreement) that
existed or was continuing (it being acknowledged that any subsequent action
that would give rise to an event of default pursuant to any provision under
which an event of default previously existed or was continuing shall constitute
a new event of default for this purpose) on the date of commencement of any Non-
Monetary Default Blockage Period with respect to the Senior Debt initiating such
Non-Monetary Default Blockage Period shall be, or shall be made, the basis for
the commencement of a second Non-Monetary Default Blockage Period by the
representative for, or the holders of, such Senior Debt whether or not within a
period of 365 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than ninety (90) consecutive days.
SECTION 6.4. Acceleration of Payment of Notes and Exercise of
------------------------------------------------
Remedies. Until the Senior Debt shall have been paid in full, in the event
--------
that, and during the continuance of any Event of Default described in Article V
hereof, all or any portion of the unpaid principal amount of the Notes shall
have been declared due and payable pursuant to the provisions of Article V
hereof, such declarations shall not be effective until the earliest of (i) the
date on which an Event of Default under Section 5.1(f) or (g) with respect to
the Company has occurred, or (ii) the date on which the maturity of any Senior
Debt under the Credit Agreement is accelerated, or (iii) sixty (60) days after
the date of such declaration.
SECTION 6.5. When Distribution Must Be Paid Over. In the event that
-----------------------------------
any Note is declared due and payable before its Stated Maturity, then no payment
or distribution of any kind or character shall be made in respect of such Note
and the holders of the Senior Debt outstanding at the time of such declaration
shall be entitled to receive payment in full in cash of all amounts due
(including by reason of acceleration), or appropriate provision satisfactory to
the holders of such Senior Debt shall be made for such payment, before the
Holder of any Note is entitled to receive any payment or distribution of any
kind or character (including any payment which may be payable by reason of the
payment of any other Debt of the Company being subordinate to the payment of the
Notes by the Company). Notwithstanding
54
the foregoing, if a distribution is made to the Holders of the Notes that
pursuant to this Article VI should not have been made to them, the Holders of
the Notes who receive the distribution shall hold it in trust for holders of
Senior Debt and pay it over to them as their interests may appear, provided that
the holders of Senior Debt seeking such payment notify the Holders within sixty
(60) days of the Holders' receipt thereof that such payment should not have
been made.
SECTION 6.6. Subrogation. After all Senior Debt is paid in full and
-----------
until the Notes are paid in full, the Holders of the Notes shall be subrogated
(pro rata with the holders of all Debt of the Company and its Subsidiaries
---- ----
which, by its express terms, ranks Pari Passu with the Notes and is entitled to
---- -----
like rights of subrogation) to the rights of holders of Senior Debt to receive
the payments or distributions applicable to the Senior Debt. Any payment or
distribution made under this Article VI to holders of Senior Debt which
otherwise would have been made to the Holders of the Notes except for the
provisions of this Article VI shall, as between the Company, its creditors
(other than the holders of the Senior Debt) and the Holders of the Notes, be
deemed to be a payment by the Company to or on account of the Senior Debt, and
no payments or distributions to the holders of the Notes of cash, property or
securities by virtue of the subrogation herein provided shall, as between the
Company, its creditors (other than the holders of the Senior Debt) and the
Holders of the Notes, be deemed to be a payment to or on account of the Notes,
it being understood that the provisions of this Article VI are and are intended
solely for the purpose of defining the relative rights of the holders of the
Notes on the one hand and the holders of Senior Debt on the other.
SECTION 6.7. Relative Rights. This Article VI defines the relative
---------------
rights of the Holders of the Notes and holders of Senior Debt. Nothing in this
Agreement shall:
(1) impair, as between the Company and the Holders of the Notes, the
obligations of the Company, which are absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms
(provided, however, that this provision is not intended to limit the
restrictions
55
on payments on the Notes set forth in Section 6.3 hereof); or
-----------
(2) prevent any Holder of the Notes from exercising its available
remedies upon a Default or an Event of Default, subject to the rights of
holders of Senior Debt to receive distributions otherwise payable to the
Holders of the Notes (provided, however, that this provision is not
intended to limit the provisions of Section 6.4).
If the Company fails because of this Article VI to pay principal of or
interest on a Note on the due date, the failure is still an Event of Default.
SECTION 6.8. Subordination May Not Be Impaired by Company. No right
--------------------------------------------
of a holder of Senior Debt to enforce the subordination of the indebtedness
evidenced by the Notes shall be impaired by any act or failure to act by the
Company or by its failure to comply with this Agreement.
SECTION 6.9. Reinstatement. If, at any time, all or part of any
-------------
payment with respect to Senior Debt previously made by the Company or any other
Person is rescinded for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy or reorganization of the Company or such other
Person), the subordination provisions set forth herein shall continue to be
effective or be reinstated, as the case may be, all as though such payment had
not been made.
SECTION 6.10 Proofs of Claim. If, while any Senior Debt is
---------------
outstanding, any Event of Default under Section 5.1(f) or (g) with respect to
the Company only of this Agreement occurs, each Holder of a Note shall, to the
extent permitted by applicable law, duly and promptly take such action as the
Agent may reasonably request to collect any payment hereunder to which the
holders of Senior Debt may be entitled hereunder or under the Notes, and to file
appropriate claims or proofs of claim in respect of this Agreement and the
Notes. Upon the failure of any Holder of a Note to take any such action, the
Agent is hereby irrevocably authorized and empowered (in its own name or
otherwise and to the extent permitted by applicable law), but shall have no
obligation, to demand, use, collect and receive every payment or distribution
56
referred to hereunder and under any such Note and to file claims and proofs of
claim with respect to this Agreement and the Notes and the Holders of the Notes
hereby appoint the Agent as attorney-in-fact for such Holders of the Notes to
take any and all actions permitted by this paragraph to be taken by such Holders
of the Notes; provided, however, that the Agent shall only be permitted to file
-------- -------
such proofs of claim upon notice to each Holder and to the extent that the
Holders have failed to make such filings by the date which is ten (10) days
prior to the last date on which such Holders are permitted to make such filings
as a matter of applicable Bankruptcy Law.
SECTION 6.11 Non-Impairment. The Holders of the Notes agree and
--------------
consent that, without notice to or assent by them, and without affecting the
liabilities and obligations of the Company and the rights and benefits of the
holders of the Senior Debt set forth in this Article VI:
(1) the obligations and liabilities of the Company and any other party
or parties for or upon the Senior Debt may, from time to time, be increased,
renewed, refinanced, extended, modified, amended, restated, compromised,
supplemented, terminated, waived or released;
(2) the holders of Senior Debt, and any representative or
representatives acting on behalf thereof, may exercise or refrain from
exercising any right, remedy or power granted by or in connection with any
agreements relating to the Senior Debt; and
(3) any balance or balances of funds with any holder of Senior Debt at
any time outstanding to the credit of the Company may, from time to time, in
whole or in part, be surrendered or released, all as the holders of any Senior
Debt, or any representative or representatives acting on behalf thereof, may
deem advisable, and all without impairing, abridging, diminishing, releasing or
affecting the subordination of the Notes to the Senior Debt.
SECTION 6.12 No Modification. The provisions of this Article VI and
---------------
the defined terms used in this Article VI are for the benefit of the holders
from time to time of Senior Debt and, so long as any Senior Debt or
57
any commitments with respect thereto remain outstanding, such provisions and
defined terms may not be modified, rescinded or canceled in whole or in part;
provided that the provisions of this Article VI and the defined terms used in
--------
this Article VI may be modified, amended or supplemented by the parties to this
Agreement upon obtaining the prior written consent of the holders of at least a
majority of the principal amount of the Senior Debt (taken together as one
class) or the Agent on behalf of such holders of Senior Debt.
SECTION 6.13 Waivers. To the extent permitted by applicable law, the
-------
Holders of the Notes and the Company hereby waive (A) notice of acceptance
hereof by the holders of the Senior Debt and (B) all diligence in the collection
or protection of or realization upon the Senior Debt.
SECTION 6.14 Enforcement of Rights. The Company and the Holders of
---------------------
the Notes hereby expressly agree that the holders of Senior Debt may enforce any
and all rights derived herein by suit, either in equity or at law, for specific
performance of any agreement contained in this Article VI or for judgment at law
and any other relief whatsoever appropriate to such action or procedure.
ARTICLE VII
Transfer of the Notes
---------------------
SECTION 7.1. Restriction on Transfer. During the period from the
-----------------------
Closing Date to and including the date which is 180 days after the Closing Date,
no Holder may sell, assign, transfer or dispose of any Note to any Person unless
such sale, assignment, transfer or disposition is of one or more entire
Mezzanine Security Units (including any shares of Common Stock issued upon
exercise of Mezzanine Warrants) (i.e., the transferring Holder must transfer an
equal percentage of its Notes, its Mezzanine Stock and its Mezzanine Warrants to
the same Person), all in accordance with the terms of Section 7.4 of the Main
Transaction Agreement.
SECTION 7.2. Registration of Transfer. Subject to compliance with
------------------------
applicable law, upon surrender of
58
any Note for registration of transfer, the Company will execute and deliver in
exchange therefor a new Note registered as such Holder may request. The Company
may require payment by such Holder of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer. Notwithstanding
anything to the contrary contained in this Agreement, no Holder shall be
permitted to transfer any Note or assign any of its rights or obligations under
this Agreement or the Notes, unless in each case (i) each such transferor or
assignor has obtained the prior written consent of the Company (which consent
shall not be withheld by the Company unless, in the opinion of the Company, such
transfer or assignment together with all other such transfers or assignments
made after the Closing could result in or create a significant risk (as defined
below) that the Company may become subject to, or after any public offering of
the Company will continue to be subject to, the informational requirements of
the Exchange Act), (ii) each such transferee or assignee (other than the
Company) has agreed in writing to be bound by the terms and conditions of this
Agreement and the Note in question to the same extent and in the same manner as
the transferor or assignor thereof, and (iii) the transfer to any such
transferee or assignee is in compliance with all applicable federal, state and
foreign securities laws. For the purposes of this Section 7.1, a "significant
risk" shall be deemed to arise when the number of "holders of record" (as
determined in accordance with the Exchange Act) is greater than 80% of the
number of "holders of record" that would cause the application or continued
application of the informational requirements of the Exchange Act under the then
existing circumstances; provided that no transfer or assignment to or from any
--------
Affiliate of a Holder shall be deemed to have created any such significant risk.
SECTION 7.3. Register. The Company shall maintain a register of the
--------
Holders of all the Notes issued pursuant to this Agreement. The Company will
allow any Holder of a Note to inspect and copy such list at the company's
principal place of business during normal business hours. The Company may
refuse to effect any transfer of any Note on such register, and may refuse to
recognize any transferee of such Note for all purposes hereunder and under such
Note, if the Company determines in good faith that the transferor and/or
transferee of
59
such Note have not complied with the provisions of Section 7.1 above.
ARTICLE VIII
Termination
-----------
SECTION 8.1. Termination. This Agreement may be terminated upon the
-----------
occurrence of any of the following events: (a) any termination of this Agreement
by the mutual written agreement of each of the parties hereto, (b) any
termination of the Main Transaction Agreement in accordance with the provisions
of Article 10 thereof, or (c) the delivery of written notice of termination by
any of the Purchasers to the Company if the Closing has not occurred by March
31, 1997 (provided that the right to terminate this Agreement pursuant to this
Section 8.1(c) shall not be available to any party whose misconduct or failure
to satisfy any of its obligations hereunder has been the cause of or resulted in
any of the conditions hereunder not being satisfied prior to such date or in the
Closing otherwise not occurring prior to such date); provided that, following
--------
the consummation of the Closing in accordance with the provisions of the Main
Transaction Agreement, the parties hereto may only terminate this Agreement
pursuant to clause (a) above.
SECTION 8.2. Liability. If this Agreement is terminated pursuant to
---------
this Article, such termination shall be without liability of any party to any
other party, except for any breach by such party of this Agreement or the Notes
prior to the date of such termination.
ARTICLE IX
Amendments
----------
SECTION 9.1. Amendments. Subject to Section 6.12, the Company may
----------
amend this Agreement or the Notes with the written consent of the Holders of at
least a majority of the principal amount of the Notes, except that without the
consent of each Holder of the Notes, an amendment may not:
60
(1) reduce the amount of Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Note;
(3) reduce the principal of or extend the Stated Maturity of any
Note; or
(4) make any Note payable in a currency other than that stated in the
Note;
and that, without the consent of Windward/Merban, an amendment may not
eliminate, amend, or otherwise modify the provisions of Section 4.6 or 5.1(i).
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company
shall mail to each of the Holders of Notes a notice briefly describing such
amendment. The failure to give such notice to all Holders of Notes, or any
defect therein, shall not impair or affect the validity of an amendment under
this Section.
SECTION 9.2. Revocation and Effect of Consents and Waivers. Any
---------------------------------------------
amendment to this Agreement or the Notes shall become effective in accordance
with its terms when executed and delivered by the Company provided that the
Company has received the requisite consents prior thereto. The Company shall
not be obligated to execute any such amendment regardless of whether such
consents have been received. Any waiver shall become effective when the
requisite consents have been received or such later time as the Company may
elect. A consent to an amendment or a waiver by a Holder of a Note shall bind
the Holder and every subsequent Holder of that Note or portion of the Note that
evidences the same Debt as the consenting Holder's Note, even if notation of the
consent or waiver is not made on the Note. However, any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Note or
portion of the Note if the Company receives the notice of revocation before the
date the amendment or waiver becomes effective. After an
61
amendment or waiver becomes effective, it shall bind every Holder of a Note.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Notes entitled to give their consent
or take any other action described above or required or permitted to be taken
pursuant to this Agreement. If a record date is fixed, then, notwithstanding
the immediately preceding paragraph, those persons who were Holders of Notes at
such record date (or their duly designated proxies), and only those persons,
shall be entitled to give such consent or to revoke any consent previously
given or to take any such action, whether or not such Persons continue to be
Holders after such record date. No such consent shall be valid or effective for
more than 120 days after such record date.
SECTION 9.3. Notation on or Exchange of Notes. If an amendment
--------------------------------
changes the terms of a Note, the Company may require the Holder of the Note to
deliver it to the Company. The Company may place an appropriate notation on the
Note regarding the changed terms and return it to the Holder. Alternatively, if
the Company so determines, the Company in exchange for the Note shall issue a
new Note that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Note shall not affect the validity of such amendment.
SECTION 9.4. Payment for Consent. Neither the Company, any Affiliate
-------------------
of the Company nor any of its Subsidiaries shall, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Agreement or the Notes
unless such consideration is offered to be paid or agreed to be paid to all
Holders which so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement.
62
ARTICLE X
Miscellaneous
-------------
SECTION 10.1. Notices. All notices and other communications
-------
pertaining to this Agreement or any Note shall be in writing and shall be deemed
to have been duly given upon the receipt thereof by the other party. Such
notices shall be delivered by hand, or mailed, certified or registered mail with
postage prepaid, or sent by overnight courier:
If to the Company, to it at:
HCC Industries Inc.
0000 Xxxxxx Xxxx Xxxx.
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxxx
Telecopier: (000) 000-0000
With copies to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxx X. Xxxxx, Esq.
Telecopier: (000) 000-0000
If to Metropolitan Life, to:
Metropolitan Life Insurance Company
Corporate Equities
000 Xxxxxxx Xxxxxx, X.X. Xxx 000
Xxxxxxx Xxxxxxx, XX 00000-0000
Attention: Vice President
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
Metropolitan Life Insurance Company
Xxx Xxxxxxx Xxxxxx, Xxxx 0X
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Hoi
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
63
If to Windward/Merchant and Windward/Merban, to:
Windward Capital Partners, L.P.
Eleven Xxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxxxx
Fax: (000) 000-0000
and, if such notice relates to prepayments or redemptions or to
Defaults or Events of Defaults, to:
Credit Suisse First Boston
Eleven Madison Avenue
26th Floor
New York, NY 10010
Attention: Xxxxx Xx Xxxxxx
Fax: (000) 000-0000
or to such other Person or address as shall be furnished to the other party in
writing.
SECTION 10.2. Consent to Payment of Installment Amount. Each Holder
-----------------------------------------
hereby consents in all respects to the payment by the Company of all amounts,
including the Installment Amount (as defined in the Main Transaction Agreement),
payable to the Sellers pursuant to and in accordance with the terms of Section
2.7 of the Main Transaction Agreement and the terms of the Escrow Agreement (as
defined in the Main Transaction Agreement).
SECTION 10.3. Parties. This Agreement shall inure to the benefit of
-------
and be binding upon the parties hereto, each subsequent Holder of a Note and
each of their respective successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
Person, firm or corporation, other than the parties hereto and their respective
successors and, with respect to Article VI, the holders of Senior Debt, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the
parties hereto, any subsequent Holder of a Note and their respective successors
and assigns, and, with respect to Article VI, the holders of
64
Senior Debt and for the benefit of no other Person, firm or corporation.
SECTION 10.4. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES HEREUNDER AND THE PARTIES SUBJECT HERETO SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF
OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
SECTION 10.5. Replacement Note. If any Note becomes mutilated and is
----------------
surrendered by the Holder thereof to the Company, or if the Holder thereof
claims that any Note has been lost, destroyed or wrongfully taken, the Company
will execute and deliver to such Holder a replacement note, upon the affidavit
of the Holder thereof attesting to such loss, destruction or wrongful taking
with respect to such Note. Such affidavit shall be accepted as satisfactory
evidence of the loss, wrongful taking or destruction thereof and no indemnity
shall be required as a condition of the execution and delivery of a replacement
Note.
SECTION 10.6. Successors and Assigns. All covenants and agreements
----------------------
of the Company in this Agreement or any Note shall bind their respective
successors and assigns.
SECTION 10.7. Severability Clause. In case any provision in this
-------------------
Agreement or any Note shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby and such provision shall be ineffective only to the
extent of such invalidity, illegality or unenforceability.
SECTION 10.8. Further Assurances. Each party hereto or person or
------------------
entity subject hereto shall do and perform or cause to be done and performed all
such further acts and things and shall execute and deliver all such other
agreements, certificates, instruments and documents as any other party hereto or
person or entity subject hereto may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
65
SECTION 10.9. Entire Agreement. This Agreement, together with all
----------------
exhibits and schedules hereto, and the Notes are intended by the parties to be a
final expression of their agreement in respect of the subject matter contained
herein and therein, and supersede all prior agreements and understandings
between the parties with respect to such subject matter.
SECTION 10.10. Headings. The headings of the Articles and the
--------
sections in this Agreement are for convenience of reference only and shall not
be deemed to alter or affect the meaning or interpretation of any provisions
hereof.
SECTION 10.11. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
ARTICLE XI
Indemnification
---------------
SECTION 11.1. Indemnity of Holders of the Notes by the Company.
------------------------------------------------
Subject to Article VI, the Company agrees to (i) reimburse all present and prior
Holders of the Notes for any costs and expenses (including, without limitation,
attorneys' and paralegals' fees and expenses, including allocated in-house
counsel fees) incurred by such present and prior Holders of the Notes in
defending any suit brought against such Holders by the Company or any other
Person in connection with the transactions contemplated by this Agreement, and
(ii) indemnify and hold all present and prior Holders of the Notes and their
respective officers, directors, employees, partners, Affiliates, attorneys and
agents (collectively, the "Indemnitees") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgements,
suits, costs, expenses or disbursements of any kind or nature whatsoever,
including, without limitation, any Environmental Claims or Environmental Losses
(each as defined in the Main Transaction Agreement), incurred by the
Indemnitees, whether direct, indirect or consequential, as a result of or
arising from or relating to any proceeding by any Person, whether threatened or
initiated, asserting any claim for legal or
66
equitable remedy against any Person under any statute or regulation (including,
without limitation, any federal or state securities or commercial laws or under
any common law or equitable cause or otherwise, including any liability and
costs under Environmental Laws (as defined in the Main Transaction Agreement))
or common law principles arising from or in connection with the past, present or
future operations of the Company, its Subsidiaries or their respective
predecessors in interest, in any way arising from or in connection with the
negotiation, preparation, execution, delivery enforcement, performance and
administration of this Agreement or any other document executed in connection
herewith, provided that the Company shall have no obligation hereunder with
respect to indemnified liabilities arising from the gross negligence or willful
misconduct of any Indemnitee seeking such indemnification. To the extent that
the indemnity set forth in this Section may be unenforceable because it is
violative of any law or public policy, the Company shall pay the maximum portion
which it is permitted to pay under applicable law. Any Indemnitee will promptly
notify the Company of the commencement of any legal proceeding which may give
rise to any indemnified liability under the foregoing indemnity and shall
permit the Company to participate in the defense of such Indemnitee in any such
proceeding; provided, however, that if any Indemnitee fails to provide prompt
-------- -------
notice to the Company of any legal proceeding, such Indemnitee shall
nevertheless be entitled to be indemnified under this Article XI to the extent
(but only to the extent) that the Indemnitee can establish that the Company has
not been prejudiced by the time elapsed. The foregoing indemnity shall survive
the repayment of the Notes and the termination of this Agreement.
67
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
HCC Industries Inc.
By:______________________
Name:
Title:
METROPOLITAN LIFE INSURANCE COMPANY
By:______________________
Name:
Title:
WINDWARD/MERCHANT, L.P.
By: Windward Capital Associates,
L.P., its general partner
By: Windward Capital
Associates, Inc., its
general partner
By:______________________
Name:
Title:
WINDWARD/MERBAN, L.P.
By: Windward Capital Associates,
L.P., its general partner
By: Windward Capital
Associates, Inc. its
general partner
By:______________________
Name:
Title:
68
EXHIBIT A
---------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NO SALE,
HYPOTHECATION, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE (OTHER THAN TO
THE ISSUER THEREOF) MAY BE MADE UNLESS EITHER (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (B) PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
FOR PURPOSES OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE AMOUNT OF
ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH $1,000 OF PRINCIPAL AMOUNT AT
MATURITY OF THIS NOTE IS $141.84, THE ISSUE DATE IS FEBRUARY 14, 1997 AND THE
YIELD TO MATURITY IS 7.65% (COMPOUNDED SEMI-ANNUALLY).
$________ February 14, 1997
SUBORDINATED NOTE
-----------------
FOR VALUE RECEIVED, the undersigned, HCC Industries Inc., a Delaware
corporation (the "Company"), promises to pay [INSERT NAME OF PURCHASER], or its
registered assigns (the "Purchaser"), the principal sum of ___________ Dollars
($__________) on April 15, 2004, or such earlier date as the principal may
become due pursuant to the terms hereof and to pay interest at a rate per annum
equal to twelve percent (12%) on the unpaid principal amount hereof. The
Company will pay interest semiannually on April 15 and October 15 of each year,
commencing October 15, 1997 (or on the next Business Day following such date, in
the event such date is not a Business Day). The Company shall pay interest on
overdue principal and on overdue installments of interest at a rate per annum
equal to the sum of two percent (2%) plus the interest rate otherwise applicable
hereunder. Terms used herein and not otherwise defined have the meanings
assigned to them in the Subordinated Note Agreement among the Company and the
parties named therein dated as of the date hereof (the "Agreement").
Interest shall be payable in arrears on this Note semiannually as
provided above and on such date as this Note may be prepaid or the maturity
accelerated. Interest shall be computed on the basis of a 360-day year and the
actual number of days elapsed. All payments of the principal of and interest on
69
this Note shall be made in money of the United States of America that at the
time of payment is legal tender for the payment of public and private debts, by
check in New York Clearing House Funds at the principal office of the Purchaser
or by wire transfer of immediately available Federal Reserve funds into a bank
account designated by the Purchaser in writing to the Company at least three
Business Days before the Company makes such payment.
The Company hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The nonexercise by the Purchaser of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
This note is one of the Notes referred to in the Agreement, which
Agreement, among other things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain events, for the subordination of
this Note to Senior Debt of the Company, for optional prepayment of the
principal hereof prior to maturity and for the amendment or waiver of certain
provisions of the Agreement, all upon the terms and conditions therein
specified. Additionally, this Note is subject to certain restrictions on
transfer set forth in the Agreement.
This Note shall be construed in accordance with and governed by the
laws of the State of New York, without giving effect to the conflict of law
principles thereof other than Section 5-1401 of the New York General Obligations
Law.
IN WITNESS WHEREOF, HCC Industries Inc. has caused this Note to be
signed in its corporate name by a duly authorized officer and its corporate seal
to be affixed hereto, and the same to be attested by its Secretary or Assistant
Secretary, and to be dated as of the day and year first above written.
HCC Industries Inc.
By:_______________________
Name:
Title:
Attest:
------------------------------
Name:
Title:
70
