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SECURITIES PURCHASE AGREEMENT
Among
AURORA ELECTRONICS, INC.
WELSH, CARSON, XXXXXXXX & XXXXX VII, L.P.
WCAS CAPITAL PARTNERS II, L.P.
and
The Several Persons Named
In Schedule I Hereto
Dated as of February 21, 1996
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TABLE OF CONTENTS
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I. PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.01. Issuance and Sale of the Convertible
Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Issuance and Sale of the Note
and Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.03. Calculation of Number of Convertible
Preferred Shares and Common Shares
to be Issued and Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.04. Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.01. Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.02. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.03. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.04. Authorization of Agreements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.05. Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.06. Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.07. Financial Statements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.08. SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.09. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.10. Certain Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.11. Actions Pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.12. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.13. Real Property Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.14. Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.15. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.16. Severance Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.18. Compliance with Law; Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.19. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.20. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.21. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.22. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.23. Offering of the Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.24. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.25. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.01. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.02. Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.03. Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
IV. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.01. Conduct of the Company's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.02. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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SECTION 4.03. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.04. Inquiries and Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.05. Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.06. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.07. Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.08. Financial Statements, Reports, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.09. Directors of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
V. COVENANTS RELATING TO THE RECAPITALIZATION
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.01. The Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.02. Transactions Relating to
the Company's Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.03. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.04. New Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.05. Certificate of Designations;
Reservation of Conversion Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.05. Covenant of the Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
VI. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.01. Conditions Precedent to the Obligations
of the Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.02. Conditions Precedent to the Obligations
of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
VII. SURVIVAL OF REPRESENTATIONS; INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.01. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.02. General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.03. Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.04. Limitation on Certain Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
VIII. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.01. Termination by the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
IX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 9.01. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 9.02. Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.03. WCAS VII Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.04. Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.05. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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SECTION 9.06. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.07. Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.08. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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INDEX TO EXHIBITS, SCHEDULES AND ANNEX
Exhibit Description
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A Form of 10% Senior Subordinated
Note
B Form of Certificate of Designations
C Form of Registration Rights Agreement
Schedule Description
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I Purchasers and Securities
II Calculation of Actual Number of Convertible Preferred Shares and Common Shares
III Fundamental Terms of the New Stock Option Plan
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SECURITIES PURCHASE AGREEMENT dated as of February 21, 1996,
among AURORA ELECTRONICS, INC., a Delaware corporation (the "Company"), WELSH,
CARSON, XXXXXXXX & XXXXX VII, L.P., a Delaware limited partnership ("WCAS
VII"), WCAS CAPITAL PARTNERS II, L.P., a Delaware limited partnership ("WCAS XX
XX"), and the several persons named in Schedule I hereto (such persons together
with WCAS VII, being hereinafter collectively called the "Preferred Stock
Purchasers," and the Preferred Stock Purchasers together with WCAS XX XX, being
hereinafter collectively called the "Purchasers").
WHEREAS, the Company desires to sell to the Preferred Stock
Purchasers, and the Preferred Stock Purchasers desire to purchase from the
Company, on the terms and subject to the conditions set forth herein, between
350,000 and 400,000 shares of Convertible Preferred Stock, $.01 par value
("Convertible Preferred Stock"), of the Company at a purchase price of $100 per
share; and
WHEREAS, the Company desires to sell to WCAS XX XX, and WCAS
XX XX desires to purchase from the Company, on the terms and subject to the
conditions set forth herein, (i) a 10% Senior Subordinated Note of the Company
due September 30, 2001, in the principal amount of $10,000,000, and (ii)
between 607,211 and 610,022 shares of Common Stock, $.03 par value ("Common
Stock"), of the Company for an aggregate purchase price of $10,000,000; and
WHEREAS, the Company has agreed, as a condition to the
obligation of the Purchasers to purchase said securities, to (i) commence and
consummate an issuer tender offer (the "Tender Offer") pursuant to Rules 13e-3
and 13e-4 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), for the purchase for cash of up to 6,500,000 issued and
outstanding shares of Common Stock, (ii) enter into a new bank credit facility
with Chemical Bank N.A., as Agent, permitting total borrowings of not less than
$35,000,000 with initial availability of not less than $15,000,000, (iii)
terminate the existing Senior Secured Credit Agreement, dated as of May 12,
1994, among the Company, the Lenders named therein and Banque Paribas, as Agent
(the "Existing Credit Agreement") and pay all amounts required to discharge all
of its obligations thereunder, (iv) commence the redemption of the outstanding
9-1/4% Senior Subordinated Notes of the Company due 1996 (the "9-1/4% Notes")
and provide for the payment of all amounts required to discharge all of its
obligations thereunder, and (v) adopt and implement a new stock option plan
(the "New Stock Option Plan") for employees of the Company and enter into new
stock option agreements with certain members of management of the Company, all
on the terms and subject to the conditions set forth herein (the transactions
listed in clauses (i) through (v) hereof being hereinafter collectively called
the "Recapitalization Transactions"); and
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WHEREAS, in order to induce the Purchasers to consummate the
transactions contemplated by this Agreement, the Company has agreed to grant to
the Purchasers certain registration rights with respect to (i) the shares of
Common Stock purchased hereunder and (ii) the shares of Common Stock that will
be issuable upon the conversion of the Convertible Preferred Stock purchased
hereunder;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
I.
PURCHASE AND SALE OF SECURITIES
SECTION 1.01. Issuance and Sale of the Convertible Preferred
Shares.
(a) Subject to the terms and conditions set forth herein,
on the Closing Date (as hereinafter defined) the Company shall issue, sell and
deliver to the Preferred Stock Purchasers, and the Preferred Stock Purchasers
shall purchase from the Company, the number of shares of Convertible Preferred
Stock, up to an aggregate 400,000 shares, determined in accordance with Section
1.03 below (the number of shares so purchased are referred to herein as the
"Convertible Preferred Shares"), for a purchase price of $100 per share (the
aggregate purchase price for the Convertible Preferred Shares being herein
called "Preferred Stock Purchase Price"). On the Closing Date, the Company
shall issue a certificate or certificates in definitive form, registered in the
name of each Preferred Stock Purchaser, representing the number of Convertible
Preferred Shares obtained by multiplying (x) the percentage (the "Fractional
Interest") set forth opposite the name of such Preferred Stock Purchaser on
Schedule I hereto under the heading "Fractional Interest" by (y) the aggregate
number of Convertible Preferred Shares to be purchased as determined in
accordance with Section 1.03 below, rounded down to the nearest whole share for
any Purchaser other than WCAS VII, with any such fractional shares being added
to the number of Convertible Preferred Shares to be purchased by WCAS VII.
(b) As payment in full for the Convertible Preferred
Shares being purchased by it hereunder, and against delivery of the certificate
or certificates therefor as aforesaid, on the Closing Date each Preferred Stock
Purchaser shall transfer immediately available funds by wire transfer to the
account or accounts designated by the Company two business days prior to the
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Closing Date an amount equal to $100 multiplied by the number of Convertible
Preferred Shares to be purchased by such Preferred Stock Purchaser in
accordance with paragraph (a) above.
SECTION 1.02. Issuance and Sale of the Note and Common
Shares.
(a) Subject to the terms and conditions set forth herein, on
the Closing Date (i) the Company shall execute, sell and deliver to WCAS XX XX,
and WCAS XX XX shall purchase from the Company, a 10% Senior Subordinated Note
due September 30, 2001 in substantially the form attached hereto as Exhibit A,
in the principal amount of $10,000,000 (such note, and any note or notes issued
in exchange or substitution therefor, being hereinafter called the "Note"), and
(ii) the Company shall issue, sell and deliver to WCAS XX XX, and WCAS XX XX
shall purchase from the Company, the number of shares of Common Stock, between
607,211 and 610,022 shares, determined in accordance with Section 1.03 below
(the shares so purchased are referred to herein as the "Common Shares," and
together with the Note and the Preferred Shares, being hereinafter collectively
called the "Securities"), for an aggregate purchase price of $10,000,000. On
the Closing Date, the Company shall issue in definitive form the Note and a
certificate representing the number of Common Shares being purchased by WCAS XX
XX hereunder, in each case registered in the name of WCAS XX XX.
(b) On the Closing Date, as payment in full for the Note
and the Common Shares being purchased by it hereunder, and against delivery of
the Note and a certificate for the Common Shares as aforesaid, WCAS XX XX shall
transfer $10,000,000 by wire transfer of immediately available funds to the
account or accounts designated by the Company two business days prior to the
Closing Date.
SECTION 1.03. Calculation of Number of Convertible Preferred
Shares and Common Shares to be Issued and Sold. It is understood and agreed
that the actual aggregate number of Convertible Preferred Shares and Common
Shares to be issued and sold by the Company pursuant to Sections 1.01 and 1.02
hereof shall depend on the number of shares of Common Stock tendered and not
withdrawn in the Tender Offer and shall equal the number of Convertible
Preferred Shares and Common Shares, as the case may be, that are determined by
mutual agreement of the Company and the Purchasers in accordance with Schedule
II hereto. For illustrative purposes, Schedule II hereto sets forth the
minimum, midpoint and maximum number of Convertible Preferred Shares and Common
Shares that may be purchased by each Purchaser on the Closing Date and the
minimum, midpoint and maximum aggregate purchase price to be paid by each
Purchaser.
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SECTION 1.04. Closing Date. The transfer, sale and delivery
of the Securities contemplated by Sections 1.01 and 1.02 hereof (the "Closing")
shall take place at the offices of Reboul, MacMurray, Xxxxxx, Xxxxxxx &
Kristol, 00 Xxxxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx, as soon as practicable after
the satisfaction or waiver of each of the conditions to the obligations of the
parties set forth in Article VI hereof, or at such date and time as may be
mutually agreed upon among the parties hereto (such date and time of the
Closing being herein called the "Closing Date").
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers as
follows:
SECTION 2.01. Organization and Qualification. The Company is
a corporation validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own or lease
and operate its properties and assets and to carry on its business as it is now
being conducted. The Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect on the properties, assets, financial condition,
prospects, operating results or business of the Company and its subsidiaries,
taken as a whole (a "Material Adverse Effect"). Schedule 2.01 includes a
complete and accurate list of each jurisdiction in which the Company is
qualified as a foreign corporation.
SECTION 2.02. Subsidiaries. (a) Except as set forth on
Schedule 2.02 hereto, neither the Company nor any of its subsidiaries owns of
record or beneficially, directly or indirectly, (i) any shares of outstanding
capital stock or securities convertible into capital stock of any other
corporation or (ii) any participating interest in any partnership, joint
venture or other non-corporate business enterprise. Each subsidiary of the
Company is a corporation validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all requisite corporate power and
authority to own or lease and operate its properties and assets and to carry on
its business as it is now being conducted. Each subsidiary of the Company is
duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction in which the character of its
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properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect. All the outstanding shares of capital stock of
the Company's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and, except as set forth on Schedule 2.02, are owned by the
Company or by a wholly-owned subsidiary of the Company, free and clear of any
liens, claims, charges, restrictions, rights of others, security interests,
prior assignments or other encumbrances (collectively, "Claims"), and there are
no proxies, voting or transfer agreements or understandings outstanding with
respect to any such shares.
(b) Schedule 2.02 includes a complete and accurate list
of each subsidiary of the Company, indicating the jurisdiction of
incorporation, each jurisdiction in which such subsidiary is qualified as a
foreign corporation, its capital structure (including all authorized and
outstanding shares), and the nature and level of ownership in such subsidiary
by the Company, any subsidiary of the Company and any other person (for
purposes of this Agreement, "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, or an unincorporated
organization). Complete and correct copies of the Certificate of Incorporation
and By-laws of the Company and of each subsidiary of the Company have
previously been delivered to the Purchasers.
(c) For purposes of this Agreement, the term
"subsidiary", when used with respect to the Company, shall mean any corporation
or other business entity, a majority of whose outstanding equity securities is
at the time owned, directly or indirectly, by the Company and/or one or more
other subsidiaries of the Company.
SECTION 2.03. Capitalization.
(a) The authorized capital stock of the Company consists of
25,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock, $.01
par value, of the Company. As of the date hereof, 8,298,293 shares of Common
Stock are issued and outstanding, all of which were duly authorized and validly
issued and are fully paid and nonassessable, and no shares of said Preferred
Stock are issued and outstanding.
(b) Upon the filing with the Secretary of State of the
State of Delaware of a Certificate of Designations of the Company in the form
attached hereto as Exhibit B (the "Certificate of Designations"), after the
date hereof but prior to the consummation of the transactions contemplated
hereby, the authorized capital stock of the Company shall be reclassified to
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include 400,000 shares of newly authorized Convertible Preferred Stock.
(c) As of the date hereof, except for (i) options granted
pursuant to the Aurora Electronics, Inc. 1993 Stock Option Plan (the "Existing
Stock Option Plan") to purchase an aggregate 759,340 shares of Common Stock, of
which as of the date hereof options to purchase an aggregate 343,053 shares are
vested and options to purchase an aggregate 416,287 shares are unvested, (ii)
other options to purchase an aggregate 250,000 shares of Common Stock, all of
which are vested as of the date hereof, (iii) outstanding warrants to purchase
an aggregate 974,473 shares of Common Stock, and (iv) as set forth on Schedule
2.03 hereof, no subscription, warrant, option, convertible security, stock
appreciation or other right (contingent or other) to purchase or acquire any
shares of any class of capital stock of the Company or any of its subsidiaries
is authorized or outstanding and (except as otherwise expressly contemplated by
this Agreement) there is not any commitment of the Company or any of its
subsidiaries to issue any shares, warrants, options or other such rights or to
distribute to holders of any class of its capital stock any evidences of
indebtedness or assets. Schedule 2.03 sets forth a complete and correct list
of the number of warrants or options, including a listing of the vesting
schedules thereof, held by each person with respect to the outstanding capital
stock of the Company.
(d) Except as set forth on Schedule 2.03, neither the Company
nor any of its subsidiaries has any obligation (contingent or other) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
SECTION 2.04. Authorization of Agreements, Etc. (a) Each of
(i) the execution and delivery by the Company of this Agreement, the Note and
the Registration Rights Agreement in substantially the form attached hereto as
Exhibit C (the "Registration Rights Agreement"), (ii) the performance by the
Company of its respective obligations hereunder and thereunder, (iii) the
issuance, sale and delivery by the Company of the Convertible Preferred Shares
and the Common Shares, (iv) the issuance and delivery of the shares of Common
Stock issuable upon the conversion of the Convertible Preferred Shares
(collectively, the "Conversion Shares"), and (v) the performance by the Company
of the Recapitalization Transactions have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Certificate of Incorporation or
By-laws of the Company, or (subject to the receipt of required consents from
the Company's lenders pursuant to the Existing Credit Agreement) any provision
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of any indenture, agreement or other instrument to which the Company or any of
its properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any Claim in favor of any third person upon any of the assets of
the Company or any of its subsidiaries.
(b) The Convertible Preferred Shares and the Common Shares
have been duly authorized by the Company and, when sold and paid for in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Convertible Preferred Stock and Common Stock. The
Conversion Shares, when issued and delivered upon the conversion of the
Convertible Preferred Shares, will be duly authorized, validly issued, fully
paid and nonassessable shares of Common Stock. Neither the issuance, sale and
delivery of the Convertible Preferred Shares and the Common Shares to the
Purchasers hereunder, nor the issuance and delivery of the Conversion Shares
upon the conversion of the Convertible Preferred Shares, is subject to any
preemptive rights of stockholders of the Company or to any right of first
refusal or other similar right in favor of any person.
SECTION 2.05. Validity. This Agreement has been duly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms. The Note and Registration Rights Agreement, when
executed and delivered by the Company as provided in this Agreement, will
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms.
SECTION 2.06. Governmental Approvals. Subject to the
accuracy of the representations and warranties of the Purchasers set forth in
Article III hereof, no registration or filing with, or consent or approval of,
or other action by, any Federal, state or other governmental agency or
instrumentality is or will be necessary for the valid execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the issuance,
sale and delivery of the Securities, the issuance and delivery of the
Conversion Shares upon the conversion of the Convertible Preferred Shares, or
the consummation of the Recapitalization Transactions, other than (i)
compliance with the requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing of the
Certificate of Designations and a Certificate of Amendment to the Certificate
of Incorporation of the Company with the Secretary of State of the State of
Delaware in accordance with the Delaware General Corporation Law (the "Delaware
GCL") with respect to the designation of the Convertible Preferred Stock and
the
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authorization of additional shares of Common Stock sufficient to permit the
issuance and delivery of the Conversion Shares, as the case may be, and (iii)
such filings with and approvals of the Securities and Exchange Commission
("SEC") or any state securities commission or similar regulatory body as may be
necessary in connection with the commencement or consummation of the Tender
Offer.
SECTION 2.07. Financial Statements, Etc. (a) The Company
has furnished to the Purchasers: (i) the audited consolidated balance sheets of
the Company and its subsidiaries as of September 30, 1995, 1994 and 1993 and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the fiscal years ended September 30, 1995, 1994 and
1993, each certified by Xxxxxx Xxxxxxxx LLP, the independent certified public
accountants retained by the Company, and (ii) the unaudited consolidated
balance sheet of the Company and its subsidiaries as of December 31, 1995, and
the related consolidated statements of operations and cash flows for the three
months then ended, certified by the principal financial officer of the Company.
All such financial statements (including any related schedules and/or notes)
have been prepared in accordance with generally accepted accounting principles
in the United States ("GAAP") consistently applied and consistent with prior
periods, (i) except that such interim statements are subject to year-end and
audit adjustments (which consist of normal recurring accruals) and do not
contain certain footnote disclosures, and (ii) except as otherwise disclosed in
such financial statements or in the Company SEC Filings (as defined below).
Such balance sheets fairly present in all material respects the financial
position of the Company and its subsidiaries as of their respective dates, and
such statements of operations, stockholders' equity and cash flows fairly
present in all material respects the results of operations of the Company and
its subsidiaries for the respective periods then ended, subject, in the case of
unaudited financial statements, to normal year-end and audit adjustments and
the absence of certain footnote disclosures.
(b) Except as and to the extent (i) reflected on the
consolidated balance sheet of the Company and its subsidiaries as of September
30, 1995 (the "September 30, 1995 Balance Sheet"), (ii) incurred since
September 30, 1995 in the ordinary course of business consistent with past
practice, or (iii) set forth on Schedule 2.07 hereto, neither the Company nor
any of its subsidiaries has any material liabilities or obligations of any kind
or nature, whether known or unknown, secured or unsecured, absolute, accrued,
contingent or otherwise, and whether due or to become due, that would be
required to be reflected on a balance sheet, or the notes thereto, prepared in
accordance with GAAP.
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Since September 30, 1995, neither the Company nor any of its subsidiaries has
suffered any Material Adverse Effect.
SECTION 2.08. SEC Filings. The Company has filed all forms,
reports and documents required to be filed with the SEC since September 30,
1992, and the Company has made available to the Purchasers, as filed with the
SEC, complete and accurate copies of (i) the Annual Report of the Company on
Form 10-K for the year ended September 30, 1995, and (ii) all other reports,
statements and registration statements (including Current Reports on Form 8-K)
filed by the Company with the SEC since September 30, 1992, in each case
including all amendments and supplements (collectively, the "Company SEC
Filings"). The Company SEC Filings (including, without limitation, any
financial statements or schedules included therein) (i) were prepared in
compliance with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, and the rules and regulations
thereunder, as the case may be, and (ii) did not at the time of filing (or if
amended, supplemented or superseded by a filing prior to the date hereof, on
the date of that filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
SECTION 2.09. Absence of Certain Changes or Events. Except
as set forth on Schedule 2.09 hereto or as otherwise disclosed in the Company
SEC Filings or the financial statements of the Company and its subsidiaries as
of and for the three months ended December 31, 1995 referred to above, and
except as otherwise expressly contemplated by this Agreement, since September
30, 1995, neither the Company nor any of its subsidiaries has (i) issued any
stock, bonds or other corporate securities; (ii) borrowed or refinanced any
amount or incurred any material liabilities (absolute or contingent), other
than revolving credit facility borrowings and trade payables incurred in the
ordinary course of business consistent with past practice; (iii) discharged or
satisfied any material Claim or incurred or paid any obligation or liability
(absolute or contingent) other than current liabilities shown on the September
30, 1995 Balance Sheet and current liabilities incurred since the date of such
balance sheet in the ordinary course of business consistent with past practice;
(iv) declared or made any payment or distribution to stockholders, or purchased
or redeemed any shares of its capital stock or other securities; (v) mortgaged,
pledged or subjected to lien any of its assets, tangible or intangible, other
than liens for current real property taxes not yet due and payable; (vi) sold,
assigned or transferred any of its tangible assets, or cancelled any debts or
Claims, except in the ordinary course of business consistent with past
practice; (vii) sold, as-
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signed or transferred any Intellectual Property Rights (as hereinafter defined)
or other intangible assets; (viii) waived any rights of substantial value,
whether or not in the ordinary course of business; (ix) made any material
increase in the compensation (including, without limitation, the rate of
commissions) payable to, or any payment of a material cash bonus to any
director, officer, employee of, or consultant or agent to, the Company or any
of its subsidiaries or any other material change in the terms or conditions of
any employment relationship; (x) announced any plan or legally binding
commitment to create any employee benefit plan, program or arrangement or to
amend or modify in any material respect any existing employee benefit plan,
program or arrangement; (xi) eliminated the vesting conditions or otherwise
accelerated the payment of any compensation, including any stock options; or
(xii) except in connection with this Agreement and the transactions
contemplated hereby, entered into any agreement, letter of intent or similar
undertaking to take any of the actions listed in clauses (i) through (xi)
above.
SECTION 2.10. Certain Information. None of the information
supplied by the Company for inclusion in any document to be filed with the SEC
in connection with the Tender Offer (collectively, the "Tender Offer Filings")
will, at the respective time such Tender Offer Filing or any amendments or
supplements thereto are filed with the SEC, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that no representation is made by the Company with
respect to information supplied by the Purchasers which relates to the
Purchasers or any affiliate or associate of the Purchasers for inclusion in the
Tender Offer Filings. None of the information relating to the Company and its
subsidiaries included in any Tender Offer Filing will, at the time such Tender
Offer Filing is distributed to the Company's stockholders, be false or
misleading with respect to any material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 2.11. Actions Pending. Except (i) for any actions,
suits, investigations or proceedings which individually do not involve claims
against the Company or any of its subsidiaries for more than $25,000, (ii) as
set forth on Schedule 2.11 hereto, or (iii) as set forth in the Company SEC
Filings, there is no action, suit, investigation or proceeding pending or, to
the best knowledge of the Company, threatened against or affecting the Company,
or any of its properties or rights, before any court or by or before any
governmental body or arbitration
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board or tribunal. Except as set forth on Schedule 2.11 hereto, there is no
judgment, decree, injunction or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against the
Company.
SECTION 2.12. Title to Properties. The Company and its
subsidiaries have good and marketable title to the properties and assets
reflected on the September 30, 1995 Balance Sheet (other than non-material
properties and assets disposed of in the ordinary course of business consistent
with past practice since the date of such balance sheet), and all such
properties and assets are owned free and clear of any Claims, except (i) as
described on Schedule 2.12 hereto, (ii) for liens under the Existing Credit
Agreement, and (iii) for the liens described in clauses (i) through (v) of
Section 2.13 below. Such properties and assets constitute all of the assets
material to the business of the Company and its subsidiaries (the "Business")
as the same is currently being conducted.
SECTION 2.13. Real Property Interests. Neither the Company
nor any of its subsidiaries owns any real property. Schedule 2.13 hereto sets
forth a complete and accurate list of the real properties leased by the Company
or any of its subsidiaries for annual rental payments in excess of $25,000 (the
"Leased Properties"). Complete and accurate copies of all leases or other
agreements relating to the Leased Properties have been delivered to the
Purchasers and there have been no changes or amendments to such leases or
agreements since such delivery. The Company or one of its subsidiaries is the
lawful owner of all fixtures located on the Leased Properties, free and clear
of all Claims, subject to (i) liens for current taxes not yet due, (ii) liens
pursuant to the Existing Credit Agreement, (iii) landlord's liens, (iv)
purchase money liens and (v) xxxxxxx'x, materialman's, warehouseman's and
similar liens arising by law or statute. Each lease or other agreement
relating to the Leased Properties is in full force and effect, without any
material default of the Company or any such subsidiary thereunder and, to the
best knowledge of the Company, without any material default thereunder of the
other party thereto, and such leases and agreements give the Company and its
subsidiaries the right to use or occupy, as the case may be, all real
properties as are sufficient and adequate to operate the Business as the same
is currently being conducted.
SECTION 2.14. Intellectual Property Rights.
(a) The patents, trademarks and trade names, trademark and
trade name registrations, servicemark, brandmark and brand name registrations
and copyrights, the applications therefor and the licenses with respect thereto
(collectively, "Intellectual
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Property Rights") listed on Schedule 2.14 hereto constitute all such material
proprietary rights owned or held by the Company or any of its subsidiaries that
are reasonably necessary to the conduct of the Business as conducted as of the
date hereof. Except as set forth on Schedule 2.14, (i) the Company and its
subsidiaries conduct the Business without any material claim of infringement of
any Intellectual Property Right of others; (ii) the consummation of the
Recapitalization Transactions and the transactions contemplated by this
Agreement will not violate, terminate, impair or compromise any Intellectual
Property Right; (iii) none of the Intellectual Property Rights listed on
Schedule 2.14 is the subject of any outstanding order, ruling, decree, judgment
or stipulation; (iv) none of the authorized activities of any employee of the
Company or any of its subsidiaries on behalf thereof violates any obligations
of such employee to third parties, including, without limitation,
confidentiality or non-competition obligations under agreements with a former
employer; and (v) the Company and its subsidiaries have taken and are taking
reasonable precautions to protect any material trade secrets and other
confidential information included in the Intellectual Property Rights.
(b) Schedule 2.14 lists all material operating, management,
developmental and applications computer programs, software, databases and
related documentation owned, held or licensed by the Company and its
subsidiaries (collectively, the "Software"), except for "off-the-shelf"
programs generally available to the public at a per unit cost or license fee
not in excess of $1,000. The Software includes all software, applications,
databases and related documentation used in the conduct of the Business.
Except as set forth on Schedule 2.14, (i) the Company and its subsidiaries own
or have valid rights to use the Software without conflict with the rights of
others; (ii) no person has made or, to the best knowledge of the Company,
threatened to make, any claim that the Software, or the use by the Company or
any subsidiary thereof, violates or infringes upon any intellectual property or
other rights of any third party; (iii) the Company is not aware of any use by a
third party of any computer software programs or applications that the Company
considers to be proprietary to the Company or its subsidiaries; and (iv) the
Company and its subsidiaries have taken and are taking reasonable precautions
consistent with industry practices for such information to protect any material
trade secrets and other confidential information included in the Software.
SECTION 2.15. Labor Matters. Neither the Company nor any of
its subsidiaries is or has been a party to any collective bargaining or union
agreement, and no such agreement is or has been applicable to any employees of
the Company or any of its subsidiaries. There are no pending controversies
between the
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Company or any of its subsidiaries and any of such employees that might
reasonably be expected to result in a Material Adverse Effect, or, to the
Company's knowledge, any unresolved labor union grievances or unfair labor
practice or labor arbitration proceedings pending or threatened relating to the
Business. To the best knowledge of the Company, there are no labor unions or
other organizations representing or purporting to represent any employees of
the Company or any of its subsidiaries and there are not any organizational
efforts currently being made or threatened involving any of such employees.
Except as set forth on Schedule 2.15 hereto, the Company and its subsidiaries
are in compliance in all material respects with all laws and regulations or
other legal or contractual requirements regarding the terms and conditions of
employment of employees, former employees or prospective employees or other
labor related matters, including without limitation laws, rules, regulations,
orders, rulings, conciliation agreements, decrees, judgments and awards
relating to wages, hours, the payment of social security and similar taxes,
equal employment opportunity, employment discrimination, fair labor standards,
occupational health and safety, wrongful discharge or violation of the personal
rights of employees, former employees or prospective employees. Neither the
Company nor any of its subsidiaries is liable for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing.
SECTION 2.16. Severance Arrangements. Except as set forth
on Schedule 2.16 hereto, neither the Company nor any of its subsidiaries is
party to any agreement with any employee (i) the benefits of which (including,
without limitation, severance benefits) are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving the
Company or any of its subsidiaries of the nature of any of the transactions
contemplated by this Agreement or in connection with the Recapitalization
Transactions, or (ii) providing severance benefits in excess of those generally
available under the Company's severance policies as in effect on the date
hereof (which are described on Schedule 2.16), or which are conditioned upon a
change of control, after the termination of employment of such employees
regardless of the reason for such termination of employment. Schedule 2.16
sets forth all employment agreements and compensation guarantees, regardless of
duration, to which the Company or any of its subsidiaries is a party.
SECTION 2.17. Taxes. (i) Except as set forth on Schedule
2.17 hereto, each of the Company, its subsidiaries and any affiliated, combined
or unitary group of which any such corporation is or was a member has (A)
timely filed all Federal and all material state, local and foreign returns,
declarations, reports, estimates, information returns and statements ("Re-
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turns") required to be filed by it in respect of any Taxes (as hereinafter
defined), (B) timely paid all Taxes that are due and payable with respect to
the periods covered by the Returns referred to in clause (A) without regard to
whether such Taxes have been assessed (except for audit adjustments not
material in the aggregate or to the extent that liability therefor is fully
reserved for in the Company's most recent audited financial statements), (C)
established reserves that are adequate for the payment of all Taxes not yet due
and payable with respect to the results of operations of the Company and its
subsidiaries through the date hereof and through the Closing Date, and (D)
complied in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes, including without
limitation required withholding from employee wages.
(ii) Schedule 2.17 sets forth the last taxable period through
which the Federal income Tax Returns of the Company and any of its subsidiaries
(A) have been examined by the Internal Revenue Service and closed or (B) with
respect to which the applicable period for assessment under applicable law,
after giving effect to extensions or waivers, has expired. All deficiencies
asserted as a result of such examinations and any examination by any applicable
state, local or foreign taxing authority which have not been or will not be
appealed or contested in a timely manner have been paid, fully settled or
adequately provided for in the Company's most recent audited financial
statements. Except as set forth on Schedule 2.17, no Federal, state, local or
foreign Tax audits or other administrative proceedings or court proceedings are
currently pending with regard to any Federal or material state, local or
foreign Taxes for which the Company or any of its subsidiaries would be liable,
and no deficiency for any such Taxes has been proposed, asserted or assessed
or, to the best knowledge of the Company or any of its subsidiaries, threatened
pursuant to such examination of the Company or any of its subsidiaries by such
Federal, state, local or foreign taxing authority with respect to any period.
(iii) Except as set forth on Schedule 2.17, neither the
Company nor any of its subsidiaries has executed or entered into with the
Internal Revenue Service or any taxing authority (A) any agreement or other
document extending or having the effect of extending the period for assessments
or collection of any Federal, state, local or foreign Taxes for which the
Company or any of its subsidiaries would be liable or (B) a closing agreement
pursuant to Section 7121 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), or any predecessor provision thereof or any similar
provision of state,
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local or foreign income Tax law that relates to the assets or operations of the
Company or any of its subsidiaries.
(iv) Except as set forth on Schedule 2.17 hereto, neither the
Company nor any of its subsidiaries is a party to any agreement providing for
the allocation or sharing of liability for any Taxes.
(v) The Company has made available to the Purchasers complete
and accurate copies of all income and franchise Tax Returns and all other
material Returns filed by or on behalf of the Company or any of its
subsidiaries for the three taxable years ending on or prior to September 30,
1995, as well as for any taxable year which is under or still subject to
examination by any applicable taxing authority.
(vi) The Company is not and has not been at any time over
the last five years a "U.S. real property holding corporation," as defined in
section 897 (c)(2) of the Internal Revenue Code.
For purposes of this Agreement, "Taxes" shall mean all
Federal, state, local, foreign or other taxing authority income, franchise,
sales, use, ad valorem, property, payroll, social security, unemployment,
assets, value added, withholding, excise, severance, transfer, employment,
alternative or add-on minimum and other taxes, charges, fees, levies, imposts,
duties, licenses or other assessments, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority.
SECTION 2.18. Compliance with Law; Permits. Neither the
Company nor any of its subsidiaries is in default in any respect under any
order or decree of any court, governmental authority, arbitrator or arbitration
board or tribunal or under any laws, ordinances, governmental rules or
regulations to which the Company or any of such subsidiaries or any of their
respective properties or assets is subject, except where such default would not
have a Material Adverse Effect. Schedule 2.18 hereto sets forth a list of all
material permits, authorizations, approvals, registrations, variances and
licenses ("Permits") issued to or used by the Company or any of its
subsidiaries necessary to conduct the Business as the same is conducted as of
the date hereof. The Company possesses all Permits necessary for the Company
or its subsidiaries to own, use and maintain their properties and assets or
required for the conduct of the Business in substantially the same manner as it
is currently conducted. Each Permit is in full force and effect and no
proceeding is pending or, to the best knowledge of the Company, threatened to
modify, suspend, revoke or otherwise limit any Permit and no
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administrative or governmental actions have been taken or, to the best
knowledge of the Company, threatened in connection with the expiration or
renewal of any Permit. Except as set forth on Schedule 2.18, neither the
Company nor any of its subsidiaries will be required, as a result of the
consummation of the transactions contemplated hereby or in connection with any
of the Recapitalization Transactions, to obtain or renew any Permit, unless the
failure to obtain or renew such Permit would not have a Material Adverse
Effect.
SECTION 2.19. Employee Benefit Plans. (i) Schedule 2.19
hereto sets forth a complete and accurate list of each plan, program,
arrangement, agreement, binding written commitment or other material binding
commitment that is an employment, consulting or deferred compensation
agreement, or an executive compensation, incentive bonus or other bonus,
employee pension, profit-sharing, savings, retirement, stock option, stock
purchase, severance pay, life, health, disability or accident insurance plan,
or vacation or other employee benefit plan, program, arrangement, agreement,
binding written commitment or other material binding commitment (collectively,
"Plans"), including, without limitation, each employee benefit plan (as defined
under Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) maintained by the Company or any of its subsidiaries or any
trade or business (whether or not incorporated) which, together with such
persons, would be treated as a single employer under Title IV of ERISA or
Section 414 of the Internal Revenue Code (collectively, the "ERISA Affiliates")
or to which any ERISA Affiliate contributes or has any obligation to contribute
to, or has or may have any liability (including, without limitation, a
liability arising out of an indemnification, guarantee, hold harmless or
similar agreement). Each Plan is identified on Schedule 2.19, to the extent
applicable, as one or more of the following: an "employee pension plan" (as
defined in Section 3(2)(A) of ERISA), an "employee welfare plan" (as defined in
Section 3(1) of ERISA), or as a plan intended to be qualified under Section 401
of the Internal Revenue Code.
(ii) The Company and each of its subsidiaries have
complied, and currently are in compliance, in all material respects with all
laws and regulations applicable to the Plans, including, without limitation,
ERISA and the Internal Revenue Code.
(iii) No ERISA Affiliate has, within the last six years,
maintained, adopted or established, contributed to or been required to
contribute to, or otherwise participated in or been required to participate in,
any employee benefit plan or other program or arrangement subject to Title IV
of ERISA (including, without limitation, a "multi-employer plan" (as defined in
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Section 3(37) of ERISA), a multiple employer plan (as defined in Section 210 of
ERISA) and a defined benefit plan (as defined in Section 3(35) of ERISA), and
no ERISA Affiliate has incurred or will incur any material liability as a
result of its maintenance, adoption or establishment of, contribution to, other
participation in, or its being required to contribute to or otherwise
participate in, any such plan, program or arrangement at any time prior to the
Closing Date.
(iv) Except as set forth on Schedule 2.19, neither the
Company nor any of its subsidiaries provides or may be required to provide and
no Plan, other than a Plan that is an employee pension benefit plan (within the
meaning of Section 3(2)(A) of ERISA), provides or may be required to provide
benefits, including, without limitation, death, health or medical benefits
(whether or not insured), with respect to current or former employees of the
Company or any of its subsidiaries beyond their retirement or other termination
of service with the Company or its subsidiaries (other than (A) coverage
mandated by applicable law, (B) deferred compensation benefits accrued as
liabilities on the books of the Company or its subsidiaries, or (C) benefits
the full cost of which is borne by the current or former employee (or his or
her beneficiary)). No ERISA Affiliate maintains any Plan under which any
employee or former employee of any of the ERISA Affiliates may receive medical
benefits which cannot be modified or terminated by the ERISA Affiliates at any
time without the consent of any person (except as provided by generally
applicable legislation).
(v) Neither the transactions contemplated hereby nor the
Recapitalization Transactions will result in (i) any portion of any amount paid
or payable by the Company to a "disqualified individual" (within the meaning of
Section 280G(c) of the Internal Revenue Code and the regulations promulgated
thereunder), whether paid or payable in cash, securities of the Company or
otherwise and whether considered alone or in conjunction with any other amount
paid or payable to such a "disqualified individual", being an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Internal Revenue Code
and the regulations promulgated thereunder, (ii) any employee of the Company or
any of its subsidiaries being entitled to severance pay, unemployment
compensation, or any other payment, (iii) an acceleration of the time of
payment or vesting, or an increase in the amount of compensation due to any
such employee or former employee or (iv) any prohibited transaction described
in Section 406 of ERISA or Section 4975 of the Internal Revenue Code for which
an exemption is not available.
(vi) No ERISA Affiliates have incurred any material liability
with respect to any Plan under ERISA (including, with-
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out limitation, Title I or Title IV thereof, other than liability for premiums
due to the Pension Benefit Guaranty Corporation), the Internal Revenue Code or
other applicable law, which has not been satisfied in full or been accrued on
the consolidated balance sheet of the Company and its subsidiaries as of
December 31, 1995 pending full satisfaction, and no event has occurred, and
there exists no condition or set of circumstances which could result in the
imposition of any material liability under ERISA, the Internal Revenue Code or
other applicable law with respect to any Plan.
(vii) With respect to each Plan that is funded wholly or
partially through an insurance policy, all premiums required to have been paid
to date under such insurance policy have been paid, and, except as set forth on
Schedule 2.19, as of the Closing Date there will be no material liability of
any of the ERISA Affiliates under any such insurance policy or ancillary
agreement with respect to such insurance policy in the nature of a retroactive
rate adjustment, loss sharing arrangement or other actual or contingent
liability arising wholly or partially out of events occurring prior to the
Closing Date.
(viii) None of the ERISA Affiliates has made any
contribution to any Plan that may be subject to any material excise tax under
Section 4972 of the Internal Revenue Code.
SECTION 2.20. Environmental Matters.
(a) Except as set forth in Schedule 2.20 hereto:
(i) Neither the business or operations of the Company and
its subsidiaries, nor any of the real property owned or leased by the Company
or its subsidiaries (the "Real Property"), violates any applicable
Environmental Law (as defined below) in any material respect.
(ii) Neither the Company nor any of its subsidiaries has
stored, used, treated, released, discharged, spilled or disposed of any
pollutants, contaminants, hazardous or toxic wastes, substances or materials,
or other wastes or materials, that are subject to regulation under any
applicable Environmental Law (collectively, "Regulated Materials"), either on
or at any Real Property or at any other location, in violation in any material
respect of any Environmental Law.
(iii) Neither the Company nor any of its subsidiaries has
received any notice from any governmental authority or any other person
alleging that the Company, its subsidiaries, or their respective business,
operations, or properties are in violation of any Environmental Law or any
applicable Governmental
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Approval (as defined below), or that any of them are responsible or potentially
responsible for the investigation, removal, confinement, remediation or cleanup
(collectively, "Response Action") of any Regulated Material at, on or beneath
(A) the Real Property or any land adjacent thereto; (B) any property previously
owned, leased or operated by the Company, it subsidiaries, or any of their
predecessors; or (C) any other site.
(iv) Neither the Company nor any of its subsidiaries is subject
to any actual or, to the best knowledge of the Company, threatened government
or private litigation or proceedings involving a claim for damages or other
potential liabilities arising under or pursuant to any Environmental Law or
Common Law Environmental Principles (as defined below).
(v) There is no condition or circumstance at, on or beneath (A)
any premises owned, leased, or operated by the Company or any of its
subsidiaries, or previously owned, leased or operated by the Company, it
subsidiaries or any of their predecessors, or (B) any property at which
Regulated Materials generated by the Company, any of its subsidiaries or any of
their respective predecessors have been treated or disposed of, that could
reasonably be expected to give rise to any liability, loss or expense to the
Company under any Environmental Law or form the basis of any requirement for a
Response Action by the Company under any Environmental Law or Common Law
Environmental Principles. Neither the Company nor any of its subsidiaries have
arranged for the treatment or disposal of any Regulated Material, or arranged
for the transport of a Regulated Material for treatment or disposal, at or to
any facility listed or proposed for listing on the National Priorities List
established pursuant to CERCLA (as defined below) or on any list established by
another governmental authority of sites requiring Response Action, or to any
other location that is the subject of enforcement action or Response Action, or
to the best knowledge of the Company, an investigation by any Governmental
Authority or other party that could lead to claims against the Company or its
subsidiaries for any Response Action, property or natural resource damages, or
personal injury.
(vi) The Company and its subsidiaries now hold, and the Company,
its subsidiaries, and their respective predecessors in the past have held, all
Governmental Approvals required under any applicable Environmental Laws with
respect to their respective businesses, operations, activities, properties and
assets. Each of the Company and its subsidiaries has timely filed all material
reports required to be filed by it under applicable Environmental Laws with
respect to the properties, operations, and businesses of the Company and its
subsidiaries; and each of the Company and its subsidiaries has generated and
maintained, in all material
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respects, all data, documentation and records required to be generated or
maintained by the Company and its subsidiaries under any applicable
Environmental Laws with respect thereto.
(b) For the purposes of this Agreement, the following
terms shall have the meanings set forth below:
(i) "Common Law Environmental Principles" means any
principles of common law under which a person or entity may be held liable for
the release or discharge into the environment of any pollutants, contaminants,
hazardous or toxic wastes, substances or materials, or other wastes or
materials.
(ii) "Environmental Law" shall mean any federal, state,
provincial, foreign, or local statute, law, rule, regulation, ordinance, code,
order, consent decree, settlement agreement, or policy having the force of law
relating to protection of the environment, natural resources, or public or
employee health and safety, or relating to the production, generation, use,
storage, treatment, processing, transportation or disposal of Regulated
Materials, including, without limitation: the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.
("CERCLA"); the Superfund Amendments and Reauthorization Act, Public Law
99-499, 100 Stat. 1613; the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. Section 136, et seq.; the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801; the Federal Water Pollution Control Act, 33 U.S.C. Section
1251 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.;
the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Occupational Safety and
Health Act, 29 U.S.C. Section 651 et seq.; and counterpart state and local
laws, and regulations adopted thereunder.
(iii) "Governmental Approval" means any permit, license,
authorization, consent, approval, waiver, exception, variance, order, or
exemption issued by any governmental authority in respect of any Environmental
Law.
(c) The Asset Recovery Services division of the Company
is in the business (among other things) of recovering components from printed
circuit board assemblies (the "Materials") for original equipment manufacturers
("OEMs"). Following recovery of components from the Materials, the OEMs
control and are responsible for the disposition of at least 85% of the
Materials after such Materials have left the Company's facilities. In
exercising such control and responsibility, the OEMs, with respect to at least
85% of the Materials, select, specify and contract (in writing or orally) with
the entities or facilities to receive such Materials for recycling, reclamation
and/or other disposition, and the OEMs are responsible for
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arranging for such disposition and the transportation of such Materials to such
selected entities of facilities.
SECTION 2.21. Contracts. Except as set forth on Schedule
2.21 hereto or as disclosed in the Company SEC Filings, there are no contracts
or agreements that are material to the conduct of the Business or to the
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. The Company has made available to the
Purchasers complete and accurate copies of the contracts and agreements set
forth on Schedule 2.21. Except as set forth on Schedule 2.21, the agreements
referred to on such Schedule are valid and enforceable obligations of the
Company and, to the best knowledge of the Company, of the other parties
thereto. The Company has not been notified in writing of any claim that any
agreement referred to on such Schedule is not valid and enforceable in
accordance with its terms for the periods stated therein, or that there is
under any such contract any existing default or event of default or event which
with notice or lapse of time or both would constitute such a default, other
than any such defaults which, in the aggregate, would not have a Material
Adverse Effect.
SECTION 2.22. Insurance. All policies of fire, liability,
workers' compensation and other forms of insurance providing insurance coverage
to or for the Company or any of its subsidiaries for events or occurrences
arising or taking place in the case of occurrence type insurance, and for
claims made or suits commenced in the case of claims-made type insurance,
between the date of this Agreement and the Closing Date, are listed on Schedule
2.22 hereto, and, except as set forth on Schedule 2.22, all premiums with
respect thereto covering all periods up to and including the date hereof have
been paid, and no notice of cancellation or termination has been received with
respect to any such policy. All such policies are in full force and effect,
and, except as set forth on Schedule 2.22, provide insurance in such amounts
and against such risks as is customary for companies engaged in similar
businesses to protect the employees, properties, assets, Business and
operations of the Company and its subsidiaries. All such policies will remain
in full force and effect and will not in any way be affected by, or terminate
or lapse by reason of, any of the transactions contemplated hereby or the
Recapitalization Transactions.
SECTION 2.23. Offering of the Securities. Neither the
Company nor any person authorized or employed by the Company as agent, broker,
dealer or otherwise in connection with the offering or sale of the Securities
or any similar securities of the Company has offered any such securities for
sale to, or solicited any offers to buy any such securities from, or otherwise
approached or negotiated with respect thereto with, any
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person or persons, under circumstances that involved the use of any form of
general advertising or solicitation as such terms are defined in Regulation D
of the Securities Act; and, assuming the accuracy of the representations and
warranties of the Purchasers set forth in Article III hereof, neither the
Company nor any person acting on the Company's behalf has taken or will take
any action (including, without limitation, any offer, issuance or sale of any
securities of the Company under circumstances which might require the
integration of such transactions with the sale of the Securities under the
Securities Act or the rules and regulations of the SEC thereunder) which would
subject the offering, issuance or sale of the Securities to the Purchasers to
the registration provisions of the Securities Act.
SECTION 2.24. Related Party Transactions. Except as
set forth on Schedule 2.24 hereto or as contemplated hereby, there are no
existing material arrangements or proposed material transactions between the
Company and (i) any officer or director of the Company or any member of the
immediate family of any of the foregoing persons (such officers, directors and
family members being hereinafter individually referred to as a "Related
Party"), (ii) any business (corporate or otherwise) which a Related Party owns,
directly or indirectly, or in which a Related Party has an ownership interest,
or (iii) between any Related Party and any business (corporate or otherwise)
with which the Company regularly does business.
SECTION 2.25. Brokers. Except as set forth on Schedule 2.25
hereto, all negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by the Company directly with the
Purchasers or through the Company's advisor, Alex. Xxxxx & Sons, Incorporated
("Alex. Xxxxx"), without the intervention of any other person on behalf of the
Company in such manner as to give rise to any valid claim by any other person
against the Purchasers for a finder's fee, brokerage commission or similar
payment.
III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, represents and
warrants to the Company as follows:
SECTION 3.01. Authorization. The execution, delivery and
performance by such Purchaser of this Agreement and the Registration Rights
Agreement, and the purchase and receipt by such Purchaser of the Securities
being acquired by it hereunder, have been duly authorized by all requisite
action on the part of
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such Purchaser, and will not violate any provision of law, any order of any
court or other agency of government, the charter or other governing documents
of such Purchaser, or any provision of any indenture, agreement or other
instrument by which such Purchaser or any of such Purchaser's properties or
assets are bound, or conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in any Claim upon any of the
properties or assets of such Purchaser.
SECTION 3.02. Validity. This Agreement has been duly
executed and delivered by such Purchaser and constitutes the legal, valid and
binding obligation of such Purchaser, enforceable against such Purchaser in
accordance with its terms. The Registration Rights Agreement, when executed
and delivered in accordance with this Agreement, will constitute the legal,
valid and binding obligation of such Purchaser, enforceable against such
Purchaser in accordance with its terms.
SECTION 3.03. Investment Representations.
(a) Such Purchaser is acquiring the Securities being
purchased by such Purchaser hereunder for such Purchaser's own account, for
investment, and not with a view toward the resale or distribution thereof.
(b) Such Purchaser understands that he, she or it, as the
case may be, must bear the economic risk of such Purchaser's investment for an
indefinite period of time because the Securities are not registered under the
Securities Act or any applicable state securities laws, and may not be resold
unless subsequently registered under the Securities Act and such other laws or
unless an exemption from such registration is available. Such Purchaser also
understands that, except as provided in the Registration Rights Agreement, it
is not contemplated that any registration will be made under the Securities Act
or that the Company will take steps which will make the provisions of Rule 144
under the Securities Act available to permit resale of the Securities. Such
Purchaser agrees not to pledge, transfer, convey or otherwise dispose of any of
the Securities, except in a transaction that is the subject of either (i) an
effective registration statement under the Securities Act and any applicable
state securities laws, or (ii) an opinion of counsel to the effect that such
registration is not required (which opinion and counsel shall be reasonably
satisfactory to the Company, it being agreed that Reboul, MacMurray, Xxxxxx,
Xxxxxxx & Kristol shall be satisfactory, and may be relied on by the Company in
making such determination), it being intended that the agreements with respect
to the Securities contained in this sentence shall be construed consistently
with the provisions
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relating to the same subject matter contained in the Registration Rights
Agreement.
(c) Such Purchaser is able to fend for itself in the
transactions contemplated by this Agreement and such Purchaser has the ability
to bear the economic risks of the investment in the Securities being purchased
hereunder for an indefinite period of time. Without limiting or compromising
the rights of the Purchasers pursuant to Section 4.02 hereof, such Purchaser
further acknowledges that he, she or it, as the case may be, has received
copies of the Company SEC Filings and has had the opportunity to ask questions
of, and receive answers from, officers of the Company with respect to the
business and financial condition of the Company and the terms and conditions of
the offering of the Securities and to obtain additional information necessary
to verify such information or can acquire it without unreasonable effort or
expense.
(d) Such Purchaser has such knowledge and experience in
financial and business matters that such Purchaser is capable of evaluating the
merits and risks of its investment in the Securities. Such Purchaser further
represents that he, she or it, as the case may be, is an "accredited investor"
as such term is defined in Rule 501 of Regulation D of the SEC under the
Securities Act with respect to its purchase of the Securities, and that any
such Purchaser that is a limited partnership has not been formed solely for the
purpose of purchasing the Securities.
(e) If such Purchaser is a limited partnership, such
Purchaser represents that it has been organized and is existing as a limited
partnership under the laws of the State of Delaware.
SECTION 3.04. Governmental Approvals. No registration or
filing with, or consent or approval of, or other action by, any Federal, state
or other governmental agency or instrumentality is or will be necessary by the
Purchasers for the valid execution, delivery and performance of this Agreement
and the Registration Rights Agreement other than compliance with the
requirements of the HSR Act.
IV.
COVENANTS OF THE COMPANY
SECTION 4.01. Conduct of the Company's Business. The Company
covenants and agrees that, prior to the Closing Date, unless the Purchasers
shall otherwise consent in writing or as otherwise expressly contemplated by
this Agreement:
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(a) the Business shall be conducted only in, and the
Company and its subsidiaries shall not take any action except in, the ordinary
course of business consistent with past practice and each of the Company and
its subsidiaries shall use its best efforts to preserve intact its present
business organization, keep available the services of its current officers and
employees, maintain its assets (other than those permitted to be disposed of
hereunder) in good repair and condition, maintain its books of account and
records in the usual, regular and ordinary manner and preserve its goodwill and
ongoing business;
(b) the Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber (or permit
any of its subsidiaries to issue, sell, pledge, dispose of or encumber) (A) any
capital stock of any of its subsidiaries or (B) any property or assets
(including Intellectual Property Rights) of the Company or any of its
subsidiaries, except inventory and immaterial assets in the ordinary course of
business consistent with past practice; (ii) amend or propose to amend its
Certificate of Incorporation or By-Laws, except for the filing of the
Certificate of Designations contemplated hereby; (iii) split, combine or
reclassify any outstanding shares of its capital stock, or declare, set aside
or pay any dividend payable in cash, stock, property or otherwise with respect
to such shares (except for any dividends paid in the ordinary course to the
Company or to any wholly-owned subsidiary of the Company); (iv) redeem,
purchase, acquire or offer to acquire (or permit any of its subsidiaries to
redeem, purchase, acquire or offer to acquire) any shares of its capital stock;
or (v) enter into any contract, agreement, commitment or arrangement with
respect to any of the matters set forth in this paragraph (b);
(c) neither the Company nor any of its subsidiaries shall
(i) issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any additional shares of, or securities convertible or exchangeable
for, or any options, warrants or rights of any kind to acquire any shares of,
its capital stock of any class or other property or assets whether pursuant to
the Company's stock option plan or otherwise or, except as contemplated by
Section 5.04 hereof, modify the terms or any outstanding options, warrants or
rights to acquire the Company's capital stock; provided that the Company may
issue shares of Company Common Stock upon the exercise of currently outstanding
options, warrants or contractual rights referred to in Section 2.03(c) hereof
or Schedule 2.03 hereof; (ii) acquire (by merger, consolidation or acquisition
of stock or assets) any corporation, partnership or other business organization
or division thereof (except an existing wholly-owned subsidiary) or any
material amount of assets; (iii) incur or guarantee any in-
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debtedness for borrowed money or refinance any such indebtedness or issue or
sell any debt securities, except pursuant to the Existing Credit Agreement in
the ordinary course of business consistent with past practice; (iv) enter into
or modify any material contract, lease, agreement or commitment, or permit or
perform any act that would cause a material breach of any such contract, lease,
agreement or commitment; (v) terminate, modify, assign, waive, release or
relinquish any material contract rights or amend any material rights or claims;
(vi) other than as disclosed on Schedule 2.09 hereof, discharge or satisfy any
material Claim or settle or compromise any material claim, action, suit or
proceeding pending or threatened against the Company or any of its
subsidiaries, or, if the Company or any of its subsidiaries may be liable or
obligated to provide indemnification, against the Company's directors or
officers, before any court, governmental agency or arbitrator; (vii) make any
loans, advances or capital contributions to or investments in, any other
person; (viii) alter through merger, liquidation, reorganization,
restructuring or in any other manner the corporate structure or ownership of
any subsidiary of the Company; (ix) violate or fail to perform, in any material
respect, any obligation imposed upon the Company or any of its subsidiaries by
any applicable laws, orders or decrees, ordinances, government rules or
regulations or conciliation agreements; or (x) to the extent not described
herein, take any action described in Section 2.09 hereof;
(d) neither the Company nor any of its subsidiaries shall
grant any increase in the salary or other compensation of its directors,
officers or employees, except reasonable salary increases, in the case of
employees who are not directors or executive officers of the Company or any of
its subsidiaries, in the ordinary course of business consistent with past
practice, or grant any bonus to any employee or enter into any employment
agreement or make any loan to or enter into any material transaction of any
other nature with any employee of the Company or any subsidiary;
(e) neither the Company nor any of its subsidiaries shall
take any action to institute any new severance or termination pay practices
with respect to any directors, officers or employees of the Company or its
subsidiaries or to increase the benefits payable under its severance or
termination pay practices;
(f) neither the Company nor any of its subsidiaries shall
(except for reasonable salary increases for employees who are not directors or
executive officers of the Company or any of its subsidiaries in the ordinary
course of business consistent with past practice) adopt or amend, in any
material respect, any
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Plan for the benefit or welfare of any directors, officers or employees, except
as contemplated hereby or as may be required by applicable law or regulation;
(g) each of the Company and its subsidiaries shall use
its best efforts, to the extent not prohibited by the foregoing provisions of
this Section 4.01, to maintain its relationships with its suppliers and
customers, clients and others having business dealings with it, and if and as
requested by the Purchasers, (i) the Company shall use its best efforts to make
reasonable arrangements for representatives of the Purchasers to meet with
customers and suppliers of the Company or any of its subsidiaries and (ii) the
Company shall schedule, and the management of the Company shall participate in,
meetings of representatives of the Purchasers with employees of the Company or
any of its subsidiaries;
(h) the Company shall provide to the Purchasers or their
representatives a draft of any Federal income Tax return or material state,
local or foreign Tax return (other than state or local sales and use taxes)
required to be filed on behalf of the Company or any subsidiary between the
date of this Agreement and the Closing Date at least 30 days prior to the date
on which such return is due (or, if later, any extensions of such date) and
shall not file any such return without the consent of the Purchasers or their
representatives, unless required by applicable law;
(i) the Company shall not, and shall not permit any
subsidiary to, (A) utilize accounting principles different from those used in
the preparation of the financial statements referred to in Section 2.07, (B)
change in any manner its method of maintaining its books of account and records
from such methods as in effect on September 30, 1995, or (C) accelerate booking
of revenues or the deferral of expenses, other than as shall be consistent with
past practice and in the ordinary course of business, except to the extent that
any such action is required by GAAP; and
(j) the Company shall not, and shall not permit any
subsidiary to, enter into any transaction or make any agreement or commitment,
or permit any event to occur, which would result in any of the representations
or warranties of the Company contained in this Agreement not being true and
correct in all material respects at and as of the time immediately after the
occurrence of such transaction or event.
SECTION 4.02. Access to Information. (a) The Company
shall, and shall cause its subsidiaries, officers, directors, employees,
representatives, advisors and agents to, afford, from
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the date hereof, the representatives, advisors and agents of the Purchasers
complete access at all reasonable times during normal business hours to its
officers, employees, agents, properties, books, records and workpapers, and
shall furnish the Purchasers all financial, operating and other information and
data as the Purchasers, through their representatives, advisors or agents, may
reasonably request and shall promptly furnish to the Purchasers a copy of (i)
each report, schedule and other document filed or received by it during such
period pursuant to the requirements of the federal securities laws or rules and
regulations of any national securities exchange, (ii) monthly operating and
financial reports in such form as the Purchasers shall reasonably request,
(iii) all material written correspondence, filings, communications (or
memoranda setting forth the substance thereof) between the Company or any of
its officers, employees, representatives, advisors or agents and any
governmental entity with respect to the obtaining of any waivers, consent or
approvals and the making of any registrations or filings, in each case that is
necessary to the transactions contemplated by this Agreement, including the
Recapitalization Transactions.
(b) The Company shall, and shall cause its officers,
directors, employees, representatives, advisors and agents to, furnish the
representatives, advisors and agents of the Purchasers with such information
and assistance concerning the Company as may be necessary for the Purchasers to
ascertain the accuracy and completeness of the information supplied by the
Company for inclusion in any pre-merger notification report filed under the HSR
Act (and any additional information or documentary material supplied in
response to any request pursuant to Section 7A(e) of the HSR Act and the
regulations thereunder).
(c) No investigation pursuant to this Section 4.02 shall
affect, add to or subtract from any representations or warranties of the
parties hereto or the conditions to the obligations of the parties hereto to
effect the transactions contemplated hereby or the Recapitalization
Transactions.
SECTION 4.03. Further Assurances. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement and the Recapitalization Transactions, including, without limitation,
using all reasonable efforts to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings.
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SECTION 4.04. Inquiries and Negotiations. Subject to any
mutual agreement of the Company and the Purchasers to terminate this Agreement,
prior to the Closing Date, neither the Company nor any of its subsidiaries, nor
any of their respective affiliates, directors, officers, employees,
representatives, advisors or agents, shall, directly or indirectly, solicit or
initiate any discussions, submissions of proposals or offers or negotiations
with, or, subject to the fiduciary obligations of the Company's Board of
Directors under applicable law or other obligations of applicable law or the
rules of the American Stock Exchange (in each such case as advised by counsel
in writing specifying such obligations), participate in any negotiations or
discussions with, or provide any information or data of any nature whatsoever
to, or otherwise cooperate in any other way with, or assist or participate in,
facilitate or encourage any effort or attempt by, any person, other than WCAS
VII and its affiliates, representatives and agents, concerning any transaction
or series of transactions with a third party or parties concerning any merger,
consolidation, sale of substantial assets (other than the sale of assets in the
ordinary course of the Company's business consistent with past practice), sale
of shares of capital stock or other equity securities or sale of debt
securities aggregating $30 million or more (including without limitation any of
the foregoing effected by way of recapitalization, debt restructuring or other
similar transaction), involving the Company or any subsidiary, or any division
of the Company or any of its subsidiaries (such transactions being hereinafter
referred to as "Alternative Transactions"). The Company shall immediately
notify WCAS VII if any bona fide proposal, offer or other contact is received
by, any material information is requested from, or any discussions or
negotiations are sought to be initiated or continued with, the Company in
respect of an Alternative Transaction, and shall, in any such notice to WCAS
VII, indicate the identity of the offeror and the terms and conditions of any
proposals or offers or the nature of any inquiries or contacts, and thereafter
shall keep WCAS VII informed of the status and terms of any such proposals or
offers and the status of any such discussions or negotiations. The Company
shall not release any third party from, or waive any provision of, any
confidentiality or standstill agreement to which the Company is a party.
SECTION 4.05. Notification of Certain Matters. The Company
shall give prompt notice to the Purchasers, and the Purchasers shall give
prompt notice to the Company, of (i) the occurrence, or failure to occur, of
any event that such party believes would be likely to cause (x) any of its
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof or (y) any
covenant, condition or agreement contained in
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this Agreement not to be complied with or satisfied and (ii) any failure of the
Company or the Purchasers, as the case may be, or any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that failure to give such notice shall not constitute a waiver of any defense
that may be validly asserted.
SECTION 4.06. Public Announcements. Prior to the Closing
Date, each of the Company and the Purchasers agrees that it will not issue or
release any press release or otherwise make any public statement with respect
to this Agreement (including the Exhibits and Schedules hereto) or the
transactions contemplated hereby without the prior consent of the other party,
which consent shall not be unreasonably withheld or delayed; provided, however,
that such disclosure can be made without obtaining such prior consent if (i)
the disclosure is required by law or by obligations imposed pursuant to any
listing agreement with any national securities exchange and (ii) the party
making such disclosure has first used its reasonable best efforts to consult
with the other party about the form and substance of such disclosure.
SECTION 4.07. Consents and Approvals. Prior to the Closing
Date, the Company shall promptly apply for or otherwise seek and use its best
efforts to obtain all authorizations, consents, waivers and approvals (whether
by or from any person, entity, court or governmental agency or authority) as
may be required in connection with the consummation of this Agreement and the
Recapitalization Transactions and the transactions contemplated hereby and
thereby, including without limitation any consent or approval required to be
obtained (i) pursuant to the HSR Act, (ii) from the SEC in connection with the
Tender Offer, (iii) the Delaware Secretary of State in connection with the
Certificate of Designations, and (iv) from the stockholders of the Company
pursuant to the Delaware GCL in connection with the New Stock Option Plan at
the first stockholders' meeting following the date hereof.
SECTION 4.08. Financial Statements, Reports, Etc. So long as
(x) WCAS VII shall hold 25% or more of the outstanding Convertible Preferred
Shares, or (y) WCAS XX XX shall hold 25% of the original principal amount of
the Note, the Company shall furnish to the Purchasers:
(i) within 90 days after the end of each fiscal year of the
Company, a consolidated balance sheet of the Company and its
subsidiaries as of the end of such fiscal year and the related
consolidated statements of operations, changes in stockholders' equity
and changes in financial position of
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the Company and its subsidiaries for the fiscal year then ended,
together with supporting notes thereto, certified without
qualification as to scope of audit by a firm of independent certified
public accountants of recognized national standing selected by the
Board of Directors of the Company;
(ii) within 45 days after the end of each quarter in each
fiscal year (other than the last quarter in each fiscal year), a
consolidated balance sheet of the Company and its subsidiaries and the
related consolidated statements of operations, changes in
stockholders' equity and changes in financial position of the Company
and its subsidiaries for the quarter then ended, unaudited but
certified by the principal financial officer of the Company, such
balance sheet to be as of the end of such quarter and such statements
of operations, changes in stockholders' equity and changes in
financial position to be for such quarter and for the period from the
beginning of the fiscal year to the end of such quarter, in each case
subject to normal year-end and audit adjustments;
(iii) within 30 days after the end of each month in each
fiscal year, a consolidated balance sheet of the Company and its
subsidiaries and the related consolidated statement of operations for
the month then ended, unaudited but certified by the principal
financial officer of the Company, such balance sheet to be as of the
end of such month and such statement of operations to be for such
month and for the period from the beginning of the fiscal year to the
end of such month, in each case subject to normal year-end
adjustments;
(iv) not later than the commencement of each fiscal year
of the Company, a budget or business plan for such fiscal year, in
such detail as WCAS VII or WCAS XX XX may reasonably request;
(v) concurrently with the financial statements referred
to in (i) and (ii) above, a brief narrative of the primary reasons for
the variance between the Company's results of operations and its
budget or business plan for such period;
(vi) promptly upon filing, copies of all registration
statements, prospectuses, periodic reports and other documents filed
by the Company with the SEC; and
(vii) promptly, from time to time, such other information
regarding the operations, business, affairs and
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financial condition of the Company or any subsidiary as the Purchasers
may reasonably request, subject to such confidentiality agreements as
the Company may reasonably request.
SECTION 4.09. Directors of the Company. The Company agrees
that it shall nominate and use its best efforts to cause to be elected to the
Board of Directors of the Company immediately after the Closing up to four
members designated by WCAS VII and to provide that the Board of Directors of
the Company shall consist of no more than seven members.
V.
COVENANTS RELATING TO THE RECAPITALIZATION TRANSACTIONS
SECTION 5.01. The Tender Offer. (a) As promptly as
reasonably practicable after the date hereof, but no later than 5 business days
after the date hereof (the "Commencement Date"), the Company shall commence the
Tender Offer pursuant Rules 13e-3 and 13e-4 of the Exchange Act to purchase for
cash up to 6,500,000 of the issued and outstanding shares of Common Stock of
the Company at a net purchase price per share of $2.875. Pursuant to the
Tender Offer the Company shall agree to purchase up to 6,500,000 shares of
Common Stock that are validly tendered and not withdrawn prior to the
expiration date set forth in the Tender Offer Filings initially filed with the
SEC at the commencement of the Tender Offer (such expiration date being herein
called the "Initial Expiration Date"). The Company may, at any time and from
time to time until June 30, 1996 (assuming all the conditions to the Tender
Offer have not been met), extend the Initial Expiration Date (the date that is
the later of the Initial Expiration Date and the latest time and date to which
the Tender Offer is extended is hereinafter called the "Expiration Date"). The
consummation of the Tender Offer shall be conditioned upon a minimum of
2,000,000 of the issued and outstanding shares of Common Stock having been
validly tendered and not withdrawn at the Expiration Date.
(b) On or prior to the Commencement Date, the Company
shall prepare and file with the SEC under the Exchange Act a Tender Offer
Issuer Statement on Schedule 13E-3 and 13E-4 pertaining to the Tender Offer and
shall promptly publish, send or give to the holders of Common Stock the
information required by Rules 13e-3 and 13e-4 of the Exchange Act. The Company
shall cooperate fully with the Purchasers in the preparation of the Tender
Offer Filings and shall not file, publish, send or give any Tender Offer
Filing, without providing the Purchasers and
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their counsel a reasonable opportunity to review the same and comment thereon.
(c) The Company shall also comply with, make any filings
or take any other actions required to be taken under state law in connection
with the commencement and consummation of the Tender Offer.
(d) The Board of Directors of the Company has determined
that the Tender Offer is fair to and in the best interests of the Company's
stockholders and, subject to its fiduciary obligations as advised in writing by
counsel, shall recommend that the Company's stockholders tender at least a
number of shares in the Tender Offer sufficient to secure the minimum number of
shares required to be tendered up to the maximum number of shares permitted to
be tendered. The Company shall, subject as aforesaid, use its best efforts to
solicit and secure from stockholders the minimum number of shares required to
be tendered in the Tender Offer.
(e) The Company shall notify the Purchasers of the
receipt of any comments of the SEC and of any requests by the SEC for
amendments or supplements to the Tender Offer Materials, or for additional
information, and shall promptly supply the Purchasers with copies of all
correspondence between the Company (or its representatives) and the SEC (or its
staff) with respect thereto. If, at any time prior to the Expiration Date any
event should occur relating to or affecting the Company, or to their respective
officers or directors, which event should be described in an amendment or
supplement to the Tender Offer Materials, the parties shall promptly inform one
another and shall cooperate in promptly preparing, filing and clearing with the
SEC and, if required by applicable securities laws, distributing to the
Company's stockholders such amendment or supplement.
SECTION 5.02. Transactions Relating to the Company's
Indebtedness.
(a) Between the date hereof and the Closing Date, the
Company will use its best efforts to take all actions necessary in order that
the Company may, on or prior to the Closing Date, enter into (and/or to cause
any of its subsidiaries to enter into) a new bank credit facility (the "New
Bank Credit Facility") with a bank or syndicate of banks acceptable to the
Purchasers permitting total borrowings of not less than an aggregate
$35,000,000 with initial availability of not less than $15,000,000, all on
terms and conditions reasonably satisfactory to the Purchasers.
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(b) Between the date hereof and the Closing Date, the
Company will use its best efforts to take all actions necessary in order that
the Company may, on or prior to the Closing Date, (x) terminate the Company's
existing bank credit facility with Banque Paribas, as Agent, under the Existing
Credit Agreement and repay any amounts required to discharge all of its
obligations thereunder, (y) obtain the release of any and all guarantees,
pledges or security interests granted by the Company or any of its subsidiaries
in respect of the Existing Credit Agreement, and (z) terminate the Existing
Credit Agreement.
(c) As promptly as reasonably practicable after the
Closing Date, but no later than 5 business days after the date thereof, the
Company will, in accordance with the Indenture, dated as of November 15, 1989,
between BSN Corp. (then the name of the Company) and MTrust Corp., National
Association, as Trustee, as amended, pursuant to which the 9-1/4% Notes were
issued (the "Indenture"), (i) notify the Trustee and all holders of the 9-1/4%
Notes that all of the outstanding 9-1/4% Notes will be redeemed as of a date on
or prior to the Closing Date, (ii) use its best efforts to cause the Trustee to
waive the 60 day notice period set forth in the first paragraph of Section 4.02
of the Indenture, (iii) redeem all of the outstanding 9-1/4% Notes on or prior
to the Closing Date, in accordance with the terms thereof, and pay all amounts
due thereunder, and (iv) upon such redemption terminate the Indenture.
SECTION 5.03. Use of Proceeds. The Company agrees that it
shall use the cash proceeds received from the Purchasers in connection with the
issuance and sale of the Securities and from the New Bank Credit Facility,
first (i) to pay the purchase price for shares of Common Stock to be purchased
by the Company in the Tender Offer and (ii) to repay all amounts required to be
paid in connection with the termination of the Existing Credit Facility and the
redemption of the 9-1/4% Notes, and thereafter for working capital and general
corporate purposes.
SECTION 5.04. New Stock Option Plan. Between the date
hereof and the Closing Date, the Company shall adopt and approve and use its
best efforts to effect, immediately after the Closing, the New Stock Option
Plan. The New Stock Option Plan and the stock option agreements executed and
delivered thereunder shall be based on the terms outlined on Schedule III
hereto and shall provide for the grant of stock options to employees of the
Company in three tranches from a pool of stock options constituting
approximately 17.5% of the issued and outstanding shares of Common Stock of the
Company on the Closing Date on a fully-diluted basis, calculated in accordance
with Schedule III hereto. Following the adoption of the New Stock Option Plan,
the Company will use its best efforts to cause the holders of stock
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options granted under the Existing Stock Option Plan to exchange such options
for new options to be granted pursuant to the New Stock Option Plan. Following
the adoption of the New Stock Option Plan, the Purchasers agree to vote in
favor of the adoption and approval of the New Stock Option Plan at the time
such adoption and approval is submitted to the stockholders of the Company;
provided, however, that such New Stock Option Plan is based on the terms
outlined on Schedule III hereto.
SECTION 5.05. Certificate of Designations; Reservation of
Conversion Shares. (a) Between the date hereof and the Closing Date, the
Company shall adopt and approve the Certificate of Designations, and shall use
its best efforts to cause the Certificate of Designations to be accepted for
filing with the Secretary of State of the State of Delaware.
(b) The Company agrees that prior to June 30, 1996 it
shall authorize and reserve for issuance a sufficient number of shares of
Common Stock to permit all the Conversion Shares to be duly issued upon the
conversion of the Convertible Preferred Shares. The Purchasers agree to vote
in favor of an increase in the authorized capital stock of the Company
sufficient to permit all the Conversion Shares to be duly reserved for issuance
upon the conversion of the Convertible Preferred Shares.
SECTION 5.06. Covenant of the Purchasers. The Purchasers
agree that during the period from the Closing Date through the first
anniversary date thereof they will not cause the Company to (a) effect a
"freeze-out merger," "reverse split" or other similar transaction having the
primary intended purpose of forcing the elimination of all minority interest in
the Company, unless (i) such transaction shall have been approved by a
committee of the Board of Directors of the Company comprised of directors that
are neither designated by the Purchasers nor are members of management of the
Company and (ii) the Company shall have obtained an opinion of an investment
banking firm of national standing as to the fairness of the transaction to the
minority stockholders or (b) file an application or take actions having the
primary intended purpose of (x) causing no shares of Common Stock to be listed
on a national securities exchange or the NASDAQ NMS, or (y) suspending the
Company's duty to file periodic information, documents, reports and other
information pursuant to the Exchange Act, other than with respect to the Tender
Offer or another transaction or other events (whether or not caused by the
Purchasers) that would require the Company to effect such delisting or
deregistration under applicable law or the rules of such national securities
exchange or the NASDAQ NMS. Notwithstanding anything to the contrary contained
herein, it is understood and agreed that the foregoing covenant shall in no
event limit the Purchasers from (A) causing, facilitating or
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encouraging the Company to effect a transaction or a series of transactions
with an unrelated third party or parties concerning any merger, consolidation,
or sale of substantial assets of the Company, (B) making, or causing the
Company to make, a tender offer for all or less than all of the outstanding
Common Stock or (C) taking actions (other than the actions described in clause
(a) above) that are not primarily intended to result in the delisting or
deregistration described in clause (b) above.
VI.
CONDITIONS PRECEDENT
SECTION 6.01. Conditions Precedent to the Obligations of the
Purchasers. The obligations of the Purchasers hereunder are, at their option,
subject to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) Representations and Warranties to Be True and
Correct. The representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on the Closing
Date, with the same force and effect as though such representations and
warranties had been made on and as of such date, and the Company shall have so
certified to the Purchasers in writing.
(b) Performance. The Company shall have performed and
complied in all material respects with all agreements and conditions contained
herein required to be performed or complied with by it prior to or on the
Closing Date, and the Company shall have so certified to the Purchasers in
writing.
(c) All Proceedings to Be Satisfactory. All corporate
and other proceedings to be taken by the Company and all waivers and consents
to be obtained by the Company in connection with the transactions contemplated
hereby shall have been taken or obtained by the Company and all documents
incident thereto shall be satisfactory in form and substance to the Purchasers
and their counsel.
(d) Supporting Documents. On or prior to the Closing
Date the Purchasers and their counsel shall have received copies of the
following supporting documents:
(i) copies of (1) the Certificate of Incorporation of the
Company and the charter documents of each of its subsidiaries,
including all amendments thereto, certified as of a recent date by the
Secretary of State or the appropriate official of the relevant state
of incorporation,
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(2) certificates of said Secretary or official, dated as of a recent
date, as to the due incorporation and good standing of the Company and
each such subsidiary, and listing all documents on file with said
official, and (3) a telegram or facsimile from said Secretary or
official as of the close of business on the next business day
preceding the Closing Date as to the continued due incorporation and
good standing of the Company and each such subsidiary and to the
effect that no amendment to the respective charter documents of such
corporations has been filed since the date of the certificate referred
to in clause (2) above; and
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company, dated the Closing Date and certifying (1)
that attached thereto is a true and complete copy of the By-laws of
the Company as in effect on the date of such certification and at all
times since May 20, 1993; (2) that attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors of the
Company authorizing the execution, delivery and performance of this
Agreement and the Registration Rights Agreement, the issuance, sale
and delivery of the Securities, the reservation, issuance and delivery
of the Conversion Shares, and the performance of the Recapitalization
Transactions and that all such resolutions are still in full force and
effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement; (3) that the Certificate
of Incorporation of the Company has not been amended since the date of
the last amendment referred to in the certificate delivered pursuant
to clause (i)(2) above; and (4) as to the incumbency and specimen
signature of each officer of the Company executing this Agreement, the
Note and the Registration Rights Agreement, the stock certificates
representing the Convertible Preferred Shares and the Common Shares
and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of said corporation as to the
incumbency and signature of the officer signing the certificate
referred to in this paragraph (ii).
All such documents shall be satisfactory in form and substance to the
Purchasers and their counsel.
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(e) Opinion of Counsel. The Purchasers shall have
received from Xxxxxx & Xxxx L.L.P., counsel for the Company, an opinion dated
the Closing Date, substantially in the form of Annex I attached hereto.
(f) Consents; HSR Act Waiting Period. The Company shall
have obtained all consents required to be obtained pursuant to Section 4.07
hereof. Without limiting the generality of the foregoing, all applicable
waiting periods under the HSR Act with respect to the transactions contemplated
hereby shall have expired or been terminated.
(g) Legal Proceedings. No preliminary or permanent
injunction or other order, decree or ruling issued by any court of competent
jurisdiction nor any statute, rule, regulation or order entered, promulgated or
enacted by any governmental, regulatory or administrative agency or authority,
or national securities exchange shall be in effect that would prevent the
consummation of the transactions contemplated Agreement or the Recapitalization
Transactions.
(h) Registration Rights Agreement. Each party hereto
shall have executed and delivered the Registration Rights Agreement.
(i) Certificate of Designations. The Certificate of
Designations shall have been filed with the Secretary of State of the State of
Delaware and the Convertible Preferred Share shall have been duly authorized in
accordance with the terms thereof.
(j) Calculation of Convertible Preferred Shares and
Common Shares. The Purchasers and the Company shall have agreed pursuant to
Section 1.03 hereof on the actual number of Convertible Preferred Shares and
Common Shares to be acquired by the Purchasers.
(k) Tender Offer. (i) All Tender Offer Filings (together
with any amendments or supplements thereto) required to be filed with the SEC
in connection with the Tender Offer shall have been filed, (ii) all statutory
periods (or extensions thereof) during which the Tender Offer must remain open
to the stockholders of the Company shall have expired, and (iii) the
stockholders of the Company shall have tendered and not withdrawn prior to the
Expiration Date in the aggregate not less than 2,000,000 nor more than
6,500,000 shares of the Common Stock outstanding on the Closing Date for
repurchase by the Company in accordance with the Tender Offer.
(l) Repayment of Indebtedness. (i) The Company shall
have satisfied in full its outstanding obligations under the
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Existing Credit Facility, the liens granted thereunder shall have been
discharged and the Existing Credit Facility shall have been terminated, and
(ii) the Company shall have provided for the redemption of all the outstanding
9-1/4% Notes and the termination of the Indenture.
(m) New Bank Credit Facility. The Company shall have
entered into the New Bank Credit Facility on terms acceptable to the Purchasers
and shall have received proceeds therefrom sufficient to permit the Company to
effect the Recapitalization Transactions.
(n) New Stock Option Plan. The New Stock Option Plan
containing terms substantially in the form of Schedule III hereto shall have
been approved by the Purchasers and the Company.
SECTION 6.02. Conditions Precedent to the Obligations of the
Company. The obligations of the Company hereunder are, at its option, subject
to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) Representations and Warranties to Be True and
Correct. The representations and warranties of the Purchasers contained in
this Agreement shall be true and correct in all material respects on the
Closing Date, with the same effect as though such representations and
warranties had been made on and as of such date, and the Purchasers shall have
so certified to the Company in writing.
(b) Performance. The Purchasers shall have performed and
complied in all material respects with all agreements and conditions contained
herein required to be performed or complied with by them prior to or on the
Closing Date, and the Purchasers shall have so certified to the Company in
writing.
(c) All Proceedings to Be Satisfactory. All proceedings
to be taken by the Purchasers and all waivers and consents to be obtained by
the Purchasers in connection with the transactions contemplated hereby shall
have been taken or obtained by the Purchasers and all documents incident
thereto shall be satisfactory in form and substance to the Company and its
counsel.
(d) HSR Act Waiting Period. All applicable waiting
periods under the HSR Act with respect to the transactions contemplated hereby
shall have expired or been terminated.
(e) Legal Proceedings. No preliminary or permanent
injunction or other order, decree or ruling issued by any court of competent
jurisdiction nor any statute, rule, regulation or
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order entered, promulgated or enacted by any governmental, regulatory or
administrative agency or authority, or national securities exchange shall be in
effect that would prevent the consummation of the transactions contemplated
Agreement or the Recapitalization Transactions.
(f) Registration Rights Agreement. Each party hereto
shall have executed and delivered the Registration Rights Agreement.
(g) Certificate of Designations. The Certificate of
Designations shall have been filed with the Secretary of State of the State of
Delaware and the Convertible Preferred Share shall have been duly authorized in
accordance with the terms thereof.
(h) New Bank Credit Facility. The Company shall have
entered into the New Bank Credit Facility on terms acceptable to the Purchasers
and shall have received proceeds therefrom sufficient to permit the Company to
effect the Recapitalization Transactions.
(i) New Stock Option Plan. The New Stock Option Plan
containing terms substantially in the form of Schedule III hereto shall have
been approved by the Purchasers and the Company.
VII.
SURVIVAL OF REPRESENTATIONS; INDEMNITY
SECTION 7.01. Survival of Representations. Subject as set
forth below, all representations and warranties (other than representations and
warranties as to Tax matters) made by any party hereto in this Agreement or
pursuant hereto shall survive for the period commencing on the date hereof and
ending on February 7, 1997, and (ii) the representations and warranties as to
Tax matters made by any party hereto in this Agreement or pursuant hereto shall
survive for the applicable Tax statute of limitation period, including any
extensions thereof.
SECTION 7.02. General Indemnity.
(a) Subject to the terms and conditions of this Article
VII, the Company hereby agrees to indemnify, defend and hold the Purchasers
harmless from and against all demands, claims, actions or causes of action,
assessments, losses (including diminution in value of the Common Shares or the
Convertible Preferred Shares), damages, liabilities, costs and expenses,
including, without limitation, interest, penalties and reasonable attorneys'
fees and expenses (collectively, "Dam-
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ages"), asserted against, resulting to, imposed upon or incurred by the
Purchasers by reason of or resulting from a breach of any representation,
warranty or covenant of the Company contained in or made pursuant to this
Agreement.
(b) Subject to the terms and conditions of this Article
VII, the Purchasers hereby agrees to indemnify, defend and hold the Company
harmless from and against all Damages asserted against, resulting to, imposed
upon or incurred by the Company by reason of or resulting from a breach of any
representation, warranty or covenant of the Purchasers contained in or made
pursuant to this Agreement.
SECTION 7.03. Conditions of Indemnification. The respective
obligations and liabilities of the Purchasers, on the one hand, and the
Company, on the other hand (the "indemnifying party"), to the other (the "party
to be indemnified") under Section 7.02 hereof with respect to claims resulting
from the assertion of liability by third parties shall be subject to the
following terms and conditions:
(a) within 20 days after receipt of notice of
commencement of any action or the assertion in writing of any claim by a third
party, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing;
(b) in the event that the indemnifying party, by the 30th
day after receipt of notice of any such claim (or, if earlier, by the tenth day
preceding the day on which an answer or other pleading must be served in order
to prevent judgment by default in favor of the person asserting such claim),
does not elect to defend against such claim, the party to be indemnified will
(upon further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the
account and risk of the indemnifying party, subject to the right of the
indemnifying party to assume the defense of such claim at any time prior to
settlement, compromise or final determination thereof, provided that the
indemnifying party shall be given at least 15 days prior written notice of the
effectiveness of any such proposed settlement or compromise;
(c) anything in this Section 7.03 to the contrary
notwithstanding (i) if there is a reasonable probability that a claim may
materially and adversely affect the indemnifying party other than as a result
of money damages or other money payments, the indemnifying party shall have the
right, at its own cost and
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expense, to compromise or settle such claim, but (ii) the indemnifying party
shall not, without the prior written consent of the party to be indemnified,
settle or compromise any claim or consent to the entry of any judgment which
does not include as an unconditional term thereof the giving by the claimant or
the plaintiff to the party to be indemnified a release from all liability in
respect of such claim; and
(d) in connection with any such indemnification, the
indemnified party will cooperate in all reasonable requests of the indemnifying
party.
SECTION 7.04. Limitation on Certain Indemnities.
Notwithstanding anything in this Article VII to the contrary:
(a) the Company shall not be obligated to indemnify,
defend and hold harmless the Purchasers pursuant to Section 7.02 hereof unless
the aggregate amount of such Damages exceeds $1,000,000; and
(b) the Company's aggregate liability and obligation to
indemnify, defend and hold harmless the Purchasers pursuant to said Section
7.02 shall in no event exceed the aggregate purchase price paid by the
Purchasers for the Securities pursuant to Sections 1.01 and 1.02 hereof.
VIII.
TERMINATION
SECTION 8.01. Termination by the Parties. This Agreement may
be terminated and the transactions contemplated hereby may be abandoned at any
time prior to the Closing Date:
(a) by mutual consent of the Purchasers and the Company;
(b) by either the Purchasers or the Company, if (i) the
transactions contemplated hereby have not been consummated before [June 30],
1996 or (ii) any permanent injunction or action by any governmental entity of
competent jurisdiction preventing the consummation of the transactions
contemplated by this Agreement and the Recapitalization Transactions shall have
become final and nonappealable; provided, however, that the party seeking to
terminate this Agreement pursuant to this clause (ii) shall have used all
reasonable efforts to remove such injunction or overturn such action;
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(c) by the Purchasers, if (i) there has been a breach in
any material respect of any of the representations and warranties of the
Company set forth herein, (ii) there has been a breach in any material respect
of any of the covenants or agreements set forth in this Agreement on the part
of the Company, which breach is not curable or, if curable, is not cured within
30 days after written notice thereof is given by the Purchasers to the Company,
or (iii) the Board of Directors of the Company (x) shall have withdrawn or
modified in a manner adverse to the Purchasers its approval or recommendation
of this Agreement, the Tender Offer or the transactions contemplated hereby
after the Company (or any of its subsidiaries or affiliates) has received, or
there has been publicly announced or otherwise made to the Company's
stockholders, a bona fide offer or proposal with respect to an Alternative
Transaction, or (y) shall have made any recommendation with respect to an
Alternative Transaction other than to reject such Alternative Transaction.
(d) by the Company if (i) there has been a breach in any
material respect of any of the representations and warranties of the Purchasers
set forth herein, or (ii) there has been a breach in any material respect of
any of the covenants or agreements set forth in this Agreement on the part of
the Purchasers which breach is not curable or, if curable, is not cured within
30 days after written notice thereof is given by the Purchasers to the Company
or, (iii) such termination is necessary to allow the Company to enter into an
Alternative Transaction that its Board of Directors has determined in good
faith, by majority vote after consultation with its financial advisors and
based upon the written of the opinion of outside counsel to the Company is more
favorable to the stockholders of the Company than the transactions contemplated
hereby.
SECTION 8.02. Effect of Termination. In the event of the
termination of this Agreement and the abandonment of the transactions
contemplated hereby pursuant to this Article VIII, this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to any other party hereto, except as provided in this Section 8.02
and Sections 4.06 and 9.02 hereof, and except that nothing shall relieve any
party from liability for any breach of this Agreement.
IX.
MISCELLANEOUS
SECTION 9.01. Restrictive Legends. (a) The certificate or
instrument representing the Note shall bear a legend substantially in the
following form:
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THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
(b) Each certificate representing the Convertible
Preferred Shares or the Common Shares, as the case may be, and any shares of
capital stock received in respect thereof, whether by reason of a stock split
or share reclassification thereof, a stock dividend thereon or otherwise, and
each certificate for any such securities issued to subsequent transferees of
any such certificate shall be stamped or otherwise imprinted with the legend
required to be borne by such shares by the Registration Rights Agreement,
except as expressly provided in the Registration Rights Agreement.
SECTION 9.02. Expenses, Etc. The Company shall reimburse
WCAS VII or pay on its behalf any reasonable fees and expenses incurred by WCAS
VII in connection with the negotiation and preparation of this Agreement and
the related documents and agreements contemplated hereby; provided, however,
that in the event that the transactions contemplated hereby are not
consummated, the Company shall only be obligated hereunder, if (i) within 12
months of the date hereof, the Company agrees or publicly announces its
intention to agree to an Alternative Transaction, or (ii) such failure to
consummate the transactions contemplated hereby results from the termination of
this Agreement by the Purchasers in accordance with the terms hereof due to the
breach in any material respect of representations, warranties, covenants or
agreements of the Company set forth herein. In addition, the Company shall
also pay WCAS VII a termination fee of one million dollars ($1,000,000) (the
"Termination Fee") in the event the transactions contemplated hereby are not
consummated and within 12 months of the date hereof, the Company agrees or
publicly announces its intention to agree to an Alternative Transaction. For
purposes hereof, the "fees and expenses incurred by WCAS VII" shall include,
without limitation, the fees, disbursements and expenses of counsel,
accountants, financial advisors and other experts retained by WCAS VII in
connection with this Agreement and the transactions contemplated hereby. Such
Termination Fee and/or such fees and expenses, as the case may be, shall be
payable on the Closing Date or, in the case of clause (i) above, upon the
earlier to occur of an agreement or announcement of an Alternative Transaction,
or in the case of clause (ii) above, upon the termination of this Agreement.
SECTION 9.03. WCAS VII Fee. On the Closing Date, the Company
shall pay to WCAS VII by wire transfer of immediately
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available funds to the account designated by WCAS VII two business days prior
to the Closing Date, an amount equal to 1% of the aggregate purchase price paid
by the Purchasers for the Securities pursuant to Sections 1.01 and 1.02 hereof.
SECTION 9.04. Survival of Agreements. All covenants,
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement and the issuance, sale and delivery of
the Securities pursuant hereto, notwithstanding any investigation made at any
time by or on behalf of any party hereto. All statements contained in any
certificate or other instrument delivered by the Company hereunder shall be
deemed to constitute representations and warranties made by the Company.
SECTION 9.05. Parties in Interest. All covenants and
agreements contained in this Agreement by or on behalf of any party hereto
shall bind and inure to the benefit of the respective successors and assigns of
such party hereto whether so expressed or not.
SECTION 9.06. Notices. Any notice or other communications
required or permitted hereunder shall be deemed to be sufficient if contained
in a written instrument delivered in person or duly sent by first class
certified mail, postage prepaid, by nationally recognized overnight courier, or
by telecopy addressed to such party at the address or telecopy number set forth
below or such other address or telecopy number as may hereafter be designated
in writing by the addressee to the addressor listing all parties:
if to the Company, to:
Aurora Electronics, Inc.
0000 Xxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000-0000
Telecopy Number: (000) 000-0000
Attention: President
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with a copy to:
Xxxxxx & Xxxx, L.L.P.
0000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Telecopy Number: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx, Esq.
Xxxxxxx X. Xxxxxx, Esq.
if to any Purchaser, to:
Welsh, Carson, Xxxxxxxx & Xxxxx
One World Financial Center
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Telecopy Number: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
Xxxxxx X. XxXxxxxxx
with a copy to:
Reboul, MacMurray, Xxxxxx, Xxxxxxx & Kristol
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy Number: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx, Esq.
or, in any case, at such other address or addresses as shall have been
furnished in writing by such party to the other parties hereto. All such
notices, requests, consents and other communications shall be deemed to have
been received (a) in the case of personal delivery, on the date of such
delivery, (b) in the case of mailing, on the fifth business day following the
date of such mailing, (c) in the case of delivery by overnight courier, on the
business day following the date of delivery to such courier, and (d) in the
case of telecopy, when received.
SECTION 9.07. Entire Agreement; Assignment. This Agreement
(including the Schedules, Exhibits and Annexes thereto) constitutes the entire
agreement of the parties with respect to the subject matter hereof and may not
be amended or modified nor any provisions waived except in a writing signed by
the Company and the Purchasers. This Agreement shall not be assigned by
operation of law of otherwise without the consent of the other parties hereto;
provided, however, that WCAS VII may freely assign to an affiliate of the
lender under the New Bank Credit Facility the right to purchase up to 2.5% of
the Convertible Preferred Shares that may be purchased by WCAS VII and WCA
Management Corporation may freely assign all of its right to
46
52
purchase Convertible Preferred Shares to the individuals listed in footnote 3
to Schedule I hereto.
SECTION 9.08. Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
SECTION 9.09. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York.
47
53
IN WITNESS WHEREOF, the Company and the Purchasers have
executed this Agreement as of the day and year first above written.
AURORA ELECTRONICS, INC.
By /s/ XXX X. XXXXXX
--------------------------------
Chief Executive Officer
WELSH, CARSON, XXXXXXXX & XXXXX VII, L.P.
By WCAS VII Partners,
General Partner
By /s/ XXXXX XXX XXXXX
--------------------------------
General Partner
WCAS CAPITAL PARTNERS II, L.P.
By WCAS XX XX Partners,
General Partner
By /s/ XXXXX XXX XXXXX
-------------------------------
General Partner
WCAS INFORMATION PARTNERS, L.P.
By /s/ XXXXX XXX XXXXX
-------------------------------
General Partner
Attorney-in-Fact
WCA MANAGEMENT CORPORATION
By /s/ XXXXX XXX XXXXX
-------------------------------
Vice President of Finance
THE XXXXXX XXXX TRUST
By:/s/ XXXXXX X. XXXX
-------------------------------
Trustee
/s/ XXX X. XXXXXX
--------------------------------
Xxx X. Xxxxxx
48
54
SCHEDULE I
Purchasers
Name and Address of Purchaser Fractional Interest
----------------------------- -------------------
Welsh, Carson, Xxxxxxxx 94.00%(1,2)
& Xxxxx VII, L.P.
WCAS Capital Partners II, L.P. 0.00%
WCAS Information Partners, L.P. 2.50%
WCA Management Corporation(3) 2.50%(4)
c/o One World Financial Center
000 Xxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxx
Xxxxxx X. XxXxxxxxx
Xxx X. Xxxxxx 0.50%
The Xxxxxx Xxxx Trust 0.50%
c/o Aurora Electronics, Inc.
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxxxx 00000
------
Total: 100.00%
-----------------------------
1. May be reduced by 2.50% in the event that WCAS VII assigns an interest
to purchase Convertible Preferred Shares to an affiliate of the lender
under the New Bank Credit Facility.
2. May be reduced by 2.50% in the event that WCA Management elects to
purchase an additional 2.50% of the Convertible Preferred Shares.
3. Prior to the Closing Date WCA Management will assign its right to
purchase Convertible Preferred Shares to the following individuals:
Xxxxx X. Xxxxxxxx, Xxxxxxx X. Xxxxxx, Xxxxxxx X. xx Xxxxxx, Xxxxxx X.
XxXxxxxxx, Xxxxx X. Xxxxxx, Xxxxxx X. Xxxxxxxxx, Xxxxxx X. Xxxx,
Xxxxxxx X. Xxxxx, Xxxxx Xxx Xxxxx and Xxxxxxx X. Xxxxx.
4. May be increased by 2.50% in the event that WCA Management elects to
purchase an additional 2.50% of the Convertible Preferred Shares.
55
SCHEDULE II
Shares of Convertible Preferred Stock and Common Stock to be Sold
MINIMUM RANGE TENDER*
Aggregate Convertible
Fractional** Purchase Preferred Common
Name of Purchaser Interest Price Shares Shares Note
----------------- ------------ ---------- ----------- ------ -----------
Welsh, Carson, Xxxxxxxx
& Xxxxx VII, L.P. 94.0% $32,900,000 329,000 -- --
WCAS Capital n/a $10,000,000 -- 610,022 $10,000,000
Partners II, L.P.
WCAS Information 2.5% $ 875,000 8,750 -- --
Partners, L.P.
WCA Management 2.5% $ 875,000 8,750 -- --
Corporation
Xxx X. Xxxxxx .5% $ 175,000 1,750 -- --
The Xxxxxx Xxxx Trust .5% $ 175,000 1,750 -- --
TOTAL: 100.0% $45,000,000 350,000 610,022 $10,000,000
---------------------------
* This Schedule shall be in effect if up to 2,000,000 shares of common
Stock have been tendered.
** See Schedule I for possible alternate fractional interests for WCAS
VII and WCA Management Corporation
56
SCHEDULE II
Shares of Convertible Preferred Stock and Common Stock to be Sold
MIDPOINT RANGE TENDER*
Aggregate Convertible
Fractional** Purchase Preferred Common
Name of Purchaser Interest Price Shares Shares Note
----------------- ------------ ----------- ----------- -------- -----------
Welsh, Carson, Xxxxxxxx 94.0% $32,250,000 352,500 -- --
& Xxxxx VII, L.P.
WCAS Capital n/a $10,000,000 -- 608,617 $10,000,000
Partners II, L.P.
WCAS Information 2.5% $ 937,500 9,375 -- --
Partners, L.P.
WCA Management 2.5% $ 937,500 9,375 -- --
Corporation
Xxx X. Xxxxxx .5% $ 187,500 1,875 -- --
The Xxxxxx Xxxx Trust .5% $ 187,500 1,875 -- --
TOTAL: 100.0% $47,500,000 375,000 608,617 $10,000,000
---------------------------
* This schedule shall be in effect if between 2,000,001 and 4,000,000
shares of Common Stock have been tendered.
** See Schedule I for possible alternate fractional interests for WCAS
VII and WCA Management Corporation
57
SCHEDULE II
Shares of Convertible Preferred Stock and Common Stock to be Sold
MAXIMUM RANGE TENDER*
Aggregate Convertible
Fractional** Purchase Preferred Common
Name of Purchaser Interest Price Shares Shares Note
----------------- ------------ ----------- ----------- --------- -----------
Welsh, Carson, Xxxxxxxx 94.0% $37,600,000 376,000 -- --
& Xxxxx VII, L.P.
WCAS Capital n/a $10,000,000 -- 610,022 $10,000,000
Partners II, L.P.
WCAS Information 2.5% $ 1,250,000 12,500 -- --
Partners, L.P.
WCA Management 2.5% $ 1,250,000 12,500 -- --
Corporation
Xxx X. Xxxxxx .5% $ 250,000 2,500 -- --
The Xxxxxx Xxxx Trust .5% $ 250,000 2,500 -- --
TOTAL: 100.0% $50,000,000 400,000 610,022 $10,000,000
---------------------------
* This schedule shall be in effect if between 4,000,001 and 6,500,000
shares of Common Stock have been tendered.
** See Schedule I for possible alternate fractional interests for WCAS
VII and WCA Management Corporation
58
SCHEDULE III
FUNDAMENTAL TERMS OF THE
NEW STOCK OPTION PLAN
The total number of options in the New Stock Option Plan (the
"Option Pool") will be equal to 17.5% of the pro forma shares outstanding at
Closing less the number of shares repurchased in the Tender Offer, plus the
number of Conversion Shares, plus the number of Common Shares issued in
connection with the Note, plus the number of shares issuable on the exercise of
the options in the Option Pool. The table below describes the calculation of
the total number of options in The Option Pool, as well as the allocation of
options into Tranche A, B and C (see below):
Minimum Midpoint Maximum
Tender Tender Tender
--------- --------- ---------
Shares tendered in Tender Offer . . . . . . . . . 2,000,000 4,250,000 6,500,000
Shares outstanding at Closing(1). . . . . . . . . 9,402,106 9,402,106 9,402,106
Shares repurchased in Offer . . . . . . . . . . . (2,000,000) (4,250,000) (6,500,000)
Conversion Shares . . . . . . . . . . . . . . . . 16,470,588 17,647,059 18,823,529
Shares issued in conjunction with Notes . . . . . 610,022 608,617 607,211
---------- ---------- ----------
Total pro forma shares outstanding at Closing . 24,482,716 23,407,782 22,332,846
========== ========== ==========
Total number of options in the Option Pool . . . 5,193,303 4,965,287 4,737,270
Pro forma percentage . . . . . . . . . . . . . 17.5% 17.5% 17.5%
Tranche A (6% of 17.5%) . . . . . . . . . . . . . 1,780,561 1,702,384 1,624,207
Tranche B (5% of 17.5%) . . . . . . . . . . . . . 1,483,801 1,418,653 1,353,506
Tranche C (6.5% of 17.5%) . . . . . . . . . . . . 1,928,941 1,844,250 1,759,557
---------- ---------- ----------
Total number of options in the Option Pool . . 5,193,303 4,965,287 4,737,270
========== ========== ==========
The Option Pool will be divided into three tranches, as
follows:
Tranche A Options: Tranche A will be comprised of options
equal in number to 34.3% of the Option Pool (6% of the 17.5% pro forma
ownership). Tranche A Options vest immediately at Closing, with the exception
of Tranche A1 Options described below. 50% of the Tranche A Options issued to
Xxx X. Xxxxxx, Xxxxx X. Xxxxx and Xxxx X. Xxxxxx (the "Tranche A1 Options")
will vest ratably on the first day of each month for the 24 months following
the first anniversary of the closing date. If a Tranche A1 Optionholder leaves
voluntarily or is terminated for cause prior to the third anniversary of the
Closing Date, such person's unvested Tranche A1 Options will be forfeited. If
such Tranche A1 Optionholder's employment terminates for any other reason, all
of such Optionholder's Tranche A1 Options vest immediately.
Tranche B Options: Tranche B will be comprised of a number of
options equal to 28.6% of the Option Pool (5% of the 17.5% pro forma
ownership). Tranche B Options will vest 25% each
--------------------
(1) Estimated as of the date hereof.
59
year over a four year period commencing on the Closing Date, as long as the
Optionholder remains an employee of the company.
Tranche C Options: Tranche C options will be comprised of a
number of options equal to 37.1% of the Option Pool (6.5% of the 17.5% pro
forma ownership). Tranche C Options will vest 25% each year over a four year
period commencing on the sixth anniversary of the date of grant, but are
subject to accelerated vesting according to annual performance-based targets
based on the Company's actual and projected earnings before interest, taxes,
depreciation and amortization less capital expenditures. The vesting of no
more than 25% of the Tranche C Options may accelerate in any given annual
period.
Options issued as of the Closing Date will be issued with
exercise prices set equal to the Conversion Price of the Preferred Stock. Any
options in the Option Pool reserved for grant and granted at some later date
will have an exercise price not less than the fair market value of the Common
Stock at the date of the grant.
Subsequent to the Closing Date, each and every employee or
director who currently has been issued options ("Old Options") will be offered
(the "Option Exchange Offer") the opportunity to exchange Old Options for
options under the New Stock Option Plan (the "New Options"). The exchange
ratio for New Options will be as follows: (a) for Old Options with exercise
prices at or above $4.00, the exchange ratio will be 0.8 New Option for each
Old Option; and (b) for Old Options with exercise prices below $4.00, the
exchange ratio will be 1.0 New Option for each Old Option. To the extent that
employees do not accept the Option Exchange Offer, the Option Pool will be
reduced as follows: (a) Tranche A Options will be reduced by the number of
vested Old Options held by employees not accepting the Option Exchange Offer;
and (b) Tranche B Options will be reduced by the number of unvested Old Options
held by employees not accepting the Option Exchange Offer.
60
DISCLOSURE SCHEDULES
All capitalized terms used but not otherwise defined in the attached
Schedules have the meanings given them in the Securities Purchase Agreement
("the Agreement"). Disclosure of any matters in the Schedules does not
constitute an admission that such matter is necessarily required to be
disclosed in order for any representation or warranty in the Agreement to be
true and correct to the extent required in the Agreement. Although a section
reference is indicated for each disclosure, disclosure with respect to one
section shall be disclosure for each other section or schedule requiring such
disclosure where Purchasers are reasonably placed on notice that such
disclosure relates to such other schedule. Each of the attachments to the
Schedules and each of the disclosures made therein are incorporated by
reference into the Schedules.
61
SCHEDULE 2.01
FOREIGN QUALIFICATIONS
QUALIFIED AS
NAME OF FOREIGN
PARENT CORPORATION
------------------------------ --------------
Aurora Electronics, Inc. California
QUALIFIED AS
FOREIGN
NAME OF CORPORATION/OR
SUBSIDIARY FOREIGN BRANCH
------------------------------ --------------
Aurora Electronics Group, Inc. Colorado
Illinois
Tennessee
Texas
Canada
Netherlands
United Kingdom
62
SCHEDULE 2.02
SUBSIDIARIES
LEGAL STRUCTURE
---------------
PERCENT
NAME OF JURISDICTION AUTHORIZED OUTSTANDING OWNED BY
PARENT OF ORGANIZATION CAPITAL CAPITAL PARENT
------------------------ --------------- ------------------- ----------- --------
Aurora Electronics, Inc. Delaware 1 million shares of 8,298,293 N/A
preferred stock
25 million shares of
common stock
SUBSIDIARY OF PARENT
--------------------
PERCENT
NAME OF JURISDICTION AUTHORIZED OUTSTANDING OWNED BY
SUBSIDIARY OF ORGANIZATION CAPITAL CAPITAL PARENT
------------------------------ --------------- -------------------- ---------------- --------
Aurora Electronics Group, Inc. California 10 million shares of 2 million shares 100%
common stock
SUBSIDIARIES OF AURORA ELECTRONICS GROUP, INC. ("AEG")
------------------------------------------------------
PERCENT
NAME OF JURISDICTION AUTHORIZED OUTSTANDING OWNED BY
SUBSIDIARIES OF ORGANIZATION CAPITAL CAPITAL PARENT
-------------------------- --------------- ------------------- -------------- --------
Aurora Electronics Limited Wales L.100 L.2 100%
Micro-C (Barbados) Ltd. Barbados Unlimited shares of 100 shares 100%
common stock
Liens
The shares of issued and outstanding capital stock of the subsidiaries
of Parent and AEG referred to above are pledged to secure the indebtedness
under the Existing Credit Agreement.
63
SCHEDULE 2.03
CAPITAL STRUCTURE
Capitalization of Parent
The following options, warrants, and securities convertible into
or exercisable for shares of Parent Common Stock are outstanding.
1. Options.
(a) 759,340 shares of Parent Common Stock are issuable
upon exercise of certain incentive and non-qualified stock options, which
were issued to key employees and directors of Parent and/or its subsidiaries
pursuant to the Aurora Electronics, Inc. 1993 Stock Option Plan, as amended
(the "Plan"). The exercise prices range from $3.38 to $11.75.
(b) 250,000 shares of Parent Common Stock are issuable
upon exercise of nonqualified stock options, which were issued outside the
Plan. The exercise price range is from $3.625 to $6.40.
(c) 390,660 shares are available for grant pursuant to the
1993 Stock Option Plan.
2. Warrants.
(a) 560,000 shares of Parent Common Stock are issuable
upon exercise of certain outstanding common stock purchase warrants. The
exercise price is $3.625. 280,000 are held by Xxx Xxxxxx and 280,000 are
held by Xxxxx Xxxxx or members of his family.
(b) 414,473 shares of Parent Common Stock (subject to
certain anti-dilution provisions) are issuable upon exercise of common stock
purchase warrants issued to Agent and Banque Indosuez. The exercise price of
the warrants is currently $2.18 per share of Parent Common Stock.
3. Convertible Debentures.
(a) Approximately 897,000 shares of Parent Common Stock
are issuable upon conversion of Parent's 7-3/4% Subordinated Debt. The
conversion price is currently $11.66 per share.
(b) Approximately 158,000 shares of Parent Common Stock
are issuable upon conversion of Parent's 7% Subordinated Debt. The conversion
price is currently $11.20 per share.
4. Other.
Parent is obligated to issue approximately 1,104,000 shares as final
payment on the Century acquisition. These shares are issuable at $1.99 per
share.
64
SCHEDULE 2.03 (CONT.)
Parent is obligated to issue approximately 595,000 shares of Parent
Common Stock as partial settlement of a class action lawsuit. The number
of shares issuable is dependent on the stock price at the time of
issuance. For purposes of this calculation, a stock price of $2.10 per share
was assumed.
Parent may, from time to time, issue up to 350,000 shares of Parent
Common Stock pursuant to the terms of the Aurora Electronics, Inc. 1995
Employee Stock Purchase Plan.
Parent currently follows a policy of making automatic annual
grants to non-employee directors of options to purchase 5,000 shares of
Parent Common Stock at the fair market value on the date of each annual
meeting of the Parent's shareholders (assuming such director has served for
the preceding 181 consecutive days, has agreed to serve as a director upon
reelection, and is reelected to the Board of Directors).
65
SCHEDULE 2.03(CONT.)
AURORA ELECTRONICS, INC.
Ajusted Number of Common Shares
As of December 31, 1995
Share Total Share Fully
Price Vested Unvested Count Primary Diluted
------ ------ -------- ----------- ------- -------
Common Stock Outstanding 8,402,137 8,402,137 8,402,137
Treasury Shares (478,713) (478,713) (478,713)
Shares to be issued to Century Shareholders $ 1.99 374,869 (2) 374,869 374,869
1,103,813 1,103,813 1,103,813
Shares to be issued for Class Action $ 2.10 (3) 595,238 595,238 595,238
Warrants Outstanding:
Xxxxxx/Xxxxx $ 3.63 560,000 - 560,000 - -
Lender Warrants $ 2.18 (4) 379,612 - 379,612 - -
Lender Warrants $ 2.18 (4) 34,861 - 34,861 - -
Employee Stock Options
Stock Options outside of Plan $ 5.85 250,000 - 250,000 - -
Terminated Employees $ 3.63 73,493 28,107 101,600
Employees $ 4.68 (5) 269,560 388,180 (6) 657,740 - -
7 3/4% Convertible Subordinated Debentures $11.66 896,913 - 896,913
7% Subordinated Convertible Promissory Notes $11.20 157,597 - 157,597
---------- ---------- ----------
13,035,667 9,997,344 11,051,854
========== ========= ==========
Notes:
1. Shares issued October 2, 1995.
2. Partial payment made on January 17, 1996. 374,869 shares issued.
3. Assumed for purposes of calculation.
4. Subject to antidilution provisions.
5. Weighted average.
6. Upon the consummation of the Recapitalization transactions, 150,000 of
such options will be deemed vested.
66
SCHEDULE 2.03(CONT.)
AURORA ELECTRONICS, INC.
LISTING OF STOCK OPTIONS
AS OF DECEMBER 31, 1995
DATE OF OPTION OPTION VESTED UNVESTED EXPIRATION
NAME XXXXX XXXXX GRANTED AT 12/31/95 AT 12/31/95 DATE
---- ----- ------ ------- ----------- ----------- ----
BOARD OF DIRECTORS
------------------
Xxxxxx, Xxxx X. 01/29/93 $11.75 25,000 25,000 0 01/29/03
Xxxxxx, Xxx X. 01/29/93 $11.75 25,000 25,000 0 01/29/03
Xxxxxxx, Xxxxxxx X. 01/29/93 $11.75 25,000 25,000 0 01/29/03
Xxxxxx, Xxx X. 06/25/93 $ 7.88 15,000 15,000 0 06/25/03
Cash, Xxxxx 09/21/93 $ 7.25 25,000 16,666 8,333 09/21/03
Cash, Xxxxx 03/01/94 $ 8.13 5,000 5,000 0 03/01/04
Xxxxxx, Xxxx X. 03/01/94 $ 8.13 5,000 5,000 0 03/01/04
Xxxxxx, Xxx X. 03/01/94 $ 8.13 5,000 5,000 0 03/01/04
Xxxxxxx, Xxxxxxx X. 03/01/94 $ 8.13 5,000 5,000 0 03/01/04
Cash, Xxxxx 03/22/95 $ 3.75 5,000 5,000 0 03/22/05
Xxxxxx, Xxxx X. 03/22/95 $ 3.75 5,000 5,000 0 03/22/05
Xxxxxxx, Xxxxxxx X. 03/22/95 $ 3.75 5,000 5,000 0 03/22/05
EMPLOYEE OPTIONS
----------------
Xxxxxxxx, Xxxxxxx 06/09/93 $ 7.50 2,400 1,320 1,080 06/07/03
Xxxxxxxx, Xxxxx 06/09/93 $ 7.50 1,600 880 720 06/07/03
Boots, Xxx 12/12/94 $ 4.50 1,600 400 1,200 12/12/04
Xxxxxx, Xxxx 12/12/94 $ 4.50 1,600 400 1,200 12/12/04
Xxxxxxxxx, Xxxxx 12/12/94 $ 4.50 1,600 400 1,200 12/12/04
Xxxxxxxx, Xxxxx 12/12/94 $ 4.50 1,600 400 1,200 12/12/04
Xxxxx, Xxxx 12/12/94 $ 4.50 2,400 600 1,800 12/12/04
Xxxxx, Xxxx 12/12/94 $ 4.50 2,400 600 1,800 12/12/04
Xxxxxx, Xxxxxx 12/12/94 $ 4.50 2,400 600 1,800 12/12/04
Xxxx, Xxxx 12/12/94 $ 4.50 1,600 400 1,200 12/12/04
XxXxxxx, Xxxx 12/12/94 $ 4.50 2,400 600 1,800 12/12/04
Xxxxx, Xxxxxxxxxxx 12/12/94 $ 4.50 2,400 600 1,800 12/12/04
Xxxxxxxx, Xxxxx 12/12/94 $ 4.50 2,400 600 1,800 12/12/04
Xxxxxx, Xxxxxxx 12/12/94 $ 4.50 2,400 600 1,800 12/12/04
Xxxxxxxxx, Xxxxxxx 12/12/94 $ 4.50 1,600 400 1,200 12/12/04
Xxxxxxxxxx, Xxxxxx 05/15/95 $3.625 1,920 1,056 864 06/09/03
Xxxxx, Xxxxx 05/15/95 $3.625 1,280 704 576 06/09/03
Xxxxxxxxx, Xxxxx 05/15/95 $3.625 2,560 1,408 1,152 06/09/03
67
SCHEDULE 2.03 (CONT.)
AURORA ELECTRONICS, INC.
LISTING OF STOCK OPTIONS
AS OF DECEMBER 31, 1995
DATE OF OPTION OPTION VESTED UNVESTED EXPIRATION
NAME XXXXX XXXXX GRANTED AT 12/31/95 AT 12/31/95 DATE
---- ----- ------ ------- ----------- ----------- ----
Xxxxxx, Xxxx 05/15/95 $3.625 1,920 1,056 864 06/09/03
Xxxxx, Xxxxx 05/15/95 $3.625 1,280 704 576 06/09/03
Xxxxxx, Xxxx 05/15/95 $3.625 64,000 35,200 28,800 06/09/03
Xxxxxxx, Xxx 05/15/95 $3.625 3,200 1,760 1,440 06/09/03
Xxxxxx, Xxxxx 05/15/95 $3.625 1,280 704 576 06/09/03
Xxxxxxxx, Xxxxxxx 05/15/95 $3.625 1,280 704 576 06/09/03
Xxxxxx, Xxxxxxxx 05/15/95 $3.625 6,400 3,520 2,880 06/09/03
Xxxxxxxx, Xxxx 05/15/95 $3.625 1,920 1,056 864 06/09/03
Xxxxx, Xxxxxxx 05/15/95 $3.625 1,280 704 576 06/09/03
Xxxxxxx, Dutch 05/15/95 $3.625 16,000 7,200 8,800 10/15/03
Xxxxxx, Xxx 05/15/95 $3.625 6,400 2,880 3,520 10/15/03
Xxxxxxx, Xxxxxxx 05/15/95 $3.625 20,000 9,000 11,000 10/15/03
Xxxxxxxxxx, Xxxx 05/15/95 $3.625 640 288 352 11/23/03
Xxxxxx, Xxxx 05/15/95 $3.625 640 288 352 11/23/03
Xxxxxxx, Xxxxx 05/15/95 $3.625 800 360 440 11/23/03
Xxxxxxxx, Xxxx 05/15/95 $3.625 1,280 512 768 03/01/04
Xxxxxxx, Xxxxx 05/15/95 $3.625 1,280 512 768 03/01/04
Xxxxxxxxx, Xxxx 05/15/95 $3.625 1,280 512 768 03/01/04
Xxxx, Xxxx 05/15/95 $3.625 12,800 4,480 8,320 05/13/04
Xxxxx, Xxxxxxx 05/15/95 $3.625 20,000 7,000 13,000 05/13/04
XxXxxxx, Xxxx 05/15/95 $3.625 28,000 9,800 18,200 05/25/04
Augusta, Xxxx 05/15/95 $3.625 6,400 1,600 4,800 12/12/04
Xxxxxxx, Xxxxxxx 05/15/95 $3.625 2,560 640 1,920 12/12/04
Xxxxxx, Xxxxx 05/15/95 $3.625 2,560 640 1,920 12/12/04
Xxxxxxxxxx, Xxxxxx 05/15/95 $3.625 1,280 320 960 12/12/04
Xxxxxx, Xxx X. 05/15/95 $3.625 16,000 4,000 12,000 12/12/04
Xxxxx, Xxxxx 05/15/95 $3.625 1,280 384 896 12/12/04
Xxxxxx, Xxxx 05/15/95 $3.625 1,280 320 960 12/12/04
Xxxxx, Xxxxx 05/15/95 $3.625 1,280 320 960 12/12/04
Xxxxxxxxx, Xxxx 05/15/95 $3.625 1,920 416 1,504 12/12/04
Xxxxxx, Xxxx 05/15/95 $3.625 16,000 2,592 13,408 12/12/04
Xxxxxxx, Xxxxxx 05/15/95 $3.625 1,280 1,792 (512) 12/12/04
Xxxxx, Xxxxx X. 05/15/95 $3.625 16,000 2,528 13,472 12/12/04
Xxxxxx, Xxxxxx 05/15/95 $3.625 2,560 1,984 576 12/12/04
XxXxxxx, Xxxx 05/15/95 $3.625 12,000 2,056 9,944 12/12/04
Xxxxxxx, Xxx 05/15/95 $3.625 3,200 1,680 1,520 12/12/04
68
SCHEDULE 2.03 (CONT.)
AURORA ELECTRONICS, INC.
LISTING OF STOCK OPTIONS
AS OF DECEMBER 31, 1995
DATE OF OPTION OPTION VESTED UNVESTED EXPIRATION
NAME XXXXX XXXXX GRANTED AT 12/31/95 AT 12/31/95 DATE
---- ----- ------ ------- ----------- ----------- ----
Xxxxxxxx, Xxxxxxx 05/15/95 $3.625 1,280 512 768 12/12/04
Xxxxxx, Xxxxxx 05/15/95 $3.625 2,560 512 2,048 12/12/04
Xxxxx, Xxxxxxx 05/15/95 $3.625 1,920 544 1,376 12/12/04
Xxxxxx, Xxx 05/15/95 $3.625 1,600 800 800 12/12/04
Xxxxxxxxx, Xxxx 05/15/95 $3.625 640 416 224 12/12/04
Xxxxxx, Xxx X. 05/15/95 $ 3.38 50,000 - 50,000
Grazer, Xxxx X. 05/15/95 $ 3.38 50,000 - 50,000
Xxxxx, Xxxxx X. 05/15/95 $ 3.38 50,000 - 50,000
Xxxxxx, Xxxxxxx 08/04/95 $ 3.50 1,300 130 1,170 08/04/05
Xxxxxx, Xxxx 08/04/95 $ 3.50 15,000 1,500 13,500 08/04/05
Xxxx, Xxxxxxx 08/04/95 $ 3.50 20,000 2,000 18,000 08/04/05
-------------------------------------
TOTAL 657,740 269,560 388,179
TERMINATED EMPLOYEES - STOCK OPTION OUTSIDE OF PLAN:
Xxxxx, Xxxxxxx 09/30/92 $6.400 106,250 106,250 06/09/03
Xxxxxxx, Xxxxxxx 09/30/92 $6.400 31,250 31,250 06/09/03
Xxxxxx, Xxxxx 09/30/92 $6.400 62,500 62,500 06/09/03
Xxxxxxx, Dutch 05/15/95 $3.625 50,000 50,000 - 09/30/97
TERMINATED EMPLOYEES:
Xxxxxxx, Xxxxxx (08-31-95) 05/15/95 $3.625 85,600 69,493 16,107 10/15/03
Xxxxxxx, Xxxxxx (08/31/95) 05/15/95 $3.625 16,000 4,000 12,000 12/12/04
69
SCHEDULE 2.07
LIABILITIES
Liabilities noted in the Company's Form 10-Q for the three month
period ended December 31, 1995.
Except those incurred in the ordinary course of business, liabilities
due to the (a) Third Amendment to the May 1994 Senior Secured Credit Agreement,
(b) expenses incurred due to the Recapitalization Transactions, (c) expenses
incurred to arranging bank financing, and (d) the Century Division s
Information Systems Project.
See also Schedules 2.03, 2.09, 2.11, 2.15, 2.16, 2.17, and 2.20.
70
SCHEDULE 2.09
CERTAIN CHANGES OR EVENTS
Certain changes or events:
- XxXxxx litigation settlement (see Note L to the Consolidated
Financial Statements in the Company's Form 10-K for year ended
September 30, 1995; such matter was settled on December 13, 1995
(subject to court approval) and involved the payment by the
Company or its subsidiaries of not more than $60,000).
- IRS verbal settlement on tax years 1988 through 1991. See Schedule
2.17 for further detail.
- Third Amendment to the Existing Senior Secured Credit facility.
Issuance of partial payment in the form of Common Shares for the
final payment of the Century acquisition. See Schedule 2.03, Item
4.
- Commencement of the Century Information System Project.
- Recommended bonuses upon completion of the Recapitalization of
$111,920, $113,799 and $105,333, respectively, and recommended base
salary increases of $50,000, $50,000 and $35,000, respectively, for
Messrs. Xxxxxx, Xxxxx and Grazer.
See also Schedule 2.07.
71
SCHEDULE 2.11
PENDING LAWSUITS
In accordance with Section 2.11 of the Agreement, set forth below is a
list of litigation pending, or to the Parent's knowledge, threatened against
Parent or any of its Subsidiaries as of the date of the Agreement.
1. Federal Insurance Company, a member of the Chubb Group of Insurance
Companies v. Aurora Electronics, Inc.; Aurora Electronics Group; and
Aurora Electronics, Ltd.; No. 95-3706-K(LSP), in the United States
District Court for the Southern District of California.
2. Xxxxxx Xxx Xxx, as Father and Next Friend of Xxxxxx Xxx Xxx, a Minor
v. BSN Corporation; Xxxxxxx Sports, Inc.; and Xxx Xxxxxxxxx,
Individually and as Agent for BSN Corporation; No. CV93-2006B, in the
Circuit Court for Madison County, State of Alabama
3. Xxxxxxxx X. XxXxxx, Guardian of Xxxxxxx X. XxXxxx, a Disabled Person
v. MHI Liquidation, Inc. f/k/a Maxpro Helmets, Inc. and AA Liquidation
Corp. f/k/a All American Corp.; No. 94-L-00018, in the Circuit Court
of Xxxx County, Illinois, County Department - Law Division
4. Xxxxx Xxxx, Xxxxxx Xxxx & Xxx Xxxx x. Xxxxxxx, Inc., Xxxxxxx Sporting
Goods, Inc., BSN, Inc.; Xxxxxxx/All American; All American Sports
Corporation; All American Sports Corporation, d.b.a. All American
Reconditioning Corporation; T and B Sports, Inc.; West Coast Sporting
Goods; Xxxxxx-Las Positas Community College District; Xxxxxx-Las
Positas Community College District Financing Corporation; Xxxxx
Xxxxx; Xxx Xxxxxxx; Xxxxxx Xxxxxx; Xxxx Xxxxxxxxxxx and Does
1-200, inclusive; No. H-184889-6, in the Superior Court of the
State of California, Alameda County.
SPORT SUPPLY GROUP, INC. LITIGATION
Parent is also a party to the following litigation. By virtue of its
indemnification agreement with Sport Supply Group, Inc. ("SSG"), however,
Parent should be able to obtain indemnification from SSG for any adverse
outcome suffered in any of these cases.
1. Xxxx Xxx and Xxxxx Xxx, Individually and as Next Friends of Xxxxx Xxx
v. Aurora Electronics f/k/a BSN Corporation and Sport Supply Group,
Inc. d/b/a Alumagoal; No. 85,207, 240th Judicial District Court of
Fort Bend County, State of Texas
2. Xxxxxxxx Cove v. BSN Corporation d/b/a Champion Xxx Xxxx, Cliffside
Park Board of Education, Boro of Cliffside Park; No. BER-L-8294-91, in
the Superior Court of the State of New Jersey (Law Division), Bergen
County
3. Xxxx X. Xxx, Xx. and Xxxxxxxx XxXxxx Xxx x. Xxxx County Board of
Education, Sports Supply Group, Inc., and BSN Corp. t/a U.S. Games,
Inc., and Alumagoal Athletic; No.
72
SCHEDULE 2.11 (CONT.)
92-CV-S634, General Court of Justice, Superior Court Division, County
of Dare, State of North Carolina
4. Xxxxx et al vs. Aurora Electronics, Inc. d/b/a Alumagoal; Township of
Washington; Washington Township Board of Education; Sports Supply
Group; Xxxx Xxx (first and last name being fictitious) and ABC Corp.
(a fictitious partnership, corporation and/or entity); No. MER-L-
005001-95, Law Division, Superior Court of New Jersey, County of
Xxxxxx, State of New Jersey
WORKERS' COMPENSATION CLAIMS
Aurora Electronics Group, Inc. and its Subsidiaries are subject to the
Workers' Compensation Claims listed on Annex A hereto.
See also Schedule 2.15, 2.17, and 2.20.
73
SCHEDULE 2.11 (CONT.)
ANNEX A
WORKERS' COMPENSATION CLAIMS
74
SCHEDULE 2.13
REAL PROPERTY (LEASED)
Parent
1. Irvine, California. Office Building Lease dated March 24, 1993, by
and between Xxxx Tower Four Associates, as Landlord and Parent as
Lessee, for the real property located at 0000 Xxxx Xxxxxx, Xxxxx 0000,
Xxxxxx, Xxxxxxxxxx 00000.
2. Chicago, Illinois. Lease dated July 14, 1988, by and between
American National Bank and Trust Company of Chicago as trustee U/T/A
dated May 18, 1988, as Landlord, and BSN Corp. (now Parent), as
Tenant, for the real property located at 0000 X. Xxxxxxxxxxxx,
Xxxxxxx, Xxxxxxxx.
0. Xxxxxxx, Xxxxxx. Lease dated June 27, 1995, by and between Appropak
Corporation, as Lessor, and Aurora Electronics, Inc. as Lessee, for
the real property located at 0000 Xxxxxx Xxxxxx, Xxxx #0, Xxxxxxx,
Xxxxxxx, Xxxxxx X0X 0X0.
4. San Francisco, California. Lease dated September 1, 1994, by and
between Xxxxxxx or Xxxxx Xxxxx, as Lessor, and Aurora Electronics,
Inc. as Lessee, for the real property located at 0000 Xxxx Xxxxxx,
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000. Lease expired on September 30, 1995
and is now on a month-to-month basis.
Aurora Electronics Group, Inc. ("AEG")
1. San Diego, California. Standard Multi-Tenant Net Lease dated November
3, 1992, as amended, by and between Sorrento Mesa Properties, Inc., as
Landlord, and AEG, as Tenant, for the real property located at 0000
Xxxxxx Xxxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx, 00000.
2. Irvine, Scotland. Lease dated February 28, 1990, by and between
Irvine Development Corporation, as Landlord, and AEG, as Tenant, for
the real property located at 0 Xxxxxxx Xxxxx, Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxxx, Xxxxxx, Xxxxxxxx XX00 0XX.
3. Sacramento, California. Standard Industrial Lease - Net dated March
27, 1984, as amended, by and between Northgate Investment Company
(now Xxxxx Pick), as Landlord, and Repair Services, Inc. (now AEG),
as Tenant, for the real property located at 0000 Xxxxxxxx Xxxxx,
Xxxxxxxxxx, Xxxxxxxxxx 00000.
4. Sacramento, California. Addendum VII dated August 1, 1992 to that
certain Standard Industrial Lease - Net dated March 27, 1984, as
amended, by and between Xxxxx Pick, as Landlord, and FRS (now AEG),
as Tenant, for the real property located at 0000 Xxxx Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx, Xxxxxxxxxx 95834.(1)
75
SCHEDULE 2.13
5. San Jose, California. Office Building Lease dated August 19, 1992, as
amended, by and between Pinn Brothers Property, as Landlord, and AEG,
as Assignee of CCB, as Tenant, for the real property located at 0000
Xxxxxxxx Xxxxxx, Xxxxx 000, Xxx Xxxx, Xxxxxxxxxx 00000.
6. Memphis, Tennessee. Standard Lease Agreement dated October 27, 1992,
by and between Xxxx-Xxxxxxxx-Xxxxxxxx, as Landlord, and AEG, as
Assignee of CCB, doing business as Century Computer Services, Inc.,
as Tenant, for the real property located at 5170 East Xxxxxx Road,
Building No. 7, Willow Xxxx Xxxxxxxx Xxxx, Xxxxxxx, Xxxxxxxxx 00000.
7. Hull, Quebec. Deed of Lease dated April 22, 1992, by and between
Digital Equipment of Canada, Ltd., as Landlord, and AEG, as Assignee
of CCB, as Tenant, for the real property located at 000 Xxxxxxxxx xx
xx Xxxxxxxxxxx, Xxxx Xxxxxx.
8. Hoofddorp, The Netherlands. Lease for Business Premises commencing
April 1, 1994, by and between Stichting Pensioenfonds Hoogovens, as
Lessor, and AEG, as Assignee of CCM, doing business as Century
Computer Marketing International, as Lessee, for the real property
located at Xxxxxxxxx 00-00, XX-0000 XX Xxxxxxxxx, The Netherlands.
9. Manchester, England. Business License Agreement dated April 1, 1994,
by and between Xxxxxxxxxx Business Park Limited, as Licensor and AEG,
as Assignee of CCM, doing business as Century Computer Marketing
International, as Licensee, for the real property located at H4/5
building, 0/00 Xxxxxx Xxxxxx, Xxxxxxxxxx Xxxxxxxx Xxxx, Xxxxxxx,
Xxxxxxxxxx, Xxxxxxx.
10. Irvine, California. Lease Agreement by and between The Irvine
Company, as Landlord, and AEG, as Lessee, for the real property
located at Xxx Xxxxxxxxxx Xxxxx, Xxxxx X-000, Xxxxxx, Xxxxxxxxxx
00000.
11. Birmingham, England. License Agreement dated June 29, 1995, by and
between Chester Investments Three Limited, as Landlord, and AEG as
Tenant, for the real property located at 1st Floor, Four Oaks House,
160 Lichfield Road, Xxxxxx Xxxxxxxxx, Xxxx Xxxxxxxx, Xxxxxxx X00 0XX.
12. Marina del Rey, California. Standard Industrial/ Commercial Single
Tenant Lease-Net dated November 30, 1994, by and between The
Equitable Life Assurance Society of the United States, as Lessor, and
AEG, as Lessee, for the real property located at 0000 Xxxx Xxxx,
Xxxxxx xxx Xxx, Xxxxxxxxxx, 90292.(1)
13. Sacramento, California. Industrial Real Estate Lease (Multi-Tenant
Facility) dated April 13, 1994, as amended, by and between JB
Company, as Landlord, and AEG, as Tenant, for the real property
located 0000 Xxxx Xxxxx Xxxxxx Xxxxxxxxx, Xxxx 0, Xxxxxxxxxx,
Xxxxxxxxxx 95834.(1)
76
SCHEDULE 2.13
14. Fort Xxxxxxx, Colorado. Lease dated October 4, 1994, by and between
Double Eagle Investments, as Lessor, and AEG, as Lessee, for the real
property located at 000 Xxxxxx Xxxxxx, Xxxxx 000, Xx. 00, Xxxx
Xxxxxxx, Xxxxxxxx.
------------------------------------------------------------------------------
(1) Part or all of such real property has been subleased to a third
party.
77
SCHEDULE 2.14
INTELLECTUAL PROPERTY RIGHTS
INTELLECTUAL PROPERTY OF AURORA ELECTRONICS GROUP, INC. AND ITS SUBSIDIARIES
Unregistered Trade Names and Service Marks:
- Micro-C
Registered Trade Names and Service Marks:
- TQR (Serial No. 74/432,958 Service Xxxx Application Filed with
the U.S. Patent & Trademark Office)
- TOTAL QUALITY RECOVERY (Serial No. 74/432,957 Service Xxxx
Application Filed with the U.S. Patent & Trademark Office)
- FRS, Inc. (Reg. No. 038567, dated May 21, 1991 Service Xxxx
Certificate of Registration Issued By the Secretary of State
of the State of California to FRS, Inc.)
- AURORA ELECTRONICS (Serial No. 74/549,774 Service Xxxx
Application Filed with the U.S. Patent & Trademark Office)
Unregistered Trademarks:
- MM
Registered Trademarks:
- None
INTELLECTUAL PROPERTY OF CENTURY
Unregistered Tradenames and Service Marks:
- Century Computer Marketing
- Century Computer Marketing International
- Century Computer Brokers, Inc.
- CCM Computer International Ltd.
Registered Tradenames and Service Marks:
- None
78
SCHEDULE 2.14 (CONT.)
Unregistered Trademarks:
- CCM "Logo"
Registered Trademarks:
- None
-------------------------
79
SCHEDULE 2.15
LABOR MATTERS
Received January 1996: OSHA Complaint filed relating to the Asset Recovery
Division. Issues center around inadequate ventilation by ovens causing
exposure to lead from soldering and the employees by the tubing machines not
wearing eye protection. The Company has responded to this complaint and
expects no further action.
Received January 1996: The Company received notification from the Department
of Fair Employment & Housing California of a complaint being filed due to
complainant's "Election of Court Action". The issue was brought forth by a
temporary employee who filed the complaint, alleging that in 1994 she was
harassed at the Sacramento facility and forced to quit due to two employees
humiliating her on the production floor. To date, the Company has received no
written or oral notice or information from her attorney. The Company knows of
no actionable basis for the complainant's claim. According to the DFEH, DFEH
is not pursuing the matter.
80
SCHEDULE 2.16
SEVERANCE ARRANGEMENTS
1. Employment letter dated March 1, 1994, by and between Xxx X. Xxxxxx
and Parent.
2. Employment letter dated May 18, 1995, by and between Xxx X. Xxxxxx and
Parent.
3. Employment letter dated March 1, 1994, by and between Xxxxx X. Xxxxx
and Parent.
4. Employment letter dated May 18, 1995, by and between Xxxxx X. Xxxxx
and Parent.
5. Employment letter dated March 19, 1993, by and between Xxxx X. Xxxxxx
and Parent.
6. Employment letter dated May 18, 1995, by and between Xxxx X. Xxxxxx
and Parent.
7. Employment letter dated April 4, 1994, by and between Xxxx Xxxx and
Parent.
8. Employment letter dated April 4, 1994, by and between Xxxxxxx Xxxxx
and Parent.
Severance Arrangements
Aurora provides the following notice of layoff policy for all employees.
Exceptions to this policy are listed below:
NOTICE OF LAYOFF POLICY
When practical, advance notice of layoff is given to a regular employee who
is terminated by Aurora because of a work force reduction or reorganization.
It is not Aurora's policy to make severance payments. During the notice
period, the employee's job responsibilities are reduced to allow time to
conduct a job search. In some circumstances, employees may be terminated
because of a work force reduction or reorganization without notice.
Where a notice period is required by law, it runs concurrent with, and not in
addition to, Aurora's notice period.
The following table shows the amount of notice that Aurora will endeavor to
provide:
Full Years of Weeks of
Continuous Service Advance Notice
------------------ --------------
Less than 1 2
1 to 2 3
3 to 4 5
5 to 7 8
8 or more 12
NOTE: The notice period described above will be tripled if employment is
terminated because of a change in control of Aurora.
81
SCHEDULE 2.16 (CONT.)
EXCEPTIONS TO ABOVE POLICY:
The following employees have separate severance arrangements with Aurora:
Xxx Xxxxxx One Year Severance
Xxxx Xxxxx One Year Xxxxxxxxx
Xxxx Grazer One Year Severance
Xxxx XxXxxxx Six Months Severance
Dutch Xxxxxxx Six Months Severance
82
SCHEDULE 2.17
TAXES
In January 1996, the Company reached a verbal settlement with the IRS
for tax years 1988 through 1991. The Company will pay no more than $80,000 to
compromise and resolve all IRS claims relating to these tax years. The
Company's last closed tax year was 1991. See Note L to Consolidated Financial
Statements in the Company's Form 10-K for the year ended September 30, 1995 and
the Company's Form 10-Q for the quarter ended December 31, 1995.
83
SCHEDULE 2.18
PERMITS
The Company holds a Health Permit issued by the County of San Diego,
Departmental of Environmental Health that is necessary to conduct the disposal
of waste generated by the Company's ARS division.
Other than this Permit, the Company possesses no other Permits other
than immaterial permits, authorizations, approvals, registrations, variances
and licenses that are commonly issued to or used by similarly situated
organizations operating in the similar lines of business (e.g., sales tax
permits, occupational tax permits, equipment operation permits, etc.).
84
SCHEDULE 2.19
EMPLOYEE BENEFIT PLANS
1. Aurora Electronics, Inc. 1993 Stock Option Plan
2. Aurora Electronics, Inc. 1995 Employee Stock Purchase Plan
3. Aurora Electronics, Inc. 401(k) Plan
4. Aurora Electronics Group, Inc. Pre-Tax Election Plans for medical
expenses, dependent day care and pre-tax premiums
5. Aurora Electronics Group, Inc. Incentive Plans
Asset Recovery Services
Century Computer Marketing
6. Aurora Electronics Group, Inc. Health Benefit Plans
Medical and Vision Plan
Short Term and Long Term Disability Plans
Life Insurance Plans
Travel Accident Plan
Vacation Plan
Sick Leave Plan
Bereavement Pay
Jury Duty Witness Pay
Employee Assistance Program (Counselors for Employees)
Education Reimbursement
Paid Holidays
See also Schedule 2.16.
85
SCHEDULE 2.20
ENVIRONMENTAL MATTERS
The Company is involved in the site assessment and classification
process with the Illinois Emergency Management Agency ("IEPA") with respect
to three underground storage tanks located at 0000 X. Xxxxxxxxxxxx Xxxx,
Xxxxxxx, Xxxxxxxx. Complete and accurate information regarding the background
and status of this process has been delivered separately to Purchasers on the
date hereof.
86
SCHEDULE 2.21
CONTRACTS
None, other than as described in or filed as exhibits to the Company's
SEC Filings.
87
SCHEDULE 2.22
SCHEDULE OF INSURANCE
COMPANY
TYPE OF COVERAGE POLICY NUMBER POLICY PERIOD
---------------- ------------- -------------
Commercial Package Federal Ins. Co. September 30, 1995 to
3532-04-34 September 30, 1996
COMPANY POLICY
POLICY NUMBER PERIOD LIMITS OF LIABILITY PREMIUM
------------- ------ ------------------- -------
Property $ 94,894
$17,000,000 Personal Property - Special Form, Replacement Cost, Reporting Form
Subject to a $5,000 Deductible Per Claim
$ 2,000,000 Blanket Property of others
$ 875,000 Blanket EDP Including Transit
$ 200,000 Personal Property Any Other Location
Business Income
$10,000,000 Business Income, 33-1/3% Monthly Limitation
including Extra Expense, Extended Period of Indemnity with No Time Limit
Building and Rental Income for two sites
Alla Road, MDR $3,995,213 for building/$5,000 deductible
$ 576,271 rental income
Bloomingdale, Chicago $4,680,000 for building/$5,000 deductible
$ 85,000 rental income
Boiler & Machinery
Same Limits as Package for Covered Causes of Loss which are Electric Arcing,
Mechanical Breakdown and Steam Boiler Explosion, Subject to a $5,000
Deductible Per Claim
Business Income Coverage for 24 Hours
same LIABILITY $110,786
$2,000,000 General Aggregate other than Products/Completed Operations
$2,000,000 Products/Completed Operations Aggregate
$2,000,000 Personal/Advertising Injury
$2,000,000 Property Damage to Rented Premises
$2,000,000 Each Occurrence
$10,000 Medical Expense
Included in Policy Form: Blanket Contractual/Broad Form Property Damage/Employees as Insureds
Personal Injury/Advertising Injury/Incidental Malpractice/Intentional Acts
Coverage for BI resulting from Reasonable Force to Protect Persons or Property/
New Entity Coverage - 90 Days/Non-Owned Watercraft for PI & AI/Written Contractual
for PI & AI/Coverage Applies "Anywhere" for Suits Brought in the United States/
PI & BI to Employees Coverage for Officers and Supervisors/Employee Benefits Liability
88
SCHEDULE 2.22
SCHEDULE OF INSURANCE
COMPANY
TYPE OF COVERAGE POLICY NUMBER POLICY PERIOD LIMITS OF LIABILITY PREMIUM
---------------- ------------ ------------- ------------------- -------
Basis of Liability Premium $67,000,000 Gross Sales
(Electronics Mfg. & Repair)
Products/Completed Operations
- Excluding Foreign Sales
$600,000 Gross Payroll Office
Machines/Appliance Installation
57,151 Square Feet MDR location
Buildings/Premises Lessors Risk
Only
5,600 Square Feet Sacramento
Buildings/Premises
Lessors Risk Only
12,000 Square Feet Tennessee
Buildings/Premises
Lessors Risk Only
Pollution Liability National Union Fire Ins 3/31/95 to Environmental Impairment, Pollution
PLL 5872876 3/31/96 Liability $32,299
limits of liability are $2,000,000
each loss
$2,000,000
total for
all losses
This coverage protects Aurora from
lawsuits alleging bodily injury or
property damage caused by Toxic Fumes,
Harmful or other pollutants emanating
from our premises.
$50,000 deductible per loss and legal
fees are within the policy limits
Crime Federal Ins. Co. September 30, 1995 $500,000 Employee Dishonesty $19,612
3532-04-34 September 30, 1996 $ 10,000 Deductible
$500,000 Depositors Forgery
$ 5,000 Deductible
Includes Aurora Electronics 401(k) Plan
Business Auto Federal Ins Co. $1,000,000 Bodily Injury and Property
BAP7318-93-67 Damage Combined Single Limit $11,531
including non-owned/hired
$5,000 Medical Payments
$1,000,000 Uninsured/Underinsured Motorists
Bodily Injury
$500 Deductible Comprehensive/Collision
$1,000,000 Hired/Non-Owned Automobile
Liability
Includes Hired/Non-Owned Auto Physical
Damage
------
$25,000 Limit Per Vehicle, Subject to a
$1,000 Deductible for both
Comprehensive and Collision Worldwide.
89
SCHEDULE 2.22
SCHEDULE OF INSURANCE
COMPANY
TYPE OF COVERAGE POLICY NUMBER POLICY PERIOD LIMITS OF LIABILITY PREMIUM
---------------- ------------- ------------- ------------------- -------
Vehicles:
1. 1986 Isuzu Pickup #1607
2. 1986 Dodge Van #7071
Employee Benefits Federal Ins Co
Programs Admin Liab 3532-04-34 $1,000,000 per employee $ 300
$1,000,000 Aggregate
$1,000 Deductible
Claims made from Retroactive
Date: 3/12/94
Umbrella Liability Federal Ins. Co. $8,000,000 General Aggregate $27,500
7965-12-13 $8,000,000 Each Occurrence
-0- Retained Limit
Underlying Coverages: Workers'
Compensation, General Liability,
Automobile Liability and
Foreign Liability
Cargo Coverage Federal Ins. Co. Ocean Cargo - Deposit $29,040
CM 41955 Domestic-Foreign Transit - Deposit $37,380
$1,000,000 Air Shipment Limit - per
Vessel
$ 25,000 Deductible - Drams -
Memory Chips
$ 1,000 Deductible - all other
$1,000,000 Domestic/Foreign
Transit Limit
$ 25,000 Deductible - Drams
- Memory Chips
$ 1,000 Deductible - all other
Shipments over 1 mil are to be reported
Coverage applies to shipments by
Common Carrier only
International Vigilant Ins. Co. September 30, 1995 to Liability $ 8,280
3533-20-59 September 30, 1996 $1,000,000 per occurrence
$1,000,000 Persona/Advertising Injury
$1,000,000 Products/Completed Operations
$ 100,000 Property Damage to Rented Premises
$ 1,000 Medical Expense - Per Person
$ 10,000 Medical Expense - Per Accident
90
SCHEDULE 2.22
SCHEDULE OF INSURANCE
COMPANY
TYPE OF COVERAGE POLICY NUMBER POLICY PERIOD LIMITS OF LIABILITY PREMIUM
---------------- ------------- ------------- ------------------- -------
International Auto Difference In Conditions $ 500
$1,000,000 Bodily Injury - Per Person
$1,000,000 Bodily Injury - Per Occurrence
$1,000,000 Property Damage - Per Occurrence
$ 1,000 Medical Expense - Per Person
$ 10,000 Medical Expense - Per Occurrence
Foreign Voluntary Workers Compensation $ 3,050
$1,000,000 Employers Liability*
$ 25,000 Repatriation Expenses - Per Person
*Excludes United Kingdom (This coverage provided
under separate
policy expiring in November)
International Property $ 18,744
4 locations for Stock, Inventory & Fixed Assets
Loc 1 $ 209,000 West Midlands, Eng
Loc 2 $ 209,000 Manchester, Eng
Loc 3 $ 1,075,000 Irvine, Scotland
Loc 4 $ 650,000 Hoofddorp, Netherlands
Any other Location $200,000
$1,000 Deductible
TOTAL PREMIUM COST FOR PROPERTY AND CASUALTY $393,916
========
Workers Comp. CIGNA June 1, 1995 to Workers Compensation - Statutory Limits $165,000
C37999349CA June 1, 1996 EMPLOYER'S LIABILITY
C37999581TX $1,000,000 Bodily Injury By
Accident - Each Accident
$1,000,000 Bodily Injury By Disease -
Policy Limit
$1,000,000 Bodily Injury By Disease
- Each Employee
Class Code Description Est. Payroll
3178 Elec Elem Mfg. $2,068,363
5191 Off Mach Repair $6,119,185
8742 Salespersons $1,875,890
8810 Clerical $8,556,066
Current Experience Modification Factor is 76%
91
SCHEDULE 2.22
COMPANY
TYPE OF COVERAGE POLICY NUMBER POLICY PERIOD LIMITS OF LIABILITY PREMIUM
---------------- ------------- ------------- ------------------- -------
Director & Officer Lexington March 1, 1995 to $3,000,000 $ 150,000
8698691 March 1. 1995
Aetna same $2,000,000 $ 72,000
752-001-554-95
Medical/Dental Prudential January to January $1,229,254
Life/AD&D Prudential Same $ 8,566
Vision Vision Services Plan Same $ 52,368
LTD CIGNA Same $ 27,298
Travel Accident AIG Same $ 1,267
EAP Xxx Xxxxx & Assoc June to June $ 13,862
401(k) Xxxx Xxxxxxx January to January
125 Plan
Dependent Care Voucher Plan January to January
Flexible Spending Prudential same
Premium Pre-tax ADP same
92
SCHEDULE 2.24
RELATED PARTY TRANSACTIONS
None, other than as described in the Company's SEC Filings.
93
SCHEDULE 2.25
BROKERS
The Company is a party to letter agreements dated May 13, 1994 and
January 13, 1996 with Indosuez Capital, Inc. ("Indosuez"), copies of which
have been provided to WCAS, pursuant to which, among other things, Indosuez
is entitled to certain fees in the event that certain levels of debt financing
are attained to refinance certain indebtedness.
94
EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID")
AS DEFINED BY SECTION 1273(a)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE FOLLOWING INFORMATION IS
PROVIDED PURSUANT TO THE INFORMATION REPORTING REQUIREMENTS
SET FORTH IN TREASURY REGULATION 1.1275-3.
THE ISSUE PRICE OF THIS DEBT INSTRUMENT IS $ .
THE AMOUNT OF OID ON THIS DEBT INSTRUMENT IS $ .
THE ISSUE DATE OF THIS DEBT INSTRUMENT IS MARCH , 1996
THE PER ANNUM YIELD TO MATURITY OF THIS DEBT INSTRUMENT IS %
COMPOUNDED SEMI-ANNUALLY.
AURORA ELECTRONICS, INC.
------------------------
10% Senior Subordinated Note
Due September 30, 2001
$10,000,000 March , 1996
AURORA ELECTRONICS, INC., a Delaware corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to WCAS
CAPITAL PARTNERS II, L.P. ("WCAS XX XX"), or registered assigns, the principal
sum of TEN MILLION DOLLARS ($10,000,000), on September 30, 2001 and to pay
interest (computed on the basis of a 360-day year consisting of twelve 30-day
months) from the date hereof on the unpaid principal amount hereof at the rate
of 10% per annum semi-annually in arrears on September 30 and March 31 of each
year (each said day being an "Interest Payment Date"), commencing on September
30, 1996, until the principal amount hereof shall have become due and payable,
whether at maturity or by acceleration or otherwise, and thereafter at the rate
of 12% per annum on any overdue principal amount and (to the extent permitted
by applicable law) on any overdue interest until paid.
All payments of principal and interest on this Note shall be in such
coin or currency of the United States of America as at the time of payment
shall be legal tender for payment of public and private debts.
95
On any Interest Payment Date on or after March , 2001, the
Company shall pay any amount of accrued original issue discount on this Note as
shall be necessary to ensure that this Note shall not be considered an
"applicable high yield discount obligation" within the meaning of Section
163(i) of the Internal Revenue Code of 1986, as amended (the "Code"), or any
successor provision. The amount of principal payable on this Note shall be
reduced by the amount of any accrued original issue discount that is paid
pursuant to this paragraph.
If any payment on this Note is due on a day which is not a
Business Day, it shall be due on the next succeeding Business Day. For
purposes of this Note, "Business Day" shall mean any day other than a Saturday,
Sunday or a legal holiday or day on which banks are authorized or required to
be closed in Chicago or New York.
1. The Note. This Note is issued pursuant to and is
subject to the terms and provisions of the Securities Purchase Agreement dated
as of February 20, 1996 (the "Purchase Agreement"), among the Company, Welsh,
Carson, Xxxxxxxx & Xxxxx VII, L.P., a Delaware limited partnership ("WCAS
VII"), WCAS XX XX and the several purchasers named on Schedule I thereto and
the terms of this Note include those stated in the Purchase Agreement. As used
herein, the term "Note" or "Notes" includes the 10% Senior Subordinated Note
due September 30, 2001 of the Company originally so issued and any 10% Senior
Subordinated Note or Notes due September 30, 2001 subsequently issued upon
exchange or transfer thereof.
2. Transfer, Etc. of Notes. The Company shall keep at
its office or agency maintained as provided in paragraph (a) of Section 7 a
register in which the Company shall provide for the registration of this Note
and for the registration of transfer and exchange of this Note. The holder of
this Note may, at its option, and either in person or by its duly authorized
attorney, surrender the same for registration of transfer or exchange at the
office or agency of the Company maintained as provided in Section 7 and,
without expense to such holder (except for taxes or governmental charges
imposed in connection therewith), receive in exchange therefor a Note or Notes
each in such denomination or denominations (in integral multiples of $100,000)
as such holder may request, dated as of the date to which interest has been
paid on the Note or Notes so surrendered for transfer or exchange, for the same
aggregate principal amount as the then unpaid principal amount of the Note or
Notes so surrendered for transfer or exchange, and registered in the name of
such person or persons as may be designated by such holder. Every Note
presented or surrendered for registration of transfer or exchange shall be duly
endorsed, or shall be accompanied by a written instrument of transfer,
satisfactory in form to the Company, duly executed by the holder of such Note
or its attorney duly authorized in writing. Every Note so made and delivered
in exchange for such Note shall in all other
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96
respects be in the same form and have the same terms as such Note. No transfer
or exchange of any Note shall be valid (x) unless made in the foregoing manner
at such office or agency and (y) unless registered under the Securities Act of
1933, as amended, or any applicable state securities laws or unless an
exemption from such registration is available.
3. Loss, Theft, Destruction or Mutilation of Note. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and an indemnity reasonably
acceptable in form and substance to the Company from the holder thereof, or, in
the case of any such mutilation, upon surrender and cancellation of this Note,
the Company will make and deliver, in lieu of this Note, a new Note of like
tenor and unpaid principal amount and dated as of the date to which interest
has been paid on this Note.
4. Persons Deemed Owners; Holders. The Company may deem
and treat the person in whose name this Note is registered as the owner and
holder of this Note for the purpose of receiving payment of principal of and
interest on this Note and for all other purposes whatsoever, whether or not
this Note shall be overdue. With respect to any Note at any time outstanding,
the term "holder", as used herein, shall be deemed to mean the person in whose
name such Note is registered as aforesaid at such time.
5. Prepayments.
(a) Optional Prepayment. Subject to any applicable
restrictions contained in the Credit Agreement (as hereinafter defined), upon
notice given as provided in Section 5(b), the Company may, at its option,
prepay this Note, as a whole at any time or in part from time to time in
amounts which shall be integral multiples of $100,000, at the prepayment prices
(expressed as percentages of the principal amount so to be prepaid) set forth
below with respect to the periods indicated below, in each case, together with
any accrued and unpaid interest thereon through the date of such prepayment:
Period Percentage
------ ----------
Prepayment between March , 1996
and September 30, 1998 105.0%
Prepayment between October 1, 1998
and September 30, 1999 102.5%
Prepayment after September 30, 1999 100.0%.
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(b) Notice of Prepayment. The Company shall give written
notice of any prepayment of this Note or any portion hereof pursuant to Section
5(a) not less than 20 nor more than 60 days prior to the date fixed for such
prepayment. Such notice of prepayment and all other notices to be given to the
holder of this Note shall be given by registered or certified mail to the
person in whose name this Note is registered at its address designated on the
register maintained by the Company on the date of mailing such notice of
prepayment or other notice. Upon notice of prepayment being given as
aforesaid, the Company covenants and agrees that it will prepay, on the date
therein fixed for prepayment, this Note or the portion hereof, as the case may
be, so called for prepayment, at the prepayment price determined in accordance
with Section 5(a) hereof. A prepayment of less than all of the outstanding
principal amount of this Note shall not relieve the Company of its obligation
to make scheduled payments of interest payable in respect of the principal
remaining outstanding on the Interest Payment Dates.
(c) Allocation of All Payments. In the event of any
partial payment of less than all of the interest then due on the Notes then
outstanding or any prepayment, purchase, redemption or retirement of less than
all of the outstanding Notes, the Company will allocate the amount of interest
so to be paid and the principal amount so to be prepaid, purchased, redeemed or
retired to each Note in proportion, as nearly as may be, to the aggregate
principal amount of all Notes then outstanding.
(d) Interest After Date Fixed for Prepayment. If this
Note or a portion hereof is called for prepayment as herein provided, this Note
or such portion shall cease to bear interest on and after the date fixed for
such prepayment unless, upon presentation for such purpose, the Company shall
fail to pay this Note or such portion, as the case may be, in which event this
Note or such portion, as the case may be, and, so far as may be lawful, any
overdue installment of interest, shall bear interest on and after the date
fixed for such prepayment and until paid at the rate per annum provided herein.
(e) Surrender of Note; Notation Thereon. Upon any
prepayment of a portion of the principal amount of this Note, the holder
hereof, at its option, may require the Company to execute and deliver at the
expense of the Company (other than for transfer taxes, if any), upon surrender
of this Note, a new Note registered in the name of such person or persons as
may be designated by such holder for the principal amount of this Note then
remaining unpaid, dated as of the date to which the interest has been paid on
the principal amount of this Note then remaining unpaid, or may present this
Note to the Company for notation hereon of the payment of the portion of the
principal amount of this Note so prepaid.
6. Offer to Repurchase Upon a Change of Control
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(a) Upon the occurrence of a Change of Control (as
hereinafter defined), the holder of this Note shall have the right, at such
holder's option, to require the Company to repurchase all or any part of such
holder's Note in amounts which shall be in integral multiples of $100,000
pursuant to the offer described below, at a purchase price equal to 101% of the
principal amount thereof so to be repurchased, plus accrued and unpaid
interest, if any, to the date of purchase (a "Change of Control Payment").
Within 10 Business Days after the Company knows, or reasonably should know, of
the occurrence of any Change of Control, the Company shall make an irrevocable,
unconditional offer (except that such offer may be conditioned upon the closing
of the transaction constituting the Change of Control) (a "Change of Control
Offer") to all holders of the Notes to purchase all of the Notes for cash in an
amount equal to the Change of Control Payment by sending written notice (the
"Change of Control Notice") of such Change of Control Offer to each holder by
registered or certified mail to the person in whose name the Note is registered
at its address maintained by the Company on the date of the mailing of such
notice. The Change of Control Notice shall contain all instructions and
materials required by applicable law and shall contain or make available to the
holder other information material to such holder's decision to tender this Note
pursuant to the Change of Control Offer. The Change of Control Notice, which
shall govern the terms of the Change in Control Offer, shall state:
(i) that the Change of Control Offer is being made
pursuant to this Section 6, and that all Notes validly tendered will
be accepted for payment;
(ii) the Change of Control Payment (including the amount of
accrued and unpaid interest) and the purchase date, which will be no
later than 30 days from the date such notice is mailed (the "Change of
Control Payment Date");
(iii) that any Note not validly tendered will continue to
accrue interest;
(iv) that, unless the Company defaults in the payment of
the Change of Control Payment, any Note accepted for payment pursuant
to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(v) that holders electing to have a Note, or portion
thereof, purchased pursuant to a Change of Control Offer will be
required to surrender the Note to the Company at the address specified
in the notice not later than the close of business on the Business Day
prior to the Change of Control Payment Date;
(vi) that holders will be entitled to withdraw their
election if the Company receives, not later than the close of
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99
business on the second Business Day prior to the Change of Control
Payment Date, a telegram, facsimile transmission or letter setting
forth the name of the holder, the principal amount of the Note
delivered for purchase and a statement that such holder is withdrawing
its election to have such principal amount of Note purchased; and
(vii) that holders whose Notes are being purchased only in
part will be issued a new Note equal in principal amount to the
unpurchased portion of the Note surrendered, which unpurchased portion
must be equal to $100,000 in principal amount or an integral multiple
thereof.
On or before the Change of Control Payment Date, the Company
shall (i) accept for payment the Notes or portions thereof validly tendered
pursuant to the Change of Control Offer prior to the close of business on the
Change of Control Payment Date, (ii) promptly mail to the holders of Notes so
accepted payment in an amount equal to the Change of Control Payment (including
accrued and unpaid interest) for such Notes, and the Company shall promptly
mail or deliver to such holders a new Note equal in principal amount to any
unpurchased portion of the Note surrendered; provided, that each such new Note
will be in a principal amount of $100,000 or an integral multiple thereof. Any
Notes not so accepted shall be promptly mailed or delivered by the Company to
the holder thereof.
(b) In the event of a Change of Control, the Company will
promptly, in good faith, (i) seek to obtain any required consent of the holders
of any Senior Indebtedness (as defined herein) to permit the Change of Control
Offer and the Change of Control Payment contemplated by this Section 6, or (ii)
repay some or all of such Senior Indebtedness to the extent necessary
(including, if necessary, payment in full of such Senior Indebtedness and
payment of any prepayment premiums, fees, expenses or penalties) to permit the
Change of Control Offer and the Change of Control Payment contemplated hereby
without such consent. Failure to comply with the foregoing shall not relieve
the Company from its obligations pursuant to paragraph (a) above.
(c) For purposes of this Note "Change of Control" means (i)
the sale, lease or transfer, whether direct or indirect, of all or
substantially all of the assets of the Company and its subsidiaries, taken as a
whole, in one transaction or a series of related transactions, to any "person"
or "group" (other than the WCAS Group), (ii) the liquidation or dissolution of
the Company or the adoption of a plan of liquidation or dissolution of the
Company, (iii) the acquisition of "beneficial ownership" by any "person" or
"group" (other than the WCAS Group) of voting stock of the Company representing
more than 50% of the voting power of all outstanding shares of such voting
stock, whether by way of merger or consolidation or otherwise, or (iv) during
any period of two consecutive
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100
years, the failure of those individuals who at the beginning of such period
constituted the Company's Board of Directors (together with any new directors
whose election or appointment by such Board or whose nomination for election or
appointment by the shareholders of the Company was approved by a vote of a
majority of the directors 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) to constitute a majority of the Company's Board of
Directors then in office.
For purposes of this definition, (i) the terms "person" and
"group" shall have the meaning set forth in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
applicable, (ii) the term "beneficial owner" shall have the meaning set forth
in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable,
except that 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 or upon the
occurrence of certain events, (iii) any "person" or "group" will be deemed to
beneficially own any voting stock of the Company so long as such person or
group beneficially owns, directly or indirectly, in the aggregate a majority of
the voting stock of a registered holder of the voting stock of the Company, and
(iv) the term "WCAS Group" shall mean WCAS VII, WCAS XX XX and any general
partners thereof.
7. Covenants Relating to the Note. The Company
covenants and agrees that so long as the Note shall be outstanding and, in the
case of paragraphs (k) through (n) below, so long as one million dollars
($1,000,000) of aggregate principal amount of the Notes is outstanding:
(a) Maintenance of Office. The Company will maintain an
office or agency in such place in the United States of America as the Company
may designate in writing to the registered holder of this Note, where this Note
may be presented for registration of transfer and for exchange as herein
provided, where notices and demands to or upon the Company in respect of this
Note may be served and where this Note may be presented for payment. Until the
Company otherwise notifies the holder hereof, said office shall be the
principal office of the Company located at 0000 Xxxx Xxxxxx, Xxx Xxxxxxxxx,
Xxxxxxxxxx 00000.
(b) Payment of Taxes. The Company will promptly pay and
discharge or cause to be paid and discharged, before the same shall become in
default, all material lawful taxes and assessments imposed upon the Company or
any of its subsidiaries or upon the income and profits of the Company or any of
its subsidiaries, or upon any property, real, personal or mixed, belonging to
the Company or any of its subsidiaries, or upon any part thereof by the United
States or any State thereof, as well as all material lawful
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101
claims for labor, materials and supplies which, if unpaid, would become a lien
or charge upon such property or any part thereof; provided, however, that
neither the Company nor any of its subsidiaries shall be required to pay and
discharge or to cause to be paid and discharged any such tax, assessment,
charge, levy or claim so long as both (x) the Company has established adequate
reserves for such tax, assessment, charge, levy or claim and (y)(i) the Company
or a subsidiary shall be contesting the validity thereof in good faith by
appropriate proceedings or (ii) the Company shall, in its good faith judgment,
deem the validity thereof to be questionable and the party to whom such tax,
assessment, charge, levy or claim is allegedly owed shall not have made written
demand for the payment thereof.
(c) Corporate Existence. The Company will do or cause to
be done all things necessary and lawful to preserve and keep in full force and
effect its corporate existence, rights and franchises and the corporate
existence, rights and franchises of each of its subsidiaries.
(d) Maintenance of Property. The Company will at all
times maintain and keep, or cause to be maintained and kept, in good repair,
working order and condition (reasonable wear and tear excepted) all significant
properties of the Company and its subsidiaries used in the conduct of the
Business, and will from time to time make or cause to be made all needful and
proper repairs, renewals, replacements, betterments and improvements thereto,
so that the Business may be conducted at all times in the ordinary course
consistent with past practice.
(e) Insurance. The Company will, and will cause each of
its subsidiaries to, (i) keep adequately insured, by financially sound and
reputable insurers, all property of a character usually insured by corporations
engaged in the same or a similar business similarly situated against loss or
damage of the kinds customarily insured against by such corporations and (ii)
carry, with financially sound and reputable insurers, such other insurance
(including without limitation liability insurance) in such amounts as are
available at reasonable expense and to the extent believed advisable in the
good faith business judgment of the Company.
(f) Keeping of Books. The Company will at all times
keep, and cause each of its subsidiaries to keep, proper books of record and
account in which proper entries will be made of its transactions in accordance
with generally accepted accounting principles consistently applied.
(g) Transactions with Affiliates. The Company shall not
enter into, or permit any of its subsidiaries to enter into, any transaction
with any of its or any subsidiary's officers, directors, employees or any
person related by blood or marriage to any such person or any entity in which
any such person owns any
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beneficial interest, except for (i) normal employment arrangements, benefit
programs and employee incentive option programs on reasonable terms, (ii) any
transaction approved by the Board of Directors of the Company in accordance
with the provisions of Section 144 of the Delaware General Corporation Law, or
otherwise permitted by such Section, (iii) customer transactions in the
ordinary course of business and on arm's length terms and (iv) the transactions
contemplated by the Purchase Agreement.
(h) Notice of Certain Events. The Company shall,
immediately after it becomes aware of the occurrence of (i) any Event of
Default (as hereinafter defined) or any event which, upon notice or lapse of
time or both, would constitute such an Event of Default, or (ii) any action,
suit or proceeding at law or in equity or by or before any governmental
instrumentality or agency which, if adversely determined, would materially
impair the right of the Company to carry on its business substantially as now
or then conducted, or would have a material adverse effect on the properties,
assets, financial condition, prospects, operating results or business of the
Company and its subsidiaries taken as a whole, give notice to the holder of
this Note, specifying the nature of such event.
(i) Payment of Principal and Interest on the Note. The
Company will use its best efforts, subject to the provisions of applicable
credit arrangements (including the Credit Agreement), contractual obligations
of the Company and/or its subsidiaries and any applicable law restricting the
same, to provide funds from its subsidiaries to the Company, by dividend,
advance or otherwise, sufficient to permit payment by the Company of the
principal of and interest on this Note in accordance with its terms. The
Company will not, and will not permit any subsidiary to, directly or indirectly
create or otherwise cause to exist any encumbrance or restriction on the
ability of any subsidiary to pay dividends or make any other distributions to
the Company or any wholly-owned subsidiary of the Company in respect of its
capital stock.
(j) Consolidation, Merger and Sale. The Company will not
consolidate or merge with or into, or sell or otherwise dispose of all or
substantially all of its property in one or more related transactions to, any
other corporation or other entity, unless:
(i) the Company is the surviving corporation or the
entity formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale or other disposition
shall have been made is a corporation organized or existing under the
laws of the United States of any state thereof or the District of
Columbia;
(ii) the surviving corporation or other entity (if other
than the Company) shall expressly and effectively assume in writing
the due and punctual payment of the principal of and
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103
interest on this Note, according to its tenor, and the due and
punctual performance and observance of all the terms, covenants,
agreements and conditions of this Note to be performed or observed by
the Company to the same extent as if such surviving corporation had
been the original maker of this Note;
(iii) the Company or such other corporation or other entity
shall not otherwise be in default in the performance or observance of
any covenant, agreement or condition of this Note or the Purchase
Agreement; and
(iv) the holder of this Note shall have received, in
connection therewith, an opinion of counsel for the Company (or other
counsel satisfactory to the holder), in form and substance
satisfactory to the holder, to the effect that any such consolidation,
merger, sale or conveyance and any such assumption complies with the
provisions of this paragraph (j).
(k) Limitation on Indebtedness and Disqualified Stock.
The Company will not, and will not permit any of its subsidiaries to, (i) incur
or permit to remain outstanding any indebtedness for money borrowed
("Indebtedness"), except (A) Senior Indebtedness (as defined in Section 13),
(B) Indebtedness existing on the date of original issuance of this Note, (C)
Indebtedness permitted to be incurred under the Credit Agreement as in effect
from time to time after the original issuance of this Note (other than
Indebtedness that is subordinate or junior in right of payment (to any extent)
to any Senior Indebtedness and senior or pari passu in right of payment (to any
extent) to the Notes), or (D) in the event that the Credit Agreement has
terminated, Indebtedness permitted to be incurred under any successor credit
agreement of the Company with respect to Senior Indebtedness, or if there
exists no such credit agreement, such Indebtedness as may be mutually agreed
upon by the Company and the holders of a majority of the aggregate principal
amount of the Notes then outstanding, or (ii) issue any capital stock
("Disqualified Stock") of the Company or any of its subsidiaries (other than
the Convertible Preferred Stock (as hereinafter defined)) which by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable), or upon the happening of any event, matures, or is
mandatorily redeemable, whether pursuant to a sinking fund obligation or
otherwise, or redeemable at the option of the holder thereof, in whole or in
part, on or prior to December 31, 2001.
(l) Restricted Payments. The Company will not, and will
not permit any of its subsidiaries to: (i) declare or pay any dividends
on, or make any other distribution or payment on account of, or redeem, retire,
purchase or otherwise acquire, directly or indirectly, any shares of any class
of stock of the Company, whether now or hereafter outstanding, or make any
other distribution in respect thereof, either directly or indirectly, whether
in
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cash, property or in obligations of the Company or any of its subsidiaries,
except for (X) distributions of shares of the same class or of a different
class of stock pro rata to all holders of shares of a class of stock, (Y) the
payment of cash dividends on account of the Company's Convertible Preferred
Stock, $.01 par value (the "Convertible Preferred Stock"), or (Z) dividends,
distributions or payments by any subsidiary to the Company or to any
wholly-owned subsidiary of the Company, or (ii) make any payments of principal
of, or retire, redeem, purchase or otherwise acquire any Indebtedness other
than any Senior Indebtedness or the Notes (such declarations, payments,
purchases, redemptions, retirements, acquisitions or distributions being herein
called "Restricted Payments").
(m) Limitation on Liens. The Company shall not, and shall
not permit any of its subsidiaries to, directly or indirectly, create, incur,
assume or otherwise cause or suffer to exist any lien, pledge , charge,
security interest or encumbrance (collectively, "Liens") on any asset now owned
or hereafter acquired, or on any income or profits therefrom or assign or
convey any right to receive income therefrom, except for (i) Liens permitted
under the Credit Agreement, (ii) liens for current taxes not yet due, (iii)
landlord's liens, (iv) purchase money liens and (v) xxxxxxx'x, materialman's,
warehouseman's and similar liens arising by law or statute.
(n) Inspection of Property. The Company will permit the
holder hereof to visit and inspect any of the properties of the Company and any
other subsidiaries and their books and records and to discuss the affairs,
finances and accounts of any of such corporations with the principal officers
of the Company and such subsidiaries and their independent public accountants,
all at such reasonable times and as often as such holders may reasonably
request.
8. Modification by Holders; Waiver. The Company may,
with the written consent of the holders of not less than a majority in
principal amount of the Notes then outstanding, modify the terms and provisions
of this Note or the rights of the holders of this Note or the obligations of
the Company hereunder, and the observance by the Company of any term or
provision of this Note may be waived with the written consent of the holders of
not less than a majority in principal amount of the Notes then outstanding;
provided, however, that no such modification or waiver shall:
(i) change the maturity of any Note or reduce the
principal amount thereof or reduce the rate or extend the time of
payment of interest thereon without the consent of the holder of each
Note so affected; or
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(ii) give any Note any preference over any other Note,
including, without limitation, by amending the allocation provisions
of Section 5(c) hereof; or
(iii) reduce the percentage of principal amount outstanding
under any Note, the consent of the holder of which is required for any
such modification; or
(iv) amend the provisions of Section 13 hereof in any
manner adverse to the interests of the holder of this Note,
without the consent of the holder of each Note so affected.
Any such modification or waiver shall apply equally to each
holder of the Notes and shall be binding upon them, upon each future holder of
any Note and upon the Company, whether or not such Note shall have been marked
to indicate such modification or waiver, but any Note issued thereafter shall
bear a notation referring to any such modification or waiver. Promptly after
obtaining the written consent of the holders as herein provided, the Company
shall transmit a copy of such modification or waiver to the holders of the
Notes at the time outstanding.
9. Events of Default. If any one or more of the
following events, herein called "Events of Default," shall occur (for any
reason whatsoever, and whether such occurrence shall, on the part of the
Company or any of its subsidiaries, be voluntary or involuntary or come about
or be effected by operation of law or pursuant to or in compliance with any
judgment, decree or order of a court of competent jurisdiction or any order,
rule or regulation of any administrative or other governmental authority) and
such Event of Default shall be continuing:
(i) default shall be made in the payment of the principal
of this Note when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or repurchase
(including default of any optional prepayment in accordance with the
requirements of Section 5 or any Change of Control Payment in
accordance with the requirements of Section 6, as the case may be) or
by acceleration or otherwise; or
(ii) default shall be made in the payment of any
installment of interest on this Note according to its terms when and
as the same shall become due and payable; or
(iii) default shall be made in the due observance or
performance of any covenant, condition or agreement on the part of
the Company contained herein Section 7(j); or
(iv) default shall be made in the due observance or
performance of any other covenant, condition or agreement on
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106
the part of the Company to be observed or performed pursuant to the
terms hereof or of the Purchase Agreement, and such default shall
continue for 10 days after written notice thereof, specifying such
default and requesting that the same be remedied; or
(v) any representation or warranty made by or on behalf
of the Company herein or in the Purchase Agreement shall prove to have
been false or incorrect in any material respect on the date on or as
of which made; or
(vi) the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Company or any
of its subsidiaries in any involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other
similar laws, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company
or any of its subsidiaries for any substantial part of any of their
property or ordering the winding-up or liquidation of any of their
affairs and the continuance of any such decree or order unstayed and
in effect for a period of 30 consecutive days; or
(vii) the commencement by the Company or any of its
subsidiaries of a voluntary case under the federal bankruptcy laws,
as now constituted or hereafter amended, or any other applicable
federal or state bankruptcy, insolvency or other similar laws, or the
consent by any of them to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) of the Company or any of its subsidiaries for
any substantial part of any of their property, or the making by any of
them of any general assignment for the benefit of creditors, or the
failure of the Company or of any of its subsidiaries generally to pay
its debts as such debts become due, or the taking of corporate action
by the Company or any of its subsidiaries in furtherance of or
which might reasonably be expected to result in any of the foregoing;
or
(viii) a default or an event of default as defined in any
instrument evidencing or under which the Company or any of its
subsidiaries has outstanding at the time any Indebtedness in excess of
$500,000 in aggregate principal amount shall occur and as a result
thereof the maturity of any such Indebtedness shall have been
accelerated so that the same shall have become due and payable prior
to the date on which the same would otherwise have become due and
payable and such acceleration shall not have been rescinded or
annulled within 20 days; or
(ix) final judgment for the payment of money in excess of
$500,000 shall be rendered against the Company or any of its
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107
subsidiaries and the same shall remain undischarged for a period of 30
days during which execution shall not be effectively stayed;
then, the holders of at least 33-1/3% in aggregate principal amount of the
Notes at the time outstanding may, at their option, by a notice in writing to
the Company declare this Note to be, and this Note shall thereupon be and
become immediately due and payable together with interest accrued thereon,
without diligence, presentment, demand, protest or further notice of any kind,
all of which are expressly waived by the Company to the extent permitted by
law.
At any time after any declaration of acceleration has been
made as provided in this Section 9, the holders of a majority in principal
amount of the Notes then outstanding may, by notice to the Company, rescind
such declaration and its consequences, provided, however, that no such
rescission shall extend to or affect any subsequent default or Event of Default
or impair any right consequent thereon.
Without limiting the foregoing, the Company hereby waives any
right to trial by jury in any legal proceeding related in any way to this Note
and agrees that any such proceeding may, if the holder so elects, be brought
and enforced in the Supreme Court of the State of New York for New York County
or the United States District Court for the Southern District of New York and
the Company hereby waives any objection to jurisdiction or venue in any such
proceeding commenced in such court. The Company further agrees that any
process required to be served on it for purposes of any such proceeding may be
served on it, with the same effect as personal service on it within the State
of New York, by registered mail addressed to it at its office or agency set
forth in paragraph (a) of Section 7 for purposes of notices hereunder.
10. Suits for Enforcement. Subject to the provisions of
Section 13 of this Note, in case any one or more of the Events of Default
specified in Section 9 of this Note shall happen and be continuing (subject to
any applicable cure period expressly set forth herein), the holder of this Note
may proceed to protect and enforce its rights by suit in equity, action at law
and/or by other appropriate proceeding, whether for the specific performance of
any covenant or agreement contained in this Note or in aid of the exercise of
any power granted in this Note, or may proceed to enforce the payment of this
Note or to enforce any other legal or equitable right of the holder of this
Note.
In case of any default under this Note, the Company will pay
to the holder hereof reasonable collection costs and reasonable attorneys'
fees, to the extent actually incurred.
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108
11. Remedies Cumulative. No remedy herein conferred upon
the holder of this Note is intended to be exclusive of any other remedy and
each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
12. Remedies Not Waived. No course of dealing between
the Company and the holder of this Note or any delay on the part of the holder
hereof in exercising any rights hereunder shall operate as a waiver of any
right of the holder of this Note.
13. Subordination.(1) Anything contained in this Note to
the contrary notwithstanding, the indebtedness evidenced by the Notes shall be
subordinate and junior to the extent set forth in the following paragraphs (A),
(B) and (C), to all Senior Indebtedness of the Company. Senior Indebtedness
shall mean (i) the principal of, and premium, if any, payable on redemption or
prepayment of, and interest on, all indebtedness for borrowed money now
existing or hereafter incurred which by its terms is not subordinated to any
other indebtedness of the Company, (ii) all indebtedness, obligations and
liabilities of any nature of the Company to [ ] Bank or any successor
or assignee thereof under the terms of that certain Credit Agreement (as the
same may be modified, the "Credit Agreement") dated as of , 1996
among Aurora Electronics Group, Inc., the Company and [ ] Bank, as Agent
for the Lenders, whether such indebtedness, obligations, and liabilities are
now existing or hereafter arising or incurred, and (iii) any renewals or
extensions of the indebtedness incurred pursuant to any such Senior
Indebtedness described in clauses (i) and (ii) above.
(A) In the event of any insolvency, bankruptcy,
liquidation, reorganization or other similar proceedings, or any
receivership proceedings in connection therewith, relative to the
Company or its creditors or its property, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding up
of the Company, whether or not involving insolvency or bankruptcy
proceedings, then all Senior Indebtedness shall first be paid in full,
before any payment on account of principal or interest is made upon
the Notes.
(B) In any of the proceedings referred to in paragraph
(A) above, any payment or distribution of any kind or character,
whether in cash, property, stock or obligations which may be payable
or deliverable in respect of the Notes shall be paid or delivered
directly to the holders of Senior Indebtedness for application in
payment thereof, unless and until all Senior Indebtedness shall have
been paid in full.
____________________
(1) Subject to bank comments.
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(C) In the event (i) the Company shall default under any
Senior Indebtedness obligation held by any bank or other financial
institution and the effect of such default is to accelerate the
maturity of such Senior Indebtedness or (ii) the holder thereof shall
cause such obligation to become due prior to the stated maturity
thereof or (iii) the Company shall not pay such obligation at maturity
or (iv) an Event of Default (as defined in Credit Agreement) shall
have occurred and as a result of such Event of Default the Obligations
(as defined in the Credit Agreement) become due and payable (x) then
the Company will not make, directly or indirectly, to the holder of
the Notes any payment of any kind of or on account of all or any part
of the Notes; (y) the holders of the Notes will not accept from the
Company any payment of any kind of or on account of all or any part of
the Notes and (z) the holders of the Notes may not take, demand,
receive, xxx for, accelerate or commence any remedial proceedings with
respect to any amount payable under the Notes, unless and until in
each case described in clauses (x), (y) and (z) all such Senior
Indebtedness shall have been paid in full; provided, however, that if
(i) such default or Event of Default shall have occurred and be
continuing for a period (a "Blockage Period") of 179 days or more (it
being understood that not more than one Blockage Period may be
commenced with respect to the Notes during any period of 360
consecutive days), (ii) such default or Event of Default shall not
have been cured or waived (iii) the holder of such Senior Indebtedness
obligation shall not have made a demand for payment and commenced an
action, suit or other proceeding against the Company and (iv) none of
the events described in subsection (A) above shall have occurred, then
(to the extent not otherwise prohibited by subsections (A) or (B)
above, the Company may make and the holders of the Notes may accept
from the Company all past due and current payments of any kind of or
on account of the Notes, and such holder may demand, receive, retain,
xxx for or otherwise seek enforcement or collection of all amounts
payable on account of principal of or interest on the Notes. The
holder of the Note agrees that whatever right, title, and interest
(including security interest or judgment lien) that the holders of the
Notes have in and to any assets of the Company as security for the
amounts owing in connection with the Notes shall, at all times and in
all respects, be subject and subordinate to the holder's of the Senior
Indebtedness right, title, and interest (including security interest
or judgment lien) in such assets.
Subject to the payment in full of all Senior Indebtedness as
aforesaid, the holders of the Notes shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of any kind
or character, whether in cash, property, stock or obligations, which may be
payable or deliverable to the holders of Senior Indebtedness, until the
principal of, and
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110
interest on, the Notes shall be paid in full, and, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the holders of the
Notes, no such payment or distribution made to the holders of Senior
Indebtedness by virtue of this Section 13 which otherwise would have been made
to the holder of the Notes shall be deemed a payment by the Company on account
of the Senior Indebtedness, it being understood that the provisions of this
Section 13 are and are intended solely for the purposes of defining the
relative rights of the holders of the Notes, on the one hand, and the holder of
the Senior Indebtedness, on the other hand. Subject to the rights, if any,
under this Section 13 of holders of Senior Indebtedness to receive cash,
property, stock or obligations otherwise payable or deliverable to the holders
of the Notes, nothing herein shall either impair, as between the Company and
the holder of the Notes, the obligation of the Company, which is unconditional
and absolute, to pay to the holder thereof the principal thereof and interest
thereon in accordance with its terms or prevent (except as otherwise specified
therein) the holders of the Notes from exercising all remedies otherwise
permitted by applicable law or hereunder upon default hereunder.
14. Covenants Bind Successors and Assigns. All the
covenants, stipulations, promises and agreements in this Note contained by or
on behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
15. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York.
16. Headings. The headings of the sections and
paragraphs of this Note are inserted for convenience only and do not constitute
a part of this Note.
17. Third Party Beneficiaries. The provisions of Section
13 are intended to be for the benefit of, and shall be enforceable directly by
each holder of, the Senior Indebtedness.
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IN WITNESS WHEREOF, Aurora Electronics, Inc. has caused this Note to
be signed in its corporate name by one of its officers thereunto duly
authorized and to be dated as of the day and year first above written.
AURORA ELECTRONICS, INC.
By:_________________________
Name:
Title:
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112
Draft of February 20, 1996
EXHIBIT B
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
CONVERTIBLE PREFERRED STOCK
OF
AURORA ELECTRONICS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
___________________________________________
AURORA ELECTRONICS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
that, pursuant to authority vested in the Board of Directors of the Corporation
by Article Fourth of the Restated Certificate of Incorporation, as amended, of
the Corporation, the following resolution was adopted as of February , 1996
by the Board of Directors of the Corporation pursuant to Section 141 of the
Delaware General Corporation Law:
"RESOLVED that, pursuant to authority vested in the Board of
Directors of the Corporation by Article Fourth of the Corporation's Restated
Certificate of Incorporation, as amended, of the total authorized number of
1,000,000 shares of Preferred Stock, par value $.01 per share, of the
Corporation, there shall be designated a series of 400,000 shares which shall
be issued in and constitute a single series to be known as "Convertible
Preferred Stock" (hereinafter called the "Convertible Preferred Stock"). The
shares of Convertible Preferred Stock shall have the voting powers,
designations, preferences and other special rights, and qualifications,
limitations and restrictions thereof set forth below:
1. Dividends. (a) The holders of shares of Convertible
Preferred Stock shall be entitled to receive, out of funds legally available
for such purpose, cash dividends at the rate of $7.00 per share per annum, and
no more, payable as provided herein or when and as declared by the Board of
Directors of the Corporation. Such dividends shall be cumulative and shall
accrue from and after the date of issue whether or not declared and whether or
not there are any funds of the Corporation legally available for the payment of
dividends. Accrued but unpaid
113
dividends shall not bear interest. The Board of Directors of the Corporation
may fix a record date for the determination of holders of Convertible Preferred
Stock entitled to receive payment of a dividend declared thereon, which record
date shall be no more than 60 days prior to the date fixed for the payment
thereof.
(b) As long as any shares of Convertible Preferred Stock
shall remain outstanding, in no event shall any dividend be declared or paid
upon, nor shall any distribution be made upon, any Junior Capital Stock (as
defined herein), other than a dividend or distribution payable solely in shares
of common stock of the Corporation, nor shall any shares of Junior Capital
Stock be purchased or redeemed by the Corporation, nor shall any moneys be paid
to or made available for a sinking fund for the purchase or redemption of
shares of any Junior Capital Stock, unless, in each such case, (i) full
cumulative dividends on the outstanding shares of Convertible Preferred Stock
shall have been declared and paid and (ii) any arrears or defaults in any
redemption of shares of Convertible Preferred Stock shall have been cured. The
term "Junior Capital Stock" as used herein means any shares of capital stock of
the Corporation, including the Corporation's Common Stock, par value $.03 per
share (the "Common Stock"), other than shares of the Corporation's capital
stock permitted to rank on a parity with or senior to the Convertible Preferred
Stock pursuant to Section 6 hereof.
2. Redemption. The shares of Convertible Preferred
Stock shall be redeemable as follows:
(a) Mandatory Redemption. On September 30, 2006, subject
to the terms of the Credit Agreement dated as of [ ], 1996 (the "Credit
Agreement"), among Aurora Electronics Group, Inc., the Corporation and [
] Bank, as Agent, the Corporation shall redeem (the "Mandatory Redemption") all
of the shares of Convertible Preferred Stock then outstanding, at a redemption
price of $100 per share, plus all accrued but unpaid dividends to which the
holders of the Convertible Preferred Stock are then entitled pursuant to
Section 1 above as of such date.
(b) Optional Redemption. Subject to the terms of the
Credit Agreement, upon the occurrence of any of the following (each a "Corporate
Disposition"):
(i) the sale, lease or transfer, whether direct or
indirect, of all or substantially all of the assets of the Company and
its subsidiaries, taken as a whole, in one transaction or a series of
related transactions, to any "person" or "group" other than the WCAS
Group, or
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(ii) the acquisition of "beneficial ownership" by any
"person" or "group" other than the WCAS Group, of voting stock of the
Corporation representing more than 50% of the voting power of all
outstanding shares of such voting stock, whether by way of merger or
consolidation or otherwise,
then each holder of any share or shares of Convertible Preferred Stock shall
have the right, at such holder's option, to require the Corporation to redeem
(the "Optional Redemption"), any or all of such holder's shares of Convertible
Preferred Stock (any such redemption of less than all of a holder's shares to
be in integral multiples of 1,000 shares) on or prior to the effective date of
such Corporate Disposition, at a redemption price of $100 plus all accrued but
unpaid dividends to which the holders of the Convertible Preferred Stock are
then entitled pursuant to Section 1 above as of such date. Such option shall
be exercised by written notice to the Corporation given within fifteen days of
the date of receipt of the Redemption Notice (as defined herein) to be
delivered pursuant to Section 2(e) below.
For purposes of this Certificate of Designations: (i) the
terms "person" and "group" shall have the meaning set forth in Section 13(d)(3)
of the Exchange Act, whether or not applicable, (ii) the term "beneficial
owner" shall have the meaning set forth in Rules 13d-3 and 13d-5 under the
Exchange Act, whether or not applicable, except that 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 or upon the occurrence of certain events, (iii) any "person" or
"group" will be deemed to beneficially own any voting stock of the Company so
long as such person or group beneficially owns, directly or indirectly, in the
aggregate a majority of the voting stock of a registered holder of the voting
stock of the Company, and (iv) the term "WCAS Group" shall mean Welsh, Carson,
Xxxxxxxx & Xxxxx VII, L.P., a Delaware limited partnership ("WCAS VII"), WCAS
Capital Partners II, L.P., a Delaware limited partnership ("WCAS XX XX"), and
any general partners thereof.
Any date on which any shares of Convertible Preferred Stock
are to be redeemed as herein provided is hereinafter called a "Redemption
Date." The price at which any shares of Convertible Preferred Stock are to be
redeemed as herein provided is hereinafter called the "Redemption Price."
(c) Notice of Redemption. At least 20 days (and not more
than 60 days) prior to any Redemption Date (which in the case of any Optional
Redemption shall be prior to the effective date of any such sale, lease or
transfer of assets or consolidation, merger or other transaction), written
notice thereof (a "Redemption Notice") shall be mailed, by first class or
regis-
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115
tered mail, postage prepaid, to each holder of record of Convertible Preferred
Stock, at his, her or its address last shown on the records of the transfer
agent of the Convertible Preferred Stock (or the records of the Corporation, if
it serves as its own transfer agent). The Redemption Notice shall set forth
(i) the Redemption Date, (ii) the Redemption Price, (iii) in the case of the
Mandatory Redemption, the total number of shares to be redeemed from all
holders and the number of shares to be redeemed from such holder, and (iv) in
the case of an Optional Redemption, a description of the events which will,
upon the occurrence thereof, constitute a Corporate Disposition, including a
summary description of the terms thereof, and such holder's right to exercise
its option to require a redemption under Section 2(b) hereof. In the case of a
Mandatory Redemption, the Redemption Notice shall call upon such holder to
surrender to the Corporation, in the manner and at the place designated, his or
its certificate or certificates representing any shares of Convertible
Preferred Stock to be redeemed.
(d) Redeemed or Otherwise Acquired Shares to be Retired.
On or prior to a Redemption Date, all holders of shares of Convertible
Preferred Stock to be redeemed shall surrender their certificates representing
such shares to the Corporation, in the manner and at the place designated in
the Redemption Notice, and against such surrender the Redemption Price of such
shares shall be paid to the order of the person whose name appears on each such
certificate as the owner thereof. Each surrendered certificate shall be
canceled. From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of the
shares of redeemed Convertible Preferred Stock as holders of such shares of
Convertible Preferred Stock (except the right to receive the Redemption Price
without interest against surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation (or its transfer agent, if any) or
be deemed to be outstanding for any purpose whatsoever.
(e) Shares to be Redeemed or Purchased. If the funds of
the Corporation legally available for redemption of Convertible Preferred Stock
on any Redemption Date are insufficient, after redemption of any other shares
ranking senior thereto, to redeem the full number of shares of Convertible
Preferred Stock to be redeemed on such date, those funds which are legally
available shall be used to redeem the maximum possible number of such shares of
Convertible Preferred Stock ratably from each holder whose shares are otherwise
required to be redeemed. At any time thereafter when additional funds of the
Corporation become legally available for the redemption of Convertible
Preferred Stock, such funds will be used, at the end of the next succeeding
fiscal quarter, to redeem the balance of the shares
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116
which the Corporation was theretofore obligated to redeem, ratably on the basis
set forth in the preceding sentence.
3. Liquidation, Dissolution or Winding Up. (a) In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, the holders of shares of Convertible Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, before any payment shall be
made to the holders of any shares of Junior Capital Stock by reason of their
ownership thereof, an amount equal to $100 per share of Convertible Preferred
Stock, plus all accrued but unpaid dividends to which the holders of the
Convertible Preferred Stock are then entitled pursuant to Section 1 above as of
such date, and no more. If upon any such liquidation, dissolution or winding
up of the Corporation the remaining assets of the Corporation available for
distribution to its stockholders (after making all distributions to which
holders of capital stock ranking senior to the Convertible Preferred Stock
shall be entitled) shall be insufficient to pay the holders of shares of
Convertible Preferred Stock the full amount to which they shall be entitled
pursuant to this Section 3(a), the holders of shares of Convertible Preferred
Stock, and any other shares ranking on a parity therewith, shall share ratably
in any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in
respect of the shares of Convertible Preferred Stock held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) After the payment of all amounts required to be paid
pursuant to Section 3(a) to the holders of shares of Convertible Preferred
Stock, and any other shares ranking on a parity therewith, upon the
dissolution, liquidation or winding up of the Corporation, the holders of
shares of Junior Capital Stock then outstanding shall share in any distribution
of the remaining assets and funds of the Corporation in the manner provided by
law, in the Restated Certificate of Incorporation of the Corporation, as
amended, or as provided in any pertinent Certificate of Designations of the
Corporation, as the case may be.
(c) No Corporate Disposition shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 3 (unless in connection therewith the liquidation of the Corporation is
specifically approved).
4. Conversion. The shares of Convertible Preferred
Stock shall be convertible as follows:
(a) Right to Convert. Subject to the terms and
conditions of this Section 4, the holder of any share or shares of Convertible
Preferred Stock shall have the right, at his, her or
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117
its option at any time, to convert any such shares of Convertible Preferred
Stock (except that upon any liquidation of the Corporation the right of
conversion shall terminate as to all shares at the close of business 15 days
after notice thereof has been given to the holders of Convertible Preferred
Stock as provided in Section 4(h) hereof) into such number of fully paid and
nonassessable whole shares of Common Stock as is obtained by (i) multiplying
the number of shares of Convertible Preferred Stock so to be converted by $100,
(ii) adding the Additional Conversion Amount (as defined in Section 4(c)
herein), if any, and (iii) dividing the result by the conversion price of
$2.125 or, if there has been an adjustment of the conversion price, by the
conversion price as last adjusted and in effect at the date any share or shares
of Convertible Preferred Stock are surrendered for conversion (such price, or
such price as last adjusted, being referred to herein as the "Conversion
Price"). Such right of conversion shall be exercised by the holder thereof by
giving written notice that the holder elects to convert a stated number of
shares of Convertible Preferred Stock into Common Stock (such number shall
either be an integral multiple of 1,000 or the total number of shares held by
such holder) and by surrender of a certificate or certificates for the shares
so to be converted to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate by notice
in writing to the holder or holders of the Convertible Preferred Stock) at any
time during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address), subject to
compliance with applicable laws to the extent such designation shall involve a
transfer, in which the certificate or certificates for shares of Common Stock
shall be issued.
(b) Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt by the Corporation of the written notice referred to
in Section 4(a) above and surrender of the certificate or certificates for the
share or shares of the Convertible Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and delivered, to
the holder, registered in such name or names as such holder may direct, subject
to compliance with applicable laws to the extent such designation shall involve
a transfer, a certificate or certificates for the number of whole shares of
Common Stock issuable upon the conversion of such share or shares of
Convertible Preferred Stock. To the extent permitted by law, such conversion
shall be deemed to have been effected and the Conver- sion Price shall be
determined as of the close of business on the date on which such written notice
shall have been received by the Corporation and the certificate or certificates
for such share or shares shall have been surrendered as aforesaid, and at such
time the rights of the holder of such share or shares of Convertible Preferred
Stock shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of
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118
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
(c) Fractional Shares; Dividends; Partial Conversion.
(i) No fractional shares shall be issued upon conversion
of the Convertible Preferred Stock into Common Stock and the number of
shares of Common Stock to be issued shall be rounded to the nearest
whole share. If any fractional interest in a share of Common Stock
would, except for the provisions of this Section 4(c), be deliverable
upon any such conversion, the Corporation, in lieu of delivering the
fractional share thereof, shall pay to the holder surrendering the
Convertible Preferred Stock for conversion an amount in cash equal to
the current fair market value of such fractional interest as
determined in good faith by the Board of Directors of the Corporation.
(ii) Upon the conversion of any shares of Convertible
Preferred Stock, the Corporation will pay the holder thereof, out of
funds legally available for such purpose, any accrued but unpaid
dividends thereon to the date of such conversion. In the event that
the Corporation is for any reason unable to pay some or all of such
accrued but unpaid dividends, any amount not so paid shall (for
purposes of Section 4(a) hereof) constitute the "Additional Conversion
Amount." No other payment or adjustment shall be made upon any
conversion on account of the Convertible Preferred Stock so
converted or the Common Stock issued upon such conversion.
(iii) In case the number of shares of Convertible Preferred
Stock represented by the certificate or certificates surrendered
pursuant to Section 4(a) exceeds the number of shares converted, the
Corporation shall, upon such conversion, execute and deliver to the
holder thereof, at the expense of the Corporation, a new certificate
or certificates for the number of shares of Convertible Preferred
Stock represented by the certificate or certificates surrendered which
are not to be converted.
(d) Adjustment of Price Upon Issuance of Common Shares.
Except as provided in Section 4(e) hereof, if and whenever (after the date of
effectiveness of this Certificate of Designation and whether or not any shares
of Convertible Preferred Stock shall at the time have been issued and be
outstanding) the Corporation shall issue or sell, or is, in accordance with
subparagraphs (d)(i) through (d)(vii), deemed to have issued or sold, any
shares of its Common Stock without consideration or for a consideration per
share less than the Conversion Price in
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119
effect immediately prior to the time of such issue or sale, then, forthwith
upon such issue or sale, the Conversion Price shall be adjusted to the price
(calculated to the nearest cent) determined by dividing (x) an amount equal to
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such issue or sale (including as outstanding all shares of Common
Stock issuable upon conversion of outstanding Convertible Preferred Stock)
multiplied by the then existing Conversion Price, and (B) the consideration, if
any, received by the Corporation upon such issue or sale, by (y) the total
number of shares of Common Stock outstanding immediately after such issue or
sale (including as outstanding all shares of Common Stock issuable upon
conversion of outstanding Convertible Preferred Stock without giving effect to
any adjustment in the number of shares so issuable by reason of such issue and
sale).
No adjustment of the Conversion Price, however, shall be made
in an amount less than $.01 per share, and any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to $.01 per share or more.
For purposes of this Section 4(d), the following subparagraphs
(i) through (vii) shall also be applicable:
(i) Issuance of Rights or Options. Subject to Section
4(e) hereof, in case at any time the Corporation shall in any manner
grant (whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock (other than shares of
Convertible Preferred Stock) or securities convertible into or
exchangeable for Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") whether or
not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities
(determined by dividing (A) the total amount, if any, received or
receivable by the Corporation as consideration for the granting of
such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of all such
Options, plus, in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or
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120
exchange of all such Convertible Securities issuable upon the exercise
of such Options) shall be less than the Conversion Price in effect
immediately prior to the time of the granting of such Options, then
the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such
price per share as of the date of granting of such Options and
thereafter shall be deemed to be outstanding. Except as otherwise
provided in subparagraph (iii) below, no adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities. Subject to
Section 4(e) hereof, in case the Corporation shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Conversion Price
in effect immediately prior to the time of such issue or sale, then
the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be
deemed to have been issued for such price per share as of the date of
the issue or sale of such Convertible Securities and thereafter shall
be deemed to be outstanding, provided that (x) except as otherwise
provided in subparagraph (iii) below, no adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and (y) if any
such issue or sale of such Convertible Securities is made upon
exercise of any Option to purchase any such Convertible Securities for
which adjustments of the Conversion Price have been or are to be made
pursuant to other provisions of this Section 4(d), no further
adjustment of the Conversion Price shall be made by reason of such
issue or sale.
(iii) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the
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purchase price provided for in any Option referred to in subparagraph
(i), the additional consideration, if any, payable upon the conversion
or exchange of any Convertible Securities referred to in subparagraph
(i) or (ii), or the rate at which any Convertible Securities referred
to in subparagraph (i) or (ii) are convertible into or exchangeable
for Common Stock shall change at any time (in each case other than
under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event
shall forthwith be readjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; and on the expiration of any such
Option or the termination of any such right to convert or exchange
such Convertible Securities, the Conversion Price then in effect
hereunder shall forthwith be increased to the Conversion Price which
would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never
been issued, and the Common Stock issuable thereunder shall no longer
be deemed to be outstanding. If the purchase price provided for in
any such Option referred to in subparagraph (i) or the rate at which
any Convertible Securities referred to in subparagraph (i) or (ii) are
convertible into or exchangeable for Common Stock shall be reduced at
any time under or by reason of provisions with respect thereto
designed to protect against dilution, then, in case of the delivery of
Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Securities, the Conversion Price
then in effect hereunder shall forthwith be adjusted to such
respective amount as would have been obtained had such Option or
Convertible Securities never been issued as to such Common Stock and
had adjustments been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is thereby
reduced.
(iv) Stock Dividends. In case the Corporation shall
declare a dividend or make any other distribution upon any stock of
the Corporation payable in Common Stock, Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
(v) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of
Common Stock into a greater number of shares, the
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Conversion Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding
shares of Common Stock of the Corporation shall be combined into a
smaller number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
(vi) Consideration for Stock. In case any shares of
Common Stock, Options or Convertible Securities shall be issued or
sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration
as determined in good faith by the Board of Directors of the
Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. The amount of consideration
deemed to be received by the Corporation pursuant to the foregoing
provisions of this subparagraph (vi) upon any issuance and/or sale of
shares of Common Stock, Options or Convertible Securities, pursuant to
an established compensation plan of the Corporation, to directors,
officers or employees of the Corporation in connection with their
employment shall be increased by the amount of any tax benefit
realized by the Corporation as a result of such issuance and/or sale,
the amount of such tax benefit being the amount by which the Federal
and/or state income or other tax liability of the Corporation shall be
reduced by reason of any deduction or credit in respect of such
issuance and/or sale. In case any Options shall be issued in
connection with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in which no
specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without
consideration.
(vii) Record Date. In case the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities, or (B) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such
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other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(e) Certain Issues of Stock Excepted. Anything herein to
the contrary notwithstanding, the Corporation shall not make any adjustment of
the Conversion Price in the case of (i) the issuance of shares of Convertible
Preferred Stock pursuant to that certain Securities Purchase Agreement, dated
as of February , 1996 among the Corporation, WCAS VII, WCAS XX XX and the
several persons named on Schedule I thereto; (ii) the issuance of shares of
Common Stock upon conversion of Convertible Preferred Stock; (iii) the issuance
of up to [ ](1) shares of Common Stock to employees of the Corporation or
its subsidiaries, either directly or pursuant to stock options, pursuant to
plans or arrangements approved by the Board of Directors of the Corporation; or
(iv) the issuance of shares of Common Stock in respect of any Convertible
Securities issued by the Corporation prior to the date of said Securities
Purchase Agreement.
(f) Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation (a
"Reorganization") shall be effected in such a way (including, without
limitation, by way of consolidation or merger) that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such Reorganization, lawful
and adequate provision (in form satisfactory to the holders of a majority of
the then outstanding shares of Convertible Preferred Stock) shall be made
whereby each holder of a share or shares of Convertible Preferred Stock shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock of the
Corporation immediately theretofore receivable upon the conversion of such
share or shares of the Convertible Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore so receivable had such
Reorganization not taken place, and in any such case appropriate provision
shall be made with respect to the rights and interests of such holder to the
end that the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights (including an immediate
adjustment, by reason of such Reorganization, of the Conversion Price to the
value for the Common Stock reflected by the terms of such Reorganization if the
value so reflected is less than the Conversion Price in effect immediately
prior to
____________________
(1) To be determined at Closing.
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such Reorganization). In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares of common
stock (or other equity interests, of the case may be) of the surviving
corporation or business entity are issuable to holders of Common Stock of the
Corporation outstanding immediately prior to such merger or consolidation, the
Conversion Price in effect immediately prior to such merger or consolidation
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of the Corporation. The
Corporation will not effect any Corporate Disposition unless prior to the
consummation thereof the acquiring corporation or other business entity, or
successor corporation or other business entity (if other than the Corporation)
resulting from such Corporate Disposition, as the case may be, shall assume by
written instrument (in form reasonably satisfactory to the holders of a
majority of the shares of Convertible Preferred Stock at the time outstanding)
executed and mailed or delivered to each holder of a share or shares of
Convertible Preferred Stock at the last address of such holder appearing on the
books of the Corporation (or its transfer agent, if any), the obligation to
deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
receive.
(g) Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, addressed to each holder
of shares of Convertible Preferred Stock at the address of such holder as shown
on the books of the Corporation (or its transfer agent, if any), which notice
shall state the Conversion Price resulting from such adjustment, setting forth
in reasonable detail the method of calculation and the facts upon which such
calculation is based.
(h) Other Notices. In case at any time:
(i) the Corporation shall declare any dividend upon
its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(ii) the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any Reorganization or Corporate
Disposition or the Corporation shall become aware of any event or
events that could reasonably be expected to result in a Reorganization
or Corporate Disposition; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
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then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of any shares of
Convertible Preferred Stock at the address of such holder as shown on the books
of the Corporation (or its transfer agent, if any), (A) at least 15 days' prior
written notice of the date on which the books of the Corporation (or its
transfer agent) shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such Reorganization or Corporate Disposition, and (B) in the
case of any such Reorganization or Corporate Disposition, at least 15 days'
prior written notice of the date when the same shall take place. Such notice
in accordance with the foregoing clause (A) shall also specify, in the case of
any such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (B) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such Reorganization or
Corporate Disposition, as the case may be.
(i) Conversion at Corporation's Option. All outstanding
shares of Convertible Preferred Stock shall, at the option of the Corporation,
be automatically converted into Common Stock if at any time the Corporation
shall effect a firm commitment public offering of Common Stock or Convertible
Securities registered pursuant to the Securities Act of 1933, as amended,
resulting in proceeds to the Corporation and/or selling stockholders of not
less than $20,000,000, after deduction of underwriting discounts and
commissions but before deduction of other expenses of issuance, and in which
the offering price to the public (or, in the case of a sale of Convertible
Securities, the price per share of Common Stock payable upon conversion
thereof) is not less than two times the Conversion Price. Such conversion
shall be effected at the time of and subject to the closing of the sale of such
shares of Common Stock.
(j) Stock to be Reserved. The Corporation will at all
times reserve and keep available out of its authorized but unissued Common
Stock, solely for the purpose of issuance upon the conversion of the
Convertible Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding shares
of Convertible Preferred Stock. All shares of Common Stock which shall be so
issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges arising out of or by reason of the issue
thereof, and, without limiting the generality of the foregoing, the Corporation
covenants that it will from time to time take all such action as may be
requisite to assure that the par value per share of the Common Stock is at all
times equal to or less than the effective Conversion Price. The Corporation
will take all such action within its control as
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may be necessary on its part to assure that all such shares of Common Stock may
be so issued without violation of any applicable law or regulation, or of any
requirements of any national securities exchange upon which the Common Stock of
the Corporation may be listed. The Corporation will not take any action which
results in any adjustment of the Conversion Price if after such action the
total number of shares of Common Stock issued and outstanding and thereafter
issuable upon exercise of all options and conversion of Convertible Securities,
including upon conversion of the Convertible Preferred Stock, would exceed the
total number of shares of Common Stock then authorized by the Corporat- ion's
Restated Certificate of Incorporation.
(k) No Reissuance of Convertible Preferred Stock. Shares
of Convertible Preferred Stock that are converted into shares of Common Stock
as provided herein shall not be reissued.
(l) Issue Tax. The issuance of certificates for shares
of Common Stock upon conversion of the Convertible Preferred Stock shall be
made without charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Convertible Preferred Stock which is being converted.
(m) Closing of Books. The Corporation will at no time
close its transfer books against the transfer of any Convertible Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion
of any shares of Convertible Preferred Stock in any manner which interferes
with the timely conversion of such Convertible Preferred Stock.
(n) Definition of Common Stock. As used in this Section
4, the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, par value $.03 per share, as constituted on the date of filing of
this Certificate of Designation and shall also include any capital stock of any
class of the Corporation thereafter authorized that shall not be limited to a
fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided, however, that such term, when used to describe the
securities receivable upon conversion of shares of the Convertible Preferred
Stock of the Corporation, shall include only shares designated as Common Stock
of the Corporation on the date of filing of this Certificate of Designations,
any shares resulting from any combination or subdivision thereof referred to in
subparagraph (v) of Section 4(d), or in case of any reorganiza-
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tion or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in Section 4(f).
5. Voting. Except as otherwise provided by law or in
Section 6 below, the holders of Convertible Preferred Stock shall vote together
with the holders of Common Stock on all matters to be voted on by the
stockholders of the Corporation, and each holder of Convertible Preferred Stock
shall be entitled to one vote for each share of Common Stock that would be
issuable to such holder upon the conversion of all the shares of Convertible
Preferred Stock held by such holder on the record date for the determination of
stockholders entitled to vote.
6. Restrictions. So long as any shares of Convertible
Preferred Stock are outstanding, without the consent of the holders of a
majority of the Convertible Preferred Stock at the time outstanding given in
person or by proxy, either in writing or at a special meeting called for that
purpose at which the holders of the Convertible Preferred Stock shall vote
separately as a class, the Corporation may not (i) effect, validate or permit a
Corporate Disposition; (ii) effect or validate the amendment, alteration or
repeal of any provision hereof which would amend or repeal the dividend,
voting, conversion, redemption or liquidation rights of the Convertible
Preferred Stock set forth herein; (iii) effect or validate the amendment,
alteration or repeal of any provision of the Restated Certificate of
Incorporation or the By-laws of the Corporation; or (iv) (A) create or
authorize any additional class or series of stock ranking senior to or on a
parity with the Convertible Preferred Stock as to dividends or as to rights
upon redemption, liquidation, dissolution or winding up, or (B) increase the
authorized number of shares of the Convertible Preferred Stock or of any other
class or series of capital stock of the Corporation ranking senior to or on a
parity with the Convertible Preferred Stock as to dividends or as to rights
upon redemption, liquidation, dissolution or winding up, whether any such
creation or authorization or increase shall be by means of amendment hereof,
amendment of the Restated Certificate of Incorporation of the Corporation,
Certificate of Designation or amendment thereof, merger, consolidation or
otherwise.
7. Reacquired Shares. Any shares of Convertible
Preferred Stock, which are redeemed or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof and the number of authorized shares of Convertible
Preferred Stock shall be reduced accordingly.
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IN WITNESS WHEREOF, this Certificate of Designation has been
executed by the Corporation by its President this day of March, 1996.
AURORA ELECTRONICS, INC.
By __________________________
President
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Draft of February 20, 1996
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
March , 1996
To the several persons named
in Schedule I hereto
Ladies and Gentlemen:
This will confirm that with respect to the several individuals
and entities named as Purchasers in the Securities Purchase Agreement dated as
of February 21, 1996 (the "Purchase Agreement"), among Aurora Electronics,
Inc., a Delaware corporation (the "Company"), Welsh, Carson, Xxxxxxxx & Xxxxx
VII, L.P., a Delaware limited partnership ("WCAS VII"), WCAS Capital Partners
II, L.P., a Delaware limited partnership ("WCAS XX XX"), and the several
persons named therein, in consideration of (i) the purchase by WCAS VII and the
several persons named in Part A of Schedule I hereto (collectively, "the
Preferred Share Purchasers") from the Company of [ ](1) shares (the
"Preferred Shares") of Convertible Preferred Stock, $.01 par value
("Convertible Preferred Stock"), of the Company, and (ii) the purchase by WCAS
XX XX of (x) the Company's 10% Senior Subordinated Note due September 30, 2001,
in the principal amount of $10,000,000, and (y) [ ]1 shares (the "Common
Shares") of Common Stock, $.03 par value ("Common Stock"), of the Company, all
on the terms and subject to the conditions set forth in the Purchase Agreement,
and as an inducement to the Purchasers to consummate the transactions
contemplated by the Purchase Agreement, the Company hereby covenants and agrees
with each of you, and with each subsequent holder of Restricted Stock (as
defined herein) as follows:
1. Certain Definitions. As used herein, the following
terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
____________________
(1) To be determined at Closing.
130
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of any of the Preferred Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at
the time.
"Registration Expenses" means the expenses so described in
Section 8 hereof.
"Restricted Stock" means the shares of capital stock of the
Company, the certificates for which are required to bear the legend
set forth in Section 2 hereof.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" means the expenses so described in Section
8 hereof.
2. Restrictive Legend. Each certificate representing
the Common Shares, each certificate representing the Preferred Shares, each
certificate representing the Conversion Shares and each certificate issued upon
exchange, adjustment or transfer of any of the foregoing, other than in a
public sale or as otherwise permitted by the last paragraph of Section 3
hereof, shall be stamped or otherwise imprinted with a legend substantially in
the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
3. Notice of Proposed Transfer. Prior to any proposed
transfer of any Restricted Stock (other than under the circumstances described
in Sections 4, 5 or 6 hereof), the holder thereof shall give written notice to
the Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and, if requested by the Company,
shall be accompanied by an opinion of counsel reasonably satisfactory to the
Company (it being agreed that Reboul, MacMurray, Xxxxxx, Xxxxxxx & Kristol is
and shall be satisfactory) to the effect that the proposed transfer of the
Restricted Stock may be effected without registration under the Securities Act,
whereupon the holder of such Restricted Stock shall be entitled to transfer
such Restricted Stock in accordance with the terms of its notice. Each
certificate for Restricted
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Stock transferred as above provided shall bear the legend set forth in Section
2, unless (i) such transfer is in accordance with the provisions of Rule 144
(or any other rule permitting public sale without registration under the
Securities Act) or (ii) the opinion of counsel referred to above is to the
further effect that the transferee and any subsequent transferee (other than an
affiliate of the Company) would be entitled to transfer such securities in a
public sale without registration under the Securities Act.
The foregoing restrictions on transferability of Restricted
Stock shall terminate as to any particular shares of Restricted Stock when such
shares shall have been effectively registered under the Securities Act and sold
or otherwise disposed of in accordance with the intended method of disposition
by the seller or sellers thereof set forth in the registration statement
concerning such shares. Whenever a holder of Restricted Stock is able to
demonstrate to the Company (and its counsel) that the provisions of Rule 144(k)
of the Securities Act are available to such holder without limitation, such
holder of Restricted Stock shall be entitled to receive from the Company,
without expense, a new certificate not bearing the restrictive legend set forth
in Section 2.
4. Required Registration.
(a) Subject to the provisions of paragraph (e) below, at
any time the holders of Restricted Stock constituting at least a
majority of the Restricted Stock outstanding at such time may request
the Company to register under the Securities Act all or any portion of
the Restricted Stock held by such requesting holder or holders for
sale in the manner specified in such notice; provided, however, that
the only securities which the Company shall be required to register
pursuant hereto shall be shares of Common Stock. For the purposes of
calculating the number of outstanding shares of Restricted Stock for
purposes of this Section 4(a) and Section 13(d), holders of
Convertible Preferred Stock shall be treated as the holders of the
number of shares of Conversion Stock then issuable upon conversion of
such shares.
(b) Promptly following receipt of any notice under this
Section 4, the Company shall notify any holders of Restricted Stock
from whom notice has not been received, and shall use its best efforts
to register under the Securities Act, for public sale in accordance
with the method of disposition specified in such notice from such
requesting holders, the number of shares of Restricted Stock specified
in such notice (and in any notices received from other such holders of
Restricted Stock within 30 days after their receipt of such notice
from the Company); provided, however, that if the proposed method of
disposition specified by the
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requesting holders shall be an underwritten public offering, the
number of shares of Restricted Stock to be included in such an
offering may be reduced (pro rata among the requesting holders of
Restricted Stock based on the number of shares of Restricted Stock so
requested to be registered) if and to the extent that the managing
underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the Restricted Stock to be sold. If
such method of disposition shall be an underwritten public offering,
the Company may designate the managing underwriter of such offering,
subject to the approval of the selling holders of a majority of the
Restricted Stock included in the offering, which approval shall not be
unreasonably withheld. Notwithstanding anything to the contrary
contained herein, the obligation of the Company under this Section 4
shall be deemed satisfied only when a registration statement covering
all shares of Restricted Stock specified in notices received as
aforesaid, for sale in accordance with the method of disposition
specified by the requesting holder, shall have become effective and,
if such method of disposition is a firm commitment underwritten public
offering, all such shares shall have been sold pursuant thereto.
(c) In the event that the Board of Directors of the
Company determines in good faith that the filing of a registration
statement pursuant hereto would be detrimental to the Company, the
Board of Directors may defer such filing for a period not to exceed
sixty (60) days. The Board of Directors may not effect more than one
such deferral during any twelve month period. The Board of Directors
agrees to promptly notify all holders of Restricted Stock of any such
deferral, and shall provide to such holders a reasonably complete
explanation therefor.
(d) The Company shall be entitled to include in any
registration statement referred to in this Section 4, for sale in
accordance with the method of disposition specified by the requesting
holders, shares of Common Stock to be sold by the Company for its own
account, except to the extent that, in the opinion of the managing
underwriter (if such method of disposition shall be an underwritten
public offering), such inclusion would adversely affect the marketing
of the Restricted Stock to be sold. Except as provided in this
paragraph (d), the Company will not effect any other registration of
its Common Stock, whether for its own account or that of other
holders, from the date of receipt of a notice from requesting holders
pursuant to this Section 4 until the completion of the period of
distribution of the registration contemplated thereby.
(e) Notwithstanding anything to the contrary contained
herein, the Company shall be obligated to register
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Restricted Stock pursuant to this Section 4 on two occasions only.
5. Form S-3 Registration.
(a) If the Company shall receive from any holder or
holders of Restricted Stock a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to Restricted Stock owned by such holder or holders, the
reasonably anticipated aggregate price to the public of which would exceed
$1,000,000, the Company will:
(i) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all
other holders of Restricted Stock; and
(ii) as soon as is reasonably practicable, use its best
efforts to effect such registration (including, without limitation,
the execution of an undertaking to file post-effective amendments,
appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other government requirements
or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such
holder's or holders' Restricted Stock as is specified in such request,
together with all or such portion of the Restricted Stock of any
holder or holders joining in such request as are specified in a
written request given within 30 days after receipt of such written
notice from the Company; provided, however that the Company shall not
be obligated to effect any such registration, qualification or
compliance pursuant to this Section 5 (A) more than once in any
180-day period, or (B) if the Company is not entitled to use Form S-3;
and provided, further, that the only securities which the Company
shall be required to register pursuant hereto shall be shares of
Common Stock. Subject to the foregoing, the Company shall file a
registration statement covering the Restricted Stock so requested to
be registered as soon as is reasonably practicable after receipt of
the request or requests of the holders of the Restricted Stock.
(b) Notwithstanding anything to the contrary contained
herein, the Company shall be obligated to register Restricted Stock pursuant to
this Section 5 on two occasions only.
6. Incidental Registration. If the Company at any time
(other than pursuant to Section 4 or 5 hereof) proposes to register any of its
Common Stock under the Securities Act for sale to the public, whether for its
own account or for the account of other security holders or both (except with
respect to
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registration statements on Form S-4 or Form S-8 or another form not available
for registering the Restricted Stock for sale to the public), it will give
written notice at such time to all holders of outstanding Restricted Stock of
its intention to do so. Upon the written request of any such holder, given
within 30 days after receipt of any such notice by the Company, to register any
of its Restricted Stock (which request shall state the intended method of
disposition thereof), the Company will use its best efforts to cause the
Restricted Stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent requisite to permit the sale or
other disposition by the holder (in accordance with its written request) of
such Restricted Stock so registered; provided that nothing herein shall prevent
the Company from abandoning or delaying such registration at any time;
provided, further, that the only securities which the Company shall be required
to register shall be shares of Common Stock. In the event that any
registration pursuant to this Section 6 shall be, in whole or in part, an
underwritten public offering of Common Stock, any request by a holder pursuant
to this Section 6 to register Restricted Stock shall specify that either (i)
such Restricted Stock is to be included in the underwriting on the same terms
and conditions as the shares of Common Stock otherwise being sold through
underwriters in connection with such registration or (ii) such Restricted Stock
is to be sold in the open market without any underwriting, on terms and
conditions comparable to those normally applicable to offerings of common stock
in reasonably similar circumstances. The number of shares of Restricted Stock
to be included in an underwriting in accordance with clause (i) above may be
reduced pro rata among the requesting holders of Restricted Stock based upon
the number of shares of Restricted Stock so requested to be registered, if and
to the extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold by
the Company therein; provided, however, that if any shares are to be included
in such underwriting for the account of any person other than the Company, the
shares to be so included shall be subject first to reduction before the shares
of Restricted Stock are reduced pro rata.
Notwithstanding anything to the contrary contained in this
Section 6, in the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to a registration covering
Restricted Stock and a holder of Restricted Stock does not elect to sell his
Restricted Stock to the underwriters of the Company's securities in connection
with such offering, such holder shall refrain from selling such Restricted
Stock so registered pursuant to this Section 6 during the period of
distribution of the Company's securities by such underwriters and the period in
which the underwriting syndicate participates in the after market; provided,
however, that such
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holder shall, in any event, be entitled to sell its Restricted Stock commencing
on the 90th day after the effective date of such registration statement or, if
later, on such date (but in no event later than the 180th day after such
effective date) as contractual "lock-up" restrictions imposed by the
underwriters shall expire or be released.
7. Registration Procedures. If and whenever the Company
is required by the provisions of Section 4, 5 or 6 hereof to use its best
efforts to effect the registration of any of the Restricted Stock under the
Securities Act, the Company will, as expeditiously as possible:
(a) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with
the Commission a registration statement on the most appropriate form
adequate for the purposes thereof with respect to such securities and
use its best efforts to cause such registration statement to become
and remain effective for the period of the distribution contemplated
thereby (to be determined as hereinafter provided);
(b) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with
the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for the period
specified in paragraph (a) above and to comply with the provisions of
the Securities Act with respect to the disposition of all Restricted
Stock covered by such registration statement in accordance with the
sellers' intended method of disposition set forth in such registration
statement for such period;
(c) furnish to each seller and to each underwriter such
number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such
persons may reasonably request in order to facilitate the public sale
or other disposition of the Restricted Stock covered by such
registration statement;
(d) use its best efforts to register or qualify the
Restricted Stock covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the sellers of
Restricted Stock or, in the case of an underwritten public offering,
the managing underwriter, shall reasonably request (provided that the
Company will not be required to (i) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (ii) subject itself to
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136
taxation in any such jurisdiction or (iii) consent to general service
of process in any such jurisdiction);
(e) immediately notify each seller under such
registration statement and each underwriter, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing (following which notification the sellers
agree to discontinue sales of their Restricted Stock covered by such
registration statement until such misstatement or omission shall have
been remedied);
(f) use all reasonable efforts (if the offering is
underwritten) to furnish, at the request of any seller, on the date
that Restricted Stock is delivered to the underwriters for sale
pursuant to such registration: (i) an opinion of counsel representing
the Company for the purposes of such registration, addressed to the
underwriters and to such seller and dated such date, stating that such
registration statement has become effective under the Securities Act
and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration statement,
the related prospectus, and each amendment or supplement thereof
comply as to form in all material respects with the requirements of
the Securities Act and the applicable rules and regulations of the
Commission thereunder (except that such counsel need express no
opinion as to financial statements, the notes thereto, and the
financial schedules and other financial and statistical data contained
therein) and (C) to such other effects as may reasonably be requested
by counsel for the underwriters or by such seller or its counsel and
which are customary in underwritings of the type being undertaken, and
(ii) a letter dated such date from the independent public accountants
retained by the Company, addressed to the underwriters, stating that
they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the
financial statements of the Company included in the registration
statement or the prospectus, or any amendment or supplement thereof,
comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information
as to the period ending no more than five business days prior to the
date of such
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137
letter) with respect to the registration in respect of which such
letter is being given as such underwriters or seller may reasonably
request; and
(g) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply
all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement and permit such seller, attorney, accountant or agent to
participate in the preparation of such registration statement.
For purposes of paragraphs (a) and (b) above and of Section 4(d) hereof, the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it, and the period of
distribution of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all Restricted Stock covered thereby or
six months after the effective date thereof.
In connection with each registration hereunder, the selling
holders of Restricted Stock will furnish to the Company in writing such
information with respect to themselves and the proposed distribution by them as
shall be reasonably necessary in order to assure compliance with federal and
applicable state securities laws.
In connection with each registration pursuant to Sections 4, 5
and 6 hereof covering an underwritten public offering, the Company agrees to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between major
underwriters and companies of the Company's size and investment stature;
provided, however, that such agreement shall not contain any such provision
applicable to the Company which is inconsistent with the provisions hereof, and
provided, further, that the time and place of the closing under said agreement
shall be as mutually agreed upon among the Company, such managing underwriter
and the selling holders of Restricted Stock.
8. Expenses. All expenses incurred by the Company in
complying with Sections 4, 5 and 6 hereof, including without limitation all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents
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and registrars and fees and expenses of one counsel for the sellers of
Restricted Stock, but excluding any Selling Expenses, are herein called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Restricted Stock are herein called "Selling
Expenses".
The Company will pay all Registration Expenses in connection
with each registration statement filed pursuant to Section 4, 5 or 6 hereof.
All Selling Expenses in connection with any registration statement filed
pursuant to Section 4, 5 or 6 hereof shall be borne by the participating
sellers in proportion to the number of shares sold by each, or by such persons
other than the Company (except to the extent the Company shall be a seller) as
they may agree.
9. Indemnification. In the event of a registration of
any of the Restricted Stock under the Securities Act pursuant to Section 4, 5
or 6 hereof, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder and each underwriter of Restricted Stock thereunder
and each other person, if any, who controls such seller or underwriter within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Section 4, 5 or 6, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by such seller, such underwriter or such controlling
person in writing specifically for use in such registration statement or
prospectus.
In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 4, 5 or 6 hereof, each seller of
such Restricted Stock thereunder, severally and not jointly, will indemnify and
hold harmless the Company and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company
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139
who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint
or several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Section 4, 5 or 6, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that such seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with information pertaining to such seller, as such,
furnished in writing to the Company by such seller specifically for use in such
registration statement or prospectus; and provided, further, that the liability
of each seller hereunder shall be limited to the proceeds (net of underwriting
discounts and commissions) received by such seller from the sale of Restricted
Stock covered by such registration statement.
Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party other than under this Section 9. In
case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that if the defendants in any
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140
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party, or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by
the indemnifying party as incurred.
Notwithstanding the foregoing, any indemnified party shall
have the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement.
If the indemnification provided for in the first two
paragraphs of this Section 9 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions in respect thereof referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and the sellers of such Restricted Stock, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or actions as well as any other relevant equitable
considerations, including the failure to give any notice under the third
paragraph of this Section 9. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact relates to information supplied by the Company, on
the one hand, or the underwriters and the sellers of such Restricted Stock, on
the other, and to the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and
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141
each of you agree that it would not be just and equitable if contributions
pursuant to this paragraph were determined by pro rata allocation (even if all
of the sellers of such Restricted Stock were treated as one entity for such
purpose) or by any other method of allocation which did not take account of the
equitable considerations referred to above in this paragraph. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities or action in respect thereof, referred to above in this paragraph,
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this paragraph, the sellers
of such Restricted Stock shall not be required to contribute any amount in
excess of the amount, if any, by which the total price at which the Common
Stock sold by each of them was offered to the public exceeds the amount of any
damages which they would have otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act),
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
The indemnification of underwriters provided for in this
Section 9 shall be on such other terms and conditions as are at the time
customary and reasonably required by such underwriters. In that event, the
indemnification of the sellers of Restricted Stock in such underwriting shall
at the sellers' request be modified to conform to such terms and conditions.
10. Changes in Common Stock. If, and as often as, there
are any changes in the Common Stock by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof, as may be required, so that
the rights and privileges granted hereby shall continue with respect to the
Common Stock as so changed.
11. Representations and Warranties of the Company. The
Company represents and warrants to you as follows:
(a) The execution, delivery and performance of this
Agreement by the Company have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order
of any court or other agency of government, the Restated Certificate
of Incorporation or By-laws of the Company, or any provision of any
indenture, agreement or other instrument to which it or any of its
properties or assets is bound, or conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien,
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142
charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
(b) This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms, subject to
considerations of public policy in the case of the indemnification
provisions hereof.
12. Rule 144 Reporting. The Company agrees with you as
follows:
(a) The Company shall make and keep public information
available, as those terms are understood and defined in Rule 144(c)(1)
or (c)(2), whichever is applicable, under the Securities Act, at all
times from and after the date it is first required to do so.
(b) The Company shall file with the Commission in a
timely manner all reports and other documents as the Commission may
prescribe under Section 13(a) or 15(d) of the Exchange Act at all
times during which the Company is subject to such reporting
requirements of the Exchange Act.
(c) The Company shall furnish to such holder of
Restricted Stock forthwith upon request (i) a written statement by the
Company as to its compliance with the reporting requirements of Rule
144 (at any time from and after the date it first becomes subject to
such reporting requirements) and of the Securities Act and the
Exchange Act (at any time during which it is subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly
report of the Company and (iii) such other reports and documents so
filed as a holder may reasonably request to avail itself of any rule
or regulation of the Commission allowing a holder of Restricted Stock
to sell any such securities without registration.
13. Miscellaneous.
(a) All covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, the registration rights conferred herein
on the holders of Restricted Stock shall inure to the benefit of any
and all subsequent holders from time to time of the Restricted Stock
for so long as the certificates representing the Restricted Stock
shall be required to bear the legend specified in Xxxxxxx 0 xxxxxx.
00
000
(x) All notices, requests, consents and other
communications hereunder shall be in writing and shall be mailed by
first class registered mail, postage prepaid, addressed as follows:
if to the Company, to it at:
Aurora Electronics, Inc.
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx Xxxxx, President
with a copy to:
Xxxxxx & Xxxx L.L.P.
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxxxxx, Esq.
Xxxxxxx X. Xxxxxx, Esq.
if to any holder of Restricted Stock, to such holder at the
address as set forth under such holder's name in Annex I to the
Purchase Agreement;
if to any subsequent holder of Restricted Stock, to such
holder at such address as may have been furnished to the Company in
writing by such holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of
Restricted Stock) or to the holders of Restricted Stock (in the case
of the Company).
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(d) This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof. This Agreement
may not be modified or amended except in a writing signed by the
Company and the holders of not less than a majority of the Restricted
Stock then outstanding, provided that no modification or amendment
shall deprive any holder of Restricted Stock of any material right
under this Agreement without such holder's consent. The Company will
not grant any registration rights to any other person without the
written consent of the holders of a majority of the Restricted Stock
then outstanding if such rights could reasonably be expected to
conflict with, or be on a parity with, the rights of holders of
Restricted Stock granted under this Agreement.
15
144
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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145
Please indicate your acceptance of the foregoing by signing
and returning the enclosed counterpart of this letter, whereupon this letter
(herein sometimes called "this Agreement") shall be a binding agreement between
the Company and you.
Very truly yours,
AURORA ELECTRONICS, INC.
By _____________________________
AGREED TO AND ACCEPTED
as of the date first
above written.
THE PURCHASERS:
XXXXX XXXXXX, XXXXXXXX & XXXXX VII, L.P.
By WCAS VII Partners, L.P., General Partner
By:___________________________
WCAS CAPITAL PARTNERS II, L.P.
By WCAS XX XX Partners, General Partner
By:___________________________
_____________________________________
Xxxxxxx X. Xxxxx
_____________________________________
Xxxxxxx X. Xxxxxx
_____________________________________
Xxxxx X. Xxxxxxxx
146
_____________________________________
Xxxxxxx X. Xxxxx
_____________________________________
Xxxxxx X. Xxxx
_____________________________________
Xxxxxx X. XxXxxxxxx
_____________________________________
Xxxxx XxxXxxxx
_____________________________________
Xxxxx X. Xxxxxx
_____________________________________
Xxxxxx X. Xxxxxxxxx
_____________________________________
Xxxxxxx X. xx Xxxxxx
[OTHER PURCHASERS]
