-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OOhLNO+IQTZ4XhzcDXmVgDUR/fuqUG87PPl8ea6yQGgRC42EfX+Fr8ovXxUy52vo KDzvS2Boz/jdxKJv125sYA== 0000926274-99-000154.txt : 19990402 0000926274-99-000154.hdr.sgml : 19990402 ACCESSION NUMBER: 0000926274-99-000154 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNICATIONS INSTRUMENTS INC CENTRAL INDEX KEY: 0001053916 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 561828270 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-38209 FILM NUMBER: 99581757 BUSINESS ADDRESS: STREET 1: 1396 CHARLOTTE HIGHWAY STREET 2: P O BOX 520 CITY: FAIRVIEW STATE: NC ZIP: 28730 BUSINESS PHONE: 7046281711 MAIL ADDRESS: STREET 1: 1396 CHARLOTTE HIGHWAY STREET 2: P O BOX 520 CITY: FAIRVIEW STATE: NC ZIP: 28730 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Form 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) ---------------- COMMUNICATIONS INSTRUMENTS, INC. (Exact name of registrant as specified in its charter) North Carolina 56-182-82-70 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1396 Charlotte Highway, Fairview, NC 28730 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (828)628-1711 Securities registered pursuant to Section 12 (b) of the Act: NONE Securities registered pursuant to Section 12 (g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(b) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No All of the voting stock of the registrant is held by an affiliate of the registrant. On March 31, 1999, the registrant had 1,000 shares of common stock outstanding. Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated herein by reference into the part of the Form 10-K indicated:
Part of Form 10-K Into which Document Incorporated -------- ------------ Registration Statement on Form S-4........................... Item 14 Report on Form 8-K........................................... Item 14
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statements contained in this Form 10-K that are not historical facts are forward looking statements that are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Those statements involve risks and uncertainties. The actual results of Communications Instruments, Inc. and Subsidiaries (the "Company" or "CII") could differ significantly from past results, and from those expressed or implied in forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as those discussed elsewhere in this Form 10-K. Item 1--Business General CII is a designer, manufacturer, and marketer of a broad line of high performance relays, general purpose relays, solenoids and radio frequency interference "RFI" filters. Relays are switches used to control electric current in a circuit; solenoids convert electric signals into mechanical motion; and RFI Filters are devices that control electromagnetic energy. They are critical components for a wide range of commercial, industrial and electronic end products. The high performance group focuses on producing highly engineered relays and solenoids for customized niche applications that demand reliable performance, small size, lightweight, low energy consumption, and durability. The specialized industrial group focuses on general purpose relays and RFI filters used in a broad range of niche commercial end products sold directly to leading Original Equipment Manufacturers ("OEMs") and through established distribution channels. The Company's products are used in a large number of diverse end-use applications including commercial/industrial equipment, commercial aircraft, defense electronics, communications equipment, automatic test equipment, and niche automotive applications. CII was initially formed in 1980 by Ramzi Dabbagh, the Company's Chairman and Chief Executive Officer, and a group of private investors. The Company made its initial acquisition of several relay and switch products from the CP Clare division of General Instruments in 1980, and, since that initial acquisition, Mr. Dabbagh and his management team have pursued a growth strategy of acquiring manufacturers of relay products and related components, often consolidating the acquired companies and/or their product lines into the Company's manufacturing facilities and eliminating significant overhead. In May 1993, the Company was acquired by the predecessor of CII Technologies Inc., a Delaware corporation and the holder of all of the outstanding capital stock of the Company ("Parent") in a leveraged buyout transaction sponsored by a group of investors and members of management. In September 1997, the Company consummated an offering of $95.0 million aggregate principal amount of 10% Senior Subordinated Notes (the "Notes"), due 2004, (the "Offering"). Concurrent with the Offering, (i) Code, Hennessy & Simmons III, LP, certain members of management, and certain other investors (collectively the "New Investors") acquired approximately 87% of the Parent, and certain of Parent's existing stockholders (the "Existing Stockholders"), including certain members of management, retained approximately 13% of Parent's capital stock (collectively the "Recapitalization"); (ii) the Company borrowed approximately $2.7 million pursuant to a new senior credit facility providing for loans of up to $25.0 million (the "Old Senior Credit Facility"); (iii) the Company repaid approximately $29.3 million of outstanding obligations under its prior senior credit facility (the "Old Credit Facility") including a success fee of approximately $1.5 million in connection therewith and certain other liabilities (the "Refinancing"); (iv) the Company purchased for $4.5 million the remaining 20% of the outstanding capital stock of Kilovac Corporation ("Kilovac") that the Company did not then own (the "Kilovac Purchase"); and (v) the Company paid a dividend of approximately $59.4 million to Parent, which was used to consummate the Recapitalization and repay certain indebtedness of the Parent. Pursuant to the Recapitalization, the New Investors, including Code, Hennessy & Simmons, and certain Existing Stockholders, including members of senior management, invested approximately $21.7 million, and the retention of capital stock of Parent, which, for the purposes of the Recapitalization was valued at approximately $3.3 million (collectively, the "Transactions"). 1 On March 9, 1998, pursuant to a Registration Statement on Form S-4 under the Securities Act of 1933, the Company completed an offer to exchange all of its outstanding Notes for 10% Senior Subordinated Notes, due 2004, Series B. The Company has the following subsidiaries, all of which are wholly owned by the Company: Kilovac, a California corporation; Corcom Inc., an Illinois corporation ("Corcom"); and Electro-Mech S. A., a Mexican corporation. The Company also holds 40% of the shares of CII Guardian International Ltd., an Indian corporation. Kilovac has the following subsidiaries, both of which are wholly owned by Kilovac: Kilovac International FSC Ltd., a Jamaican corporation; and Kilovac International, a California corporation. Corcom has the following subsidiaries, all of which are wholly owned by Corcom: Corcom S.A., a Mexican corporation, Corcom West Indies Ltd. and Corcom International Ltd., both Barbados corporations, Corcom GmbH, a German corporation and Corcom Far East Ltd., a Hong Kong corporation. The Company was incorporated in North Carolina in 1980. The Company's executive offices are located at 1396 Charlotte Highway, Fairview, North Carolina, 28730 and its telephone number is (828) 628-1711. Industry Segments The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, during the fourth quarter of 1998. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The adoption of SFAS No. 131 results in revised and additional disclosures but had no effect on the financial position or results of operations of the Company. The Company has five business units, which have separate management teams and infrastructures that offer electronic products. These five business units have been aggregated into two reportable segments that are managed separately because each operating segment represents a strategic business platform that offers different products and serves different markets. The Company's two reportable operating segments are: (i) the High Performance Group ("HPG") and (ii) the Specialized Industrial Group ("SIG"). HPG includes the Communications Instruments Division, Kilovac and Hartman. Products manufactured by HPG include high performance signal level relays, power relays and contactors, high voltage relays, solenoids and electronic products. HPG accounted for 74% of 1998 consolidated net sales. SIG includes Corcom and the Midtex Division. Products manufactured by SIG include RFI filters and general purpose relays. SIG accounted for 26% of 1998 consolidated net sales. In evaluating financial performance, management focuses on operating income as a segment's measure of profit or loss. Operating income is before interest expense, interest income, cancellation fees, other income and expense, income taxes and extraordinary items. 2 Products Relays A relay is an electrically operated switch, which controls electric current or signal transmissions. Electromechanical relays utilize discrete switching elements which are opened or closed by electromagnetic energy and thus control circuits with physical certainty. These relays are designed to meet exacting circuit and ambient conditions and can control numerous circuits simultaneously. Certain low wattage relays are used to switch signals in test equipment, computers and telecommunications systems. Higher power relays, which switch or control high voltage or high currents, are used in the electrical distribution systems for aircraft, heart defibrillators, electric vehicles and spacecraft power grids. Due to various application requirements, relays come in thousands of shapes and sizes and with differing levels of performance reliability. Because of the fundamental switching functions performed by such products, they are critical components in a wide range of commercial and industrial electrical and electronic applications. High performance relays--High performance relays are characterized by their reliable performance and durability in adverse operating environments. High performance relays provide customers with the advantages of smaller size, lighter weight, longer life, lower energy consumption, and greater reliability than general-purpose relays. Many of the Company's high performance relays are hermetically sealed in metal or ceramic enclosures to protect the internal operating mechanisms from harsh environments and to improve performance and reliability. The Company manufactures more than 400 types of high performance relays in its North Carolina, Ohio, Virginia and California facilities. High performance relays generally command higher selling prices than general-purpose relays. The Company's high performance relays are sold to manufacturers of commercial aircraft, communication systems, medical equipment, avionics systems, automatic test equipment, aerospace and defense products. High performance relays accounted for approximately 74%, 82% and 79% of the Company's net sales in 1998, 1997 and 1996, respectively. General purpose relays--The Company's general-purpose relays generally are targeted towards niche applications with which the Company has sole source relationships or limited competition. The Company's general-purpose relays are used in commercial and industrial applications where performance and reliability requirements are somewhat less demanding than those for high performance relays. These relays are generally manufactured for the Company in Mexico and in Asia where longer production runs create operating efficiency with production lines that are either semi-automated or utilize lower-cost assembly labor. The Company's general purpose relay offering includes some of the more sophisticated product types in the general-purpose category. Specific applications for the Company's general-purpose relays include environmental management systems and telecommunication switches. General-purpose relays accounted for approximately 12%, 13% and 15% of the Company's net sales in 1998, 1997 and 1996 respectively. Solenoids--Solenoids are similar to relays in design, but rather than control currents or transmissions, they are applied when a defined mechanical motion is required in the user's equipment or system. Like relays, solenoids can be made in many sizes and shapes to meet specific customer application requirements. The Company supplies products to the high performance and the general-purpose solenoid markets. High performance solenoids are custom designed and are used in the aerospace industry, and in applications such as aerospace de-icing equipment, commercial aircraft fuel shut-off valves, locking mechanisms for landing gear, and thrust reversers for aircraft engines. General-purpose solenoid types are used in vending machines, automation equipment, office equipment, and cameras. Filters RFI Filters--RFI Filters are electronic components used to protect electronic equipment from radio frequency interference conducted through the AC power cord. RFI Filters also are used to control the emission of the RFI generated by electronic equipment so these emissions do not interfere with other electronic devices. The Company also manufactures a complete line of Signal SentryTM products, which are filtered modular RJ 3 jacks designed to solve RFI problems on signal lines. RFI filters are manufactured primarily in Mexico. The Company maintains a catalog of standard commercial filters that contains approximately 500 designs, offering a variety of sizes, electrical configurations, current ratings and environmental capabilities. These filters consist of electronic circuits utilizing passive electrical components: inductance coils, capacitors and resistors. These circuits are enclosed in a metal or plastic case having terminals, lead wires or integral connectors, for attachment to associated equipment. The Company also manufactures and sells RFI filters for the military and facility markets. Both product lines are similar to commercial filters in their basic function and design. However, military filters are subject to extremely high performance requirements as described by military specification. Facility filters are larger versions of the Company's line of commercial filters and are used to control RFI conducted through the main power line feeding secure facilities. All the Company's filters are designed and built to operate continuously for at least five years when connected across a live A/C power line. The filters must perform without interruption because, in most cases, they are energized even when the equipment in which they are installed is switched off. RFI Filters accounted for approximately 14% of the Company's net sales in 1998. Sales and Distribution The Company sells its products worldwide through a network of independent sales representatives and distributors in countries throughout North America, Europe and Asia. This sales network is supported by the Company's internal staff of direct product marketing managers, customer service associates, application engineers and marketing communication specialists. Product Development The Company intends to develop new products with its customers to meet the application requirements of its customers and to expand the Company's technical capabilities. The Company has in the past formed strategic partnerships with certain customers to develop new products, improve existing products, and reduce total product costs. The Company's customers funded approximately $1.0 million of the Company's product development expenses in both 1998 and 1997. The Company currently is developing several new power line electromagnetic interference filters for use in industrial and medical equipment as well as new filtered connectors to be used in telecom and network equipment. Some of these products are proprietary for certain of the Company's larger OEM customers and others will be standard catalog products for sale to the industry as a whole. These products are currently in the prototype stage and the Company expects to begin manufacturing and selling these products in 1999. The Company currently is developing several new high performance relays to be used in the commercial airframe, high frequency communications, space satellite, and automatic test equipment market place. These products are currently in the prototype stage and the Company expects to begin manufacturing and selling certain of these products in 1999 and beyond. Proprietary Rights The Company currently holds nine US patents, two registered US trademarks and four foreign registered trademarks, and has three US patent applications, one international patent application and thirteen US trademark applications in process. The Company intends to continue to seek patents on its products and trademark applications, as appropriate. The Company does not believe that the success of its business is materially dependent on the existence, validity or duration of any patent or trademark. The Company attempts to protect its trade secrets and other proprietary rights through formal agreements with employees, customers, suppliers, and consultants. Although the Company intends to protect its intellectual property rights vigorously, there can be no assurance that these and other security arrangements will be successful. The Company has from time to time received, and may receive in the future, communications from third parties asserting patents on certain of the Company's products and technologies. Although the Company 4 has not been a party to any material intellectual property litigation, if a third party were to make a valid claim and the Company could not obtain a license on commercially reasonable terms, the Company's operating results could be materially and adversely affected. Litigation, which could result in substantial cost to and diversions of resources of the Company, may be necessary to enforce patents or other intellectual property rights of the Company or to defend the Company against claimed infringement of the rights of others. The failure to obtain necessary licenses or the occurrence of litigation relating to patent infringement or other intellectual property matters could have a material adverse affect on the Company's business and operating results. Customers The Company has established a diversified base of customers representing a wide range of industries and applications. Sales to customers outside of the United States totaled approximately 18.3% of net sales during 1998 (comprised primarily of approximately 11.7% to Europe, 4.0% to North America, 1.8% to Asia and 0.8% to other locations). No single customer directly accounted for 6% or 8% or more of the Company's total net sales for 1998 or 1997, respectively. Backlog The Company's backlog at December 31, 1998 was $58.4 million, with $49.8 million shippable within one year. The Company's backlog at December 31, 1997 was $61.7 million, with $42.9 million shippable within one year. Competition The Company competes primarily on the basis of quality, reliability, price, services, and delivery. Its primary competitors are Teledyne Relays, Jennings, Leach, and Eaton in the high performance relay market, the Electromechanical Products division of Siemens in the general purpose relay market, G. W. Lisk in the solenoid market, and Amp Inc., Shaffner A.G., and Delta in the RFI filter market. Several of the Company's competitors have greater financial, marketing, manufacturing, and distribution resources than the Company and some have more automated manufacturing facilities. There can be no assurance that the Company will be able to compete successfully in the future against its competitors or that the Company will not experience increased price competition, which could adversely affect the Company's results of operations. The Company also faces competition for acquisition opportunities from its competitors. Environmental Matters The Company is subject to various foreign, federal, state, and local environmental laws and regulations. The Company believes its operations are in material compliance with such laws and regulations. However, there can be no assurance that violations will not occur or be identified, or that environmental laws and regulations will not change in the future, in a manner that could materially and adversely affect the Company. Under certain circumstances, such environmental laws and regulations may also impose joint and several liability for investigation and remediation of contamination at locations owned or operated by an entity or its predecessors, or at locations at which wastes or other contamination attributable to an entity or its predecessors have come to be located. The Company can give no assurance that such liability at facilities the Company currently owns or operates, or at other locations, will not arise or be asserted against the Company or entities for which it may be responsible. Such other locations could include, for example, facilities formerly owned or operated by the Company (or an entity or business that the Company has acquired), or locations to which wastes generated by the Company (or an entity or business that the Company has acquired) have been sent. Under certain circumstances such liability at several locations (discussed below), or at locations yet to be identified, could materially and adversely affect the Company. 5 The Company has been identified as a potentially responsible party ("PRP") for investigation and cleanup costs at two sites under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). CERCLA provides for joint and several liabilities for the costs of remediating a site, except under certain circumstances. However, the Company believes it will be allocated responsibility for a relatively small percentage of the cleanup costs at each of these sites, and in both instances other PRP's also will be required to contribute to such costs. Although the Company's total liability for cleanup costs at these sites cannot be predicted with certainty, the Company does not currently believe that its share of those costs will have a material adverse effect on the Company's financial position or results of operations. Soil and groundwater contamination has been identified at and about the Company's Fairview, North Carolina facility resulting in that site's inclusion in the North Carolina Department of Environmental, Health & Natural Resource's Inactive Hazardous Waste Sites Priority List. The Company believes that the Fairview contamination relates to the past activities of a prior owner of the Fairview property (the "Prior Owner"). On May 11, 1995, the Company entered into a settlement agreement (the "Settlement Agreement) with the Prior owner, pursuant to which the Prior Owner agreed to provide certain funds for the investigation and remediation of the Fairview contamination in exchange for a release of certain claims by the Company. In accordance with the Settlement Agreement, the Prior Owner has placed $1.75 million in escrow to fund further investigation, the remediation of contaminated soils and the installation and start-up of a groundwater remediation system at the Fairview facility. The Company is responsible for investigation, soil remediation and start-up costs in excess of the escrowed amount, if any. The Settlement Agreement further provides that after the groundwater remediation system has been operating for three years, the Company will provide to the Prior Owner an estimate of the then present value of the cost to continue operating and maintaining the system for an additional 27 years. After receiving the estimate, the Prior Owner is to deposit with the escrow agent an additional sum equal to 90% of the estimate, up to a maximum of $1.25 million. Although the Company believes that the Prior Owner has the current ability to satisfy its obligations pursuant to the Settlement Agreement, the Company does not believe that the total investigation and remediation costs will exceed the amounts that the Prior Owner is required to provide pursuant to the Settlement Agreement. The Company has a recorded liability at December 31, 1998 for the total remediation costs of approximately $2.4 million, representing the discounted amount of future remediation costs over the estimated remaining period of remediation. Applicable environmental laws provide for joint and several liabilities, except under certain circumstances. Accordingly, the Company, as the current owner of a contaminated property, could be held responsible for the entire cost of investigating and remediating the site. If the site remedial system fails to perform as anticipated, or if the funds to be provided by the Prior Owner pursuant to the Settlement Agreement together with the Company's reserve are insufficient to remediate the property, or if the Prior Owner fails to make the scheduled future contribution to the environmental escrow, the Company could be required to incur costs that could materially and adversely affect the Company. In connection with the Company's purchase of certain assets and certain liabilities of Hartman Electrical Manufacturing ("Hartman"), a division of Figgie International, Inc. ("Figgie") (the "Hartman Acquisition"), the Company entered into an agreement pursuant to which it leases from a wholly-owned subsidiary of Figgie a manufacturing facility in Mansfield, Ohio, (the "Mansfield Property") at which Hartman has conducted operations (the "Lease"). The Mansfield Property may contain contamination at levels that will require further investigation and may require soil and/or groundwater remediation. As a lessee of the Mansfield Property, the Company may become subject to liability for remediation of such contamination at and/or from such property, which liability may be joint and several except under certain circumstances. The Lease also includes an indemnity from Lessor to the Company, guaranteed by Figgie, for certain environmental liabilities in connection with the Mansfield Property, subject to a dollar limitation of $12.0 million (the "Indemnification Cap). In addition, in connection with the Hartman Acquisition, Figgie has placed $515,000 in escrow for environmental remediation costs at the Mansfield Property to be credited towards the Indemnification Cap as provided in the Lease. The Company believes that, while actual remediation costs may exceed the cash amount escrowed, such costs will not exceed the Indemnification Cap. If costs exceed the escrow and the Company is unable to obtain, or is delayed in obtaining, indemnification under the Lease for any reason, the Company 6 could be materially and adversely affected. See Note 10 to Consolidated Financial Statements of Communications Instruments, Inc. and Subsidiaries. The Company does not maintain environmental impairment liability insurance. Employees As of December 31, 1998, the Company had approximately 1,890 employees. Of these employees, approximately 390 are salaried employees and approximately 1,500 are hourly workers. Of the approximately 390 salaried employees, approximately 135 perform manufacturing functions, over 75 are engineers engaged in research and development activities, including the design and development of new customer applications, 35 perform quality assurance tasks and 42 perform customer service. Approximately 135 of the Company's employees in the Mansfield, Ohio facility are represented by the International Union of Electronics, Electrical, Salaried, Machine and Furniture Workers AFL, CIO and are covered by a collective bargaining agreement, which is scheduled to expire in September 1999. Approximately 125 of the Company's employees in the Waynesboro, Virginia facility are represented by the United Electrical, Radio, and Machine Workers of America, which is scheduled to expire in December 2000. A closing effects agreement has been negotiated and accepted by the Union as of March 19, 1999 due to the Waynesboro, VA relocation finalized in November 1998 and announced in January 1999. The Company believes that its relations with its employees are satisfactory. Recent Developments In January 1999, the Company entered into a joint venture operation, Shanghai CII Electronics Co. LTD with Shanghai CI Electronic Appliance Co. LTD. Each party holds 50% of the shares of the new company. The new joint venture is a manufacturer and marketer of relay components. The Company has announced plans to relocate the manufacturing in its Waynesboro, Virginia facility to its North Carolina facilities. These plans were finalized in late 1998. The relocation will be completed by the end of 1999. The cost of the relocation is estimated at approximately $1.0 million including the estimated costs of employee separation and preparing the North Carolina facilities for the relocation. Management expects that a significant portion of these costs will be expensed as incurred during 1999. On March 19, 1999, the Company purchased all of the outstanding equity securities of Products Unlimited Corporation ("Products"), a marketer and manufacturer of relays, transformers and contactors for the HVAC industry. Pursuant to the Stock Purchase Agreement, the Company paid approximately $59.4 million. In addition, if Products achieves certain sales targets for the years ending December 31, 1999 and December 31, 2000, the Company will make additional payments to the former shareholders of Products not to exceed $4.0 million in the aggregate. The payment of the purchase price and related fees was financed by the issuance of $55.0 million of Tranche Term B loans in accordance with an amendment to the Senior Credit Facility, the contribution of $5.0 million in additional paid in capital by the Parent, and a draw on the revolving loan portion of the Company's Senior Credit Facility. Products has manufacturing facilities in Sterling and Prophetstown, Illinois and Sabula and Guttenburg, Iowa and has approximately 1,000 employees. The acquisition will be accounted for under the purchase method of accounting. Products will be a part of the Company's SIG operating segment. 7 Item 2--Properties Facilities The Company, headquartered in Fairview, North Carolina, operates the following manufacturing and distribution facilities. The Company believes that such facilities are maintained in good condition and are adequate for its present and intended needs:
Square Owned/ Operating Location Footage Leased Segment Products Manufactured - -------- ------- ------- --------- --------------------------------------------- Fairview, North Carolina............... 70,000 Owned HPG High performance relays and solenoids Mansfield, Ohio......... 53,000 Leased HPG High performance power relays Juarez, Mexico.......... 47,000 Owned SIG RFI filters Juarez, Mexico.......... 45,000 Leased SIG General purpose relays Carpinteria, California............. 44,000 Leased HPG High voltage and power switching relays Waynesboro, Virginia ... 40,000 Leased HPG High performance relays Libertyville, IL........ 35,000 Leased SIG RFI filters Asheville, North Carolina............... 26,000 Owned HPG High performance relays and electronic relays El Paso, Texas.......... 16,000 Leased SIG Distribution Center Juarez, Mexico.......... 13,000 Leased SIG RFI Filters Martinsreid, Germany.... 7,000 Leased SIG Sales and Distribution Center El Paso, Texas.......... 6,000 Leased SIG Distribution center
The Company's facilities contain an aggregate of approximately 402,000 square feet of floor space. The Company currently has additional manufacturing space available in certain of its facilities. The Company believes this available manufacturing capacity will allow for the integration of future product line acquisitions and/or the development of new product lines. The Company's two facilities in North Carolina, its facility in Ohio, and its facility in Virginia, each of which manufactures products for the military, maintain Military Standard 790 and Military Standard I 45208 certifications. The Company's facility in Ohio, its three facilities in Mexico, and its facility in Illinois are all IS9001 certified and its facility in California is IS9001 and QS9000 certified. The leases for the Company's manufacturing facility in Illinois expires in 1999, its two leased facilities in Juarez, Mexico expire in 2001 and 2000, respectively, its facility in Martinsreid, Germany expires in 2000, its facility in Ohio expires in 2001, subject to an option to purchase, and its facility in California expires in 2002. The lease for the Company's Waynesboro, VA manufacturing facility expires in 1999. The Company expects no penalties for moving out of the Waynesboro, VA facility. Item 3--Legal Proceedings The Company is involved in legal proceedings from time to time in the ordinary course of its business. As of the date of this Form 10-K, the Company is not a party to any lawsuit or proceeding which, individually or in the aggregate, in the opinion of management, is reasonably likely to have a material adverse effect on the financial condition of the Company. Item 4--Submission of Matters to a Vote of Security Holders Not Applicable Item 5--Market for Registrant's Common Equity and Related Stockholder Matters Not Applicable 8 Item 6--Selected Consolidated Financial Data The following information is qualified in its entirety by the consolidated financial statements of the Company. The following selected consolidated financial data as of the dates and for the periods indicated were derived from the audited consolidated financial statements of the Company contained elsewhere in this Form 10-K, except data as of, and for, (i) the year ended December 31, 1994, (ii) the year ended December 31, 1995 and (iii) data as of December 31, 1996, which was derived from audited consolidated financial statements of the Company (including its predecessors) not included in this Form 10-K. The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and the related notes thereto, appearing elsewhere in this Form 10-K. 9 SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in Thousands)
Fiscal Year Ended December 31, --------------------------------------------- 1994 1995 1996 1997 1998 ------- -------- ------- ------- -------- Statement of Operations Data: Net sales....................... $31,523 $ 39,918 $66,336 $89,436 $120,030 Cost of sales................... 24,330 28,687 46,779 59,601 81,285 ------- -------- ------- ------- -------- Gross profit................... 7,193 11,231 19,557 29,835 38,745 Selling expenses................ 2,382 3,229 4,903 6,077 8,635 General and administrative expenses....................... 2,248 3,326 5,464 7,432 8,935 Research and development........ 103 301 1,011 1,090 1,328 Amortization of goodwill and other intangible assets........ 177 251 543 648 1,769 Special compensation charge (1)............................ -- 1,300 -- -- -- Environmental expense (2)....... -- 951 -- -- -- Special acquisition expenses (3)............................ -- 2,064 -- 260 -- ------- -------- ------- ------- -------- Income (loss) from operations.. 2,283 (191) 7,636 14,328 18,078 Interest expense and other financing costs, net (4)....... (1,279) (2,309) (5,055) (6,573) (12,552) Cancellation fees (5)........... -- -- -- (800) -- Other income (expense), net .... -- 2 201 (17) (171) ------- -------- ------- ------- -------- Income (loss) before income taxes, minority interest in subsidiary and extraordinary item.......................... 1,004 (2,498) 2,782 6,938 5,355 Provision for (benefit from) income taxes................... 386 (812) 1,120 2,836 2,371 ------- -------- ------- ------- -------- Income (loss) before minority interest in subsidiary and extraordinary item............. 618 (1,686) 1,662 4,102 2,984 Income applicable to minority interest in subsidiary......... -- (35) (33) (55) -- ------- -------- ------- ------- -------- Income (loss) before extraordinary item............. 618 (1,721) 1,629 4,047 2,984 Extraordinary item (less income tax benefit: 1997--$266, 1998-- $234) (6)...................... -- -- -- (398) (351) ------- -------- ------- ------- -------- Net income (loss).............. $ 618 $(1,721) $ 1,629 $ 3,649 $ 2,633 ======= ======== ======= ======= ======== Other Financial Data: Gross Margin %.................. 22.8% 28.1% 29.5% 33.4% 32.3% Depreciation and amortization... $ 2,158 $ 2,442 $ 3,551 $ 4,320 $ 6,928 Capital expenditures............ $ 444 $ 1,139 $ 2,449 $ 2,146 $ 2,795 Ratio of earnings to fixed charges (7).................... 1.8x NA 1.7x 2.1x 1.4x Net cash provided by (used in) Operating Activities........... $ 1,333 $ 1,960 $ 8,498 $ 6,438 $ 9,232 Financing Activities........... 256 13,645 5,973 6,433 41,482 Investing Activities........... (1,544) (15,484) (14,548) (12,689) (50,543) Other Non-GAAP Financial Data (8): Adjusted EBITDA................ $ 4,351 $ 6,618 $11,873 $19,128 $ 24,766 Adjusted EBITDA Margin %....... 13.8% 16.6% 17.9% 21.4% 20.6% Balance Sheet Data: Cash............................ $ 72 $ 193 $ 116 $ 298 $ 469 Working capital................. 8,274 10,590 12,143 21,268 23,958 Property, plant and equipment, net............................ 11,735 13,225 15,796 16,824 22,841 Total assets.................... 26,836 48,531 60,725 76,283 129,881 Total debt ..................... 12,197 23,452 30,622 101,622 138,681 Stockholder's equity (deficiency)................... 7,667 10,293 11,750 (43,594) (35,855)
- -------- (1) Reflects a special compensation charge of $1.3 million which represents (i) the difference between the purchase price of common stock of Parent issued to seven employees on December 1, 1995 and the estimated fair market value of such shares (based upon the appraised value on December 1, 1995) and (ii) a related special cash bonus granted by the Company to the same seven employees to pay taxes associated with such stock issuances. (2) Reflects a non-recurring charge of $951,000 which represents primarily the costs incurred to date and the present value of the estimated future costs payable by the Company over the next 30 years for groundwater remediation at the Company's Fairview, North Carolina facility. See "Business-- Environmental Matters." 10 (3) Special acquisition expenses in 1993 consist primarily of costs related to the relocation of a facility following the acquisition of Midtex Relays, Inc. and costs associated with relocating certain operations acquired from West Coast Electrical Manufacturing Co. and CP Clare Corporation. Such expense in 1995 includes costs primarily related to (i) the relocation of certain assets acquired from Hi-G Company, Inc. and from Deutsch Relays, Inc. and (ii) the write-off of an agreement with a business development consultant. Such expense in 1997 consists of one-time costs associated with the integration of operations acquired from Genicom Corporation in Waynesboro, Virginia ("Genicom") to the Company. (4) Interest expense in 1996 includes a charge of $1.6 million related to costs associated with the preparation of a withdrawn initial public offering of Parent's capital stock. Interest expense in 1997 includes additional success fee expense of $917,000 related to the payment of the Old Credit Facility. (5) Reflects commitment fees and other expenses of $800,000 incurred in connection with a credit facility set up to provide financing in the event the Offering was not consummated. (6) Extraordinary item in 1997 represents the write-off of the unamortized portion of financing fees associated with the Old Credit Facility (as defined), and in 1998 represents the write-off of the unamortized portion of financing fees associated with the Old Senior Credit Facility (as defined). (7) For purposes of determining the ratio of fixed charges, earnings are defined as earnings before income taxes and minority interest in subsidiary plus fixed charges, and fixed charges consist of interest expense, which includes amortization of deferred debt issuance costs and deferred financing costs and the portion of rental expense on capital and operating leases deemed representative of the interest factor. The Company's earnings were insufficient to cover fixed charges for the year ended December 31, 1995 by $4.7 million. (8) Adjusted EBITDA represents income (loss) before interest expense (net), income taxes, depreciation and amortization, gain or loss on disposal of assets, extraordinary, unusual and nonrecurring items, the special compensation charge, environmental expense and special acquisition charges referred to in footnotes (1), (2) and (3) above, the provision for loss in April, 1997 for receivables relating primarily to a single customer and the non-cash write-ups and non-cash charges resulting from the write-up of inventory, intangibles and fixed assets arising in connection with the acquisition of 80% of Kilovac (the "Kilovac Acquisition"), the Hartman Acquisition, the Kilovac Purchase, the purchase of 100% ownership in ibex Aerospace Inc. ("ibex") of Naples, Florida (the "ibex Acquisition"), the purchase of certain assets and certain liabilities of the Genicom Relays Division ("GRD") of Genicom (the "GRD Acquisition"), the purchase of certain assets and certain liabilities of Wilmar Electronics Inc. (the "Wilmar Acquisition"), the acquisition of all the outstanding capital stock of Corcom, Inc. (the "Corcom Merger"), and the purchase of certain assets and certain liabilities of the Cornell Dubilier's electronics relays division (the "CD Acquisition") pursuant to Accounting Principles Board Opinion Nos. 16 and 17. Adjusted EBITDA is not intended to represent cash flow from operations or net income as defined by generally accepted accounting principles and should not be considered as a measure of liquidity or an alternative to, or more meaningful than, operating income or operating cash flow as an indication of the Company's operating performance. Adjusted EBITDA is included herein because management believes that certain investors find it a useful tool for measuring the Company's ability to service its debt. There are no significant commitments for expenditures of funds not contemplated by this measure of adjusted EBITDA. Adjusted EBITDA as presented may not be comparable to other similarly titled measures presented by other companies and could be misleading unless substantially all companies and analysts calculate adjusted EBITDA in the same manner. Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations General Some of the matters discussed below and elsewhere herein contain forward- looking statements regarding the future performance of the Company and future events. These matters involve risks and uncertainties that could cause actual results to differ materially from the statements contained herein. The following discussion and analysis of the results of operations, financial condition and liquidity of the Company should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Form 10-K. 11 Overview In July 1998, the Company purchased certain assets and assumed certain liabilities of Cornell Dubilier's electronics relay division ("CD") for $848,000 (the "CD Acquisition"). The CD Acquisition was financed with a draw on the Company's Senior Credit Facility. In June 1998, the Company acquired all of the outstanding capital stock of Corcom, an Illinois corporation pursuant to the merger of RF Acquisition Corp., a newly formed wholly owned subsidiary of the Company, with and into Corcom (the "Corcom Merger"). The Company paid $13.00 per share to the shareholders of Corcom in exchange for the shares received in the Merger (approximately $51.1 million in the aggregate). The Company used a portion of the proceeds of $48.1 million of borrowings under a $60.0 million credit facility entered into with the Bank of America National Trust and Savings Association on June 19, 1998 (the "Senior Credit Facility"), additional paid in capital of $5.0 million contributed by the Parent, and $7.4 million in cash from Corcom to finance the Merger, repay $7.4 million of debt (the "Old Senior Credit Facility") and fund the related merger costs. Corcom is an electromagnetic interference filter manufacturer located in Libertyville, Illinois. In May 1998, the Company purchased certain assets and assumed certain liabilities of Wilmar Electronics Inc. ("Wilmar") for approximately $2.1 million (the "Wilmar Acquisition"). Wilmar was consolidated into Kilovac in June 1998. The Wilmar Acquisition was financed with a draw on the Company's Old Senior Credit Facility. In December 1997, the Company purchased certain assets and assumed certain liabilities of the Genicom Relays Division ("GRD") of Genicom for $4.7 million (the "GRD Acquisition"). The Company financed the GRD Acquisition with funds borrowed on its Old Senior Credit Facility. In October 1997, the Company purchased 100% ownership in ibex Aerospace Inc. ("ibex") for approximately $2.0 million, excluding expenses (the "ibex Acquisition"). ibex was a wholly owned subsidiary of SOFIECE of Paris, France. The ibex operation was consolidated into the Company's Hartman division in 1998. Of the $2.0 million purchase price, approximately $1.3 million was paid at closing, and the remainder of the purchase price was paid by the Company through the issuance of a non-interest bearing note in the amount of $850,000 to the sellers, which note is payable on October 31, 1999. The Company financed the $1.3 million paid at closing with funds borrowed on its Old Senior Credit Facility. In July 1996, the Company acquired certain assets and assumed certain liabilities of Hartman Electrical Manufacturing, a division of Figgie International, Inc. for $12.0 million, excluding acquisition costs. The Company financed the Hartman Acquisition with secured bank debt, which was refinanced in conjunction with the consummation of the Offering and the Transactions. In November 1995, the Company formed a joint venture, CII Guardian International, Ltd., in India with Guardian Controls, Ltd., an Indian company ("Guardian Controls"), Kerala State Industrial Development Corporation ("KSIDC"), and certain other investors (the "Indian Joint Venture"). The Company initially had a 28% interest in the Indian Joint Venture. As of December 31, 1998, the Company has a 40% interest in the Indian Joint Venture. The Indian Joint Venture started production in the fourth quarter of 1996. In October 1995, the Company acquired an 80% interest in Kilovac for an aggregate purchase price of $14.4 million, excluding acquisition costs, which was financed with secured bank debt, subordinated debt of Parent and the issuance by Parent of preferred stock. The Company acquired the remaining 20% interest in Kilovac, refinanced such indebtedness and Parent redeemed such preferred stock in conjunction with the consummation of the Initial Offering and the Transactions. 12 Results of Operations The Company has improved gross margins, offset by the dilutive effect of acquisitions in 1998, in recent years primarily due to increased production volumes at existing facilities as a result of the acquisition of product lines which have been incorporated into the Company's existing manufacturing facilities, internal growth, improved pricing, greater use of low labor cost production facilities in Mexico and China, and improved production efficiencies due to improved manufacturing processes at certain of the Company's plants. Due to the Company's historical growth through acquisitions, the Company believes that period-to-period comparisons of its financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. The following table sets forth for the periods indicated information derived from the consolidated statements of operations expressed as a percentage of net sales. There can be no assurance that the trends in sales growth or operating results will continue in the future.
Years Ended December 31, ------------------- 1996 1997 1998 ----- ----- ----- Net sales............................................ 100.0% 100.0% 100.0% Cost of sales........................................ 70.5 66.6 67.7 ----- ----- ----- Gross profit......................................... 29.5 33.4 32.3 Selling expenses..................................... 7.4 6.8 7.2 General and administrative expenses.................. 8.2 8.3 7.4 Research and development............................. 1.5 1.2 1.1 Other expenses....................................... 0.9 1.1 1.5 ----- ----- ----- Operating income..................................... 11.5 16.0 15.1
Discussion of Consolidated Results of Operations Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Net sales of the Company for 1998 increased by $30.6 million, or 34.2%, to $120.0 million from $89.4 million in 1997. Excluding the effect of the Corcom Merger, net sales of the Company for 1998 increased $13.5 million, or 15.1%, to $102.9 million from $89.4 in 1997. This increase is due primarily to the effect of fourth quarter 1997 and other fiscal 1998 acquisitions. There are no significant changes in net sales of the base business. Gross profit of the Company for 1998 increased $8.9 million, or 29.9%, to $38.7 million from $29.8 million in 1997. Gross profit as a percentage of net sales decreased to 32.3% from 33.4% in 1997. Excluding the effect of the Corcom Merger, gross profit of the Company for 1998 increased $3.8 million, or 12.6% to $33.6 million from $29.8 million in 1997. Excluding the Corcom Merger, gross profit as a percentage of net sales decreased to 32.6% from 33.4% in 1997. The decrease in gross margin as a percentage of net sales is due primarily to lower gross profits as a percent of net sales for acquired companies, the sale of acquired inventories that were written up to fair market value and the cost to assimilate the GRD Acquisition, the ibex Acquisition, the Wilmar Acquisition, and the CD Acquisition into existing operations. Selling expenses for the Company for 1998 increased $2.6 million, or 42.1%, to $8.6 million from $6.1 million in 1997. Selling expenses as a percentage of net sales increased to 7.2% in 1998 from 6.8% in 1997. Excluding the effect of the Corcom Merger, selling expenses for the Company for 1998 increased $871,000, or 14.3%, to $6.9 million from $6.1 million in 1997. Excluding the effect of the Corcom Merger, selling expenses as a percentage of net sales was 6.8% in 1998 and 1997. General and administrative expenses for the Company for 1998 increased $1.5 million, or 20.2%, to $8.9 million from $7.4 million in 1997. General and administrative expenses as a percentage of net sales decreased to 7.4% from 8.3% in 1997. Excluding the effect of the Corcom Merger, general and administrative expenses for the Company for 1998 decreased $29,000, or 0.4%. Excluding the effect of the Corcom Merger, general and administrative expenses as a percentage of net sales decreased to 7.2% from 8.3% in 1997. The decrease in general and administrative expenses as a percentage of 13 net sales is caused primarily by a reduction in bad debt expense for 1998 when compared to 1997 and additional 1998 net sales without a corresponding increase in fixed costs. The bad debt expense relates primarily to the collectibility of an account receivable from a single customer relating to a dispute over product specification. Research and development expenses for the Company in 1998 increased $238,000, or 21.8%, to $1.3 million from $1.1 million in 1997. Research and development expenses as a percentage of net sales decreased to 1.1% from 1.2% in 1997. Excluding the effect of the Corcom Merger, research and development expenses for the Company increased $139,000, or 12.8%, to $1.2 million from $1.1 million in 1997. Excluding the effect of the Corcom Merger, research and development expenses as a percentage of net sales was 1.2% in 1998 and 1997. Amortization of goodwill and other intangibles for the Company in 1998 increased $1.1 million, or 173.0%, to $1.8 million from $648,000 in 1997. Excluding the effect of the Corcom Merger, amortization of goodwill and other intangibles increased $114,000, or 17.6%, to $762,000 from $648,000 in 1997. This increase is due primarily to the amortization of goodwill due to the Kilovac Purchase (third quarter 1997), the ibex Acquisition (fourth quarter 1997), the Wilmar Acquisition (second quarter 1998) and the CD Acquisition (third quarter 1998). Interest expense and other financing costs of the Company for 1998 increased $6.0 million, or 91.0%, to $12.6 million from $6.6 million in 1997. Interest expense in 1997 includes other financing costs related to the Recapitalization of $917,000 for the success fee associated with the repayment of the Old Credit Facility. The increase was due primarily to the increased debt levels associated with the issuance of the $95.0 million Notes and financing the Corcom Merger, the ibex Acquisition, the GRD Acquisition, the Wilmar Acquisition and the CD Acquisition partially offset by the pay down of the Old Credit Facility on September 18, 1997. Cancellation fees in 1997 reflect $800,000 of commitment fees and other expenses incurred in connection with a credit facility to provide financing in the event that the Offering was not consummated. Income tax expense was $2.4 million in 1998, compared to expense of $2.8 million in 1997. Income taxes as a percentage of income before taxes were 44.3% in 1998 and 40.9% in 1997. The increase in percentage is due primarily to an increase in nondeductible goodwill. The extraordinary item in 1998 reflects the write-off of $585,000 of unamortized deferred financing fees associated with the Old Senior Credit Facility, net of tax of $234,000. The extraordinary item in 1997 reflects the write-off of $664,000 of unamortized deferred financing fees associated with the Old Credit Facility, net of tax of $266,000. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Net sales of the Company for 1997 increased by $23.1 million, or 34.8%, to $89.4 million from $66.3 million in 1996. The increase was due primarily to (i) the full year effect of the Hartman Acquisition which represented $23.6 million in net sales in 1997, an increase of $13.4 million from $10.2 million in net sales for the period from July 3, 1996 (the date following the date of the Hartman Acquisition) to December 31, 1996, (ii) the ibex Acquisition which represented $451,000 in net sales for the period from November 1, 1997 (the date following the date of the ibex Acquisition) to December 31, 1997 and (iii) the GRD Acquisition which represented $560,000 in net sales for the period from December 2, 1997 (the date following the date of the GRD Acquisition) to December 31, 1997. Excluding the effect of the Hartman Acquisition, the ibex Acquisition, and the GRD Acquisition, net sales of the Company for 1997 increased $8.7 million, or 15.4%, to $64.8 million from $56.2 million in 1996, primarily as a result of a $6.7 million increase in net sales of high performance products and a $1.7 million increase in net sales of general purpose relays. The Company attributes this increase in net sales to growth in end use markets, market share gains, and introduction of new products. 14 Gross profit of the Company for 1997 increased $10.3 million, or 52.6%, to $29.8 million from $19.6 million in 1996. The Company's gross profit as a percentage of net sales increased to 33.4% in 1997 from 29.5% in 1996. Such increase was primarily due to the full year effect of the Hartman Acquisition. Excluding the effect of the Hartman Acquisition, the ibex Acquisition, and the GRD Acquisition, gross profit of the Company increased $4.5 million, or 25.4%, to $22.3 million from $17.8 million in 1996. Excluding the Hartman Acquisition, the ibex Acquisition and the GRD acquisition, the Company's gross profit as a percentage of net sales increased to 34.5% in 1997 from 31.7% in 1996. The increase in gross profit as a percentage of net sales was primarily due to improved yields, productivity and cost reductions. Selling expenses for the Company in 1997 increased $1.2 million, or $23.9%, to $6.1 million from $4.9 million in 1996. Such increase was due primarily to the full year effect of the Hartman Acquisition. Selling expenses for the Company as a percentage of net sales decreased to 6.8% in 1997 from 7.4% in 1996. Excluding the Hartman Acquisition, the ibex acquisition and the GRD Acquisition, selling expenses for the Company increased $735,000, or 15.8%, to $5.4 million in 1997 from $4.6 million in 1996. Such increase was primarily due to additional commissions on higher sales volume, additional personnel costs and increased advertising costs. Excluding the Hartman Acquisition, the ibex Acquisition and the GRD Acquisition, selling expenses for the Company as a percentage of net sales was 8.3% in 1997 and 1996. General and administrative expenses for the Company in 1997 increased $2.0 million, or 36.0%, to $7.4 million from $5.5 million in 1996. Such increase was due primarily to the full year effect of the Hartman Acquisition. General and administrative expenses as a percentage of net sales increased to 8.3% in 1997 from 8.2% in 1996. Excluding the Hartman Acquisition, the ibex Acquisition, and the GRD Acquisition, general and administrative expenses increased $1.4 million, or 29.5%, to $6.2 million from $4.8 million in 1996. Such increase was due primarily to additional personnel and compensation costs and bad debt expense. The bad debt expense relates primarily to the collectibility of accounts receivable from a single customer in relation to a dispute over product specification. Excluding the Hartman Acquisition, the ibex Acquisition, and the GRD Acquisition, general and administrative expenses as a percentage of net sales increased to 9.5% in 1997 from 8.5% in 1996. Research and development expenses for the Company in 1997 increased $79,000, or 7.8%, to $1.1 million from $1.0 million in 1996. Research and development expenses as a percentage of net sales decreased to 1.2% in 1997 from 1.5% in 1996. Excluding the effect of the Hartman Acquisition, the ibex Acquisition, and the GRD Acquisition, research and development expenses for the Company decreased $44,000, or (4.4%), to $967,000 from $1.0 million in 1996. Such decrease was primarily due to the reallocation of engineering resources to cost reduction projects in product manufacturing. Excluding the Hartman Acquisition, the ibex Acquisition, and the GRD Acquisition, research and development expenses as a percentage of net sales decreased to 1.5% in 1997 from 1.8% in 1996. Amortization of goodwill and other intangible assets of the Company in 1997 increased $105,000, or 19.3%, to $648,000 from $543,000 in 1996. Such increase was due primarily to the full year effect of the Hartman Acquisition and additional goodwill amortization associated with the Kilovac Purchase and the ibex Acquisition. Special acquisition expenses were $260,000 in 1997. The expenses related primarily to one-time expenses associated with the transition of GRD from its prior owner to the Company. There were no such expenses in 1996. Interest expense and other financing costs, including cancellation fees, of the Company for 1997 increased $2.3 million, or 45.9%, to $7.4 million from $5.1 million in 1996. Interest expense in 1997 includes other financing costs related to the Recapitalization of $917,000 for the success fee associated with the repayment of the Old Credit Facility. 1996 interest expense includes other financing costs of $1.6 million associated with a withdrawn initial public offering of the Parent. Excluding the other financing costs in 1996 and 1997, interest expense increased by $2.2 million or 65%. Such increase was due primarily to the additional interest expense 15 on the Notes. Interest expense includes the accrual of the success fee, amortization of loan origination fees, commitment fees related to the Old Senior Credit Facility and other miscellaneous interest expenses including the portion of rental expense on capitalized leases allocable to interest. Cancellation fees reflect $800,000 of commitment fees and other expenses incurred in connection with a credit facility to provide financing in event the Offering was not consummated. Income tax expense was $2.8 million in 1997, compared to expense of $1.1 million in 1996. Income taxes as a percentage of income before taxes were 40.9% in 1997 and 40.3% in 1996. The increase in percentage is due primarily to increased effective state tax rate. The extraordinary item in 1997 reflects the write-off of unamortized deferred financing costs associated with the Old Credit Facility net of income tax benefit of $266,000. Segment Discussion High Performance Group Year ended December 31, 1998 Compared to Year Ended December 31, 1997 Net sales of HPG increased by $11.6 million, or 15.0%, to $89.1 million from $77.5 million in 1997. The increase was due primarily to the effect of the ibex Acquisition, the Genicom Acquisition and the Wilmar Acquisition. Operating income of HPG increased by $2.4 million, or 19.3%, to $14.8 million from $12.4 million in 1997. Operating income of HPG as a percentage of HPG net sales increased to 16.6% from 16.0% in 1997. This increase was caused primarily a reduction in bad debt expenses for 1998 when compared to 1997 and increased net sales with low additional fixed costs partially offset by the cost of assimilating acquisitions. The bad debt expense relates primarily to the collectibility of an account receivable from a single customer relating to a dispute over product specification. Year ended December 31, 1997 Compared to Year Ended December 31, 1996 Net sales of HPG increased by $21.3 million, or 38.0%, to $77.5 million from $56.1 million in 1997. The increase was due primarily to the (i) the full year effect of the Hartman Acquisition which represented $23.6 million in net sales in 1997, an increase of $13.4 million from $10.2 million in net sales for the period from July 3, 1996 (the date following the date of the Hartman Acquisition) to December 31, 1996, (ii) the ibex Acquisition which represented $451,000 in net sales for the period from November 1, 1997 (the date following the date of the ibex Acquisition) to December 31, 1997 and (iii) the GRD Acquisition which represented $560,000 in net sales for the period from December 2, 1997 (the date following the date of the GRD Acquisition) to December 31, 1997. Excluding the effect of the Hartman Acquisition, the ibex Acquisition, and the GRD Acquisition, net sales of HPG for 1997 increased $6.9 million, or 15.1%, to $52.9 million from $46.0 million in 1996, primarily as a result of growth in end use markets, market share gains and introduction of new products. Operating income of HPG increased $6.2 million, or 99.4%, to $12.4 million from $6.2 million in 1997. Operating income of HPG as a percentage of HPG net sales increased to 16.0% from 11.1% in 1997. This increase was due primarily to the full year effect of the Hartman Acquisition. Excluding the Hartman Acquisition, operating income of HPG increased $1.7 million, or 31.4%, to $7.2 million from $5.5 million in 1996. Excluding the Hartman Acquisition, operating income of HPG as a percentage of net sales of HPG increased to 13.5% from 11.9% in 1996. This increase is due primarily to improved yields, productivity and cost reductions, partially offset by increased selling expenses and general and administrative expenses, higher commissions on higher sales volume, additional personnel costs, increased advertising costs and an increase in bad debt expense relating to the collectibility of an account receivable from a single customer relating to a dispute over product specification. 16 Specialized Industrial Group Year ended December 31, 1998 Compared to Year Ended December 31, 1997 Net sales of SIG increased by $19.2 million, or 157.1%, to $31.4 million from $12.2 million in 1997. Excluding the effect of the Corcom Merger and the CD Acquisition, net sales of SIG increased by $1.2 million, or 10.1%, to $13.4 million from $12.2 million in 1997. This increase is due primarily to growth in end use markets. Operating income of SIG increased by $1.4 million, or 70.2%, to $3.3 million from $1.9 million in 1997. Operating income of SIG as a percentage of SIG net sales decreased to 10.6% from 15.9% in 1997. Excluding the effect of the Corcom Merger, operating income of SIG increased by $547,000, or 28.1%, to $2.5 million from $1.9 million in 1997. Excluding the effect of the Corcom Merger operating income as a percentage of net sales increased to 17.4% from 15.9% in 1997. This increase was due primarily to improved productivity. Year ended December 31, 1997 Compared to Year Ended December 31, 1996 Net sales of SIG increased by $1.8 million, or 16.9%, to $12.2 million from $10.4 million in 1997. This increase is due primarily to growth in end use markets. Operating income of SIG increased by $518,000, or 36.3%, to $1.9 million from $1.4 million in 1997. Operating income of SIG as a percentage of SIG net sales increased to 15.9% from 13.7% in 1996. The increase is due primarily to improved productivity partially offset by higher commissions on higher sales volume and additional personnel costs. Liquidity and Capital Resources Cash provided by operating activities was $9.2 million in 1998, $6.4 million in 1997 and $8.5 million in 1996. The increase in cash provided by operations from 1997 to 1998 is primarily due to (i) the one time payment in 1997 of items related to the Recapitalization including $1.5 million for the success fee and $800,000 for commitment fees and other expenses incurred in connection with a credit facility set up to provide financing in event the Offering was not consummated, (ii) higher earnings adjusted for depreciation and amortization, a decrease in accounts receivable and other current assets, and an increase in accounts payable partially offset by (iii) a decrease in accrued liabilities and an increase in inventory. The decrease in cash from operating activities for the period from 1996 to 1997 was mainly due to (i) the one time payment in 1997 of items related to the Recapitalization including $1.5 million for the success fee and $800,000 for commitment fees and other expenses incurred in connection with a credit facility set up to provide financing in the event the Offering was not consummated, (ii) increases in accounts receivable due to higher revenues and decreases in accounts payable offset by (iii) higher profitability and decreases in inventory. The Company's accounts receivable increased from $11.6 million at year end 1997 to $15.6 million at year end 1998. Of this increase $4.7 million is attributable to the Corcom Merger and the Wilmar Acquisition. The Company's accounts receivable increased from $9.2 million at year end 1996 to $11.6 million at year end 1997. Of this increase approximately $545,000 is attributable to the ibex Acquisition. The days' sales outstanding for accounts receivable was approximately 51 trade days, 50 trade days and 48 trade days at December 31, 1996, 1997 and 1998, respectively. The continued decreases in days' sales outstanding can be attributed to increased collection efforts. The Company's inventories increased from $19.4 million at year end 1997 to $26.7 million at year end 1998. Of this increase, $6.0 million was attributable to the Corcom Merger, $505,000 was attributable to the CD Acquisition, and $132,000 was attributable to the Wilmar Acquisition. The Company's inventories increased from $17.1 million at year end 1996 to $19.4 million at year end 1997. Of this increase, $3.8 million 17 was attributable to the GRD Acquisition and $456,000 was attributable to the ibex Acquisition. These increases were offset by the sale of inventory associated with the planned cessation of production of a product line acquired in the Hartman Acquisition and improved inventory planning techniques. The Company's accounts payable increased from $4.8 million at year-end 1997 to $7.4 million at year end 1998. Of this increase, $1.5 million was attributable to the Corcom Merger and the remainder is due to higher inventory purchases. The Company's accounts payable decreased from $5.1 million at year- end 1996 to $4.8 million at year end 1997. The decrease was due primarily to lower inventory purchases offset by $476,000 of accounts payable assumed in the ibex Acquisition. The Company has historically financed its operations and acquisitions through a combination of internally generated funds and secured borrowings. The Company financed the Hartman Acquisition (approximately $13.0 million in borrowings) with borrowings under the Old Credit Facility. The Company financed the purchase of the remaining 20% of Kilovac with proceeds from its bond offering. The Company financed the ibex Acquisition with borrowings on its Old Senior Credit Facility (approximately $1.3 million) and the issuance of a non interest-bearing note in the amount of $850,000 payable to the sellers on October 31, 1999. The Company financed the GRD Acquisition with borrowings on its Old Senior Credit Facility of $4.7 million. The Company financed the Wilmar Acquisition with borrowings on its Old Senior Credit Facility (approximately $2.1 million in borrowings). The Company financed the Corcom Merger with its Senior Credit Facility (approximately $40.7 million in net borrowings) and additional paid in capital of $5.0 million contributed by the Parent. The Company financed the CD Acquisition with borrowings under the Senior Credit Facility (approximately $848,000 in borrowings). Capital expenditures, excluding the Hartman Acquisition, the Kilovac Purchase, the ibex Acquisition, the GRD Acquisition, the Wilmar Acquisition, the Corcom Merger and the CD Acquisition were $2.8 million in 1998, $2.1 million in 1997 and $2.4 million in 1996. In 1998, capital expenditures included approximately $182,000 for increased capacity, approximately $1.5 million for increased efficiency, approximately $712,000 for equipment replacement and rework and approximately $437,000 for new product development. In 1997, capital expenditures included approximately $609,000 for increased capacity, approximately $891,000 for increased efficiency, approximately $456,000 for equipment replacement and rework and approximately $190,000 for new product. In 1996, capital expenditures included approximately $1.5 million for increased capacity, approximately $318,000 for increased efficiency and approximately $644,000 for equipment replacement and rework. Acquisition spending totaled $47.7 million in 1998, $10.6 million in 1997 and $12.7 million in 1996. Capital expenditures for the Company for 1999 are expected to be approximately $4.5 million excluding the effect of any 1999 acquisitions. On March 19, 1999, the Company purchased all of the outstanding equity securities of Products Unlimited Corporation ("Products"), a marketer and manufacturer of relays, transformers and contactors for the HVAC industry. Pursuant to the Stock Purchase Agreement, the Company paid approximately $59.4 million. In addition, if Products achieves certain sales targets for the years ending December 31, 1999 and December 31, 2000, the Company will make additional payments to the former shareholders of Products not to exceed $4.0 million in the aggregate. The payment of the purchase price and related fees was financed by the issuance of $55.0 million of Tranche Term B loans in accordance with an amendment to the Senior Credit Facility, the contribution of $5.0 million in additional paid in capital by the Parent, and a draw on the revolving loan portion of the Company's Senior Credit Facility. Products has manufacturing facilities in Sterling and Prophetstown, Illinois and Sabula and Guttenberg, Iowa and has approximately 1,000 employees. On June 19, 1998, the Company entered into the Senior Credit Facility, using a portion of such facility to finance the Corcom Merger and repay $7.4 million of debt on the Old Senior Credit Facility. The Senior Credit Facility enables the Company to borrow up to $60.0 million, subject to certain borrowing conditions. The Senior Credit Facility is available for general corporate and working capital purposes and to finance acquisitions and is secured by the Company's assets. The amount available for borrowings on the Senior Credit Facility at December 31, 1998 was $14.4 million. On September 18, 1997, the Company applied the proceeds of the Notes, together with borrowings under the Old Senior Credit Facility, to repay all outstanding obligations 18 under the Old Credit Facility and to pay a dividend to the Parent. In connection with the Offering, the Company also paid to its existing senior lenders under the Old Credit Facility a success fee in the amount of approximately $1.5 million. In connection with the Offering, the Company also entered into the Old Senior Credit Facility, which enabled the Company to borrow up to $25.0 million, subject to certain borrowing conditions. Although there can be no assurances, the Company anticipates that its cash flow generated from operations and borrowings under the Senior Credit Facility will be sufficient to fund the Company's working capital needs, planned capital expenditures, scheduled interest payments and its business strategy for the next twelve months. However, the Company may require additional funds if it enters into strategic alliances, acquires significant assets or businesses or makes significant investments in furtherance of its growth strategy. The ability of the Company to satisfy its capital requirements will be dependent upon the future financial performance of the Company, which in turn will be subject to general economic conditions and to financial, business, and other factors, including factors beyond the Company's control. Instruments governing the Company's indebtedness, including the Senior Credit Facility and the Indenture, contain financial and other covenants that restrict, among other things, the Company's ability to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of substantially all of the assets of the Company and its subsidiaries. Such limitations, together with the highly leveraged nature of the Company, could limit corporate and operating activities, including the Company's ability to respond to changing market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities. Inflation The Company does not believe inflation has had any material effect on the Company's business over the past three years. Disclosure Regarding Forward-Looking Statements Statements made by the Company which are not historical facts are forward looking statements that involve risks and uncertainties. Actual results could differ materially from those expressed or implied in forward looking statements. All such forward looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Important factors that could cause future financial performance to differ materially from past results and from those expressed or implied in this document include, without limitation, the risks of acquisition of businesses (including limited knowledge of the business acquired and potential misrepresentations from sellers), changes in business strategy or development plans, dependence on independent sales representatives and distributors, environmental regulations, availability of financing, competition, reliance on key management personnel, ability to manage growth, loss of customers and a variety of other factors. Year 2000 Compliance The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a two- digit year is commonly referred to as the "Year 2000 Compliance" issue. As the year 2000 approaches, such systems may be unable to accurately process certain data based information. The Company has identified all significant applications that will require modification to ensure Year 2000 Compliance. Many of the Company's systems have hardware and packaged software recently purchased from 19 large vendors who have represented that these systems are Year 2000 compliant. Internal and external resources are being used to make the required modifications and are expected to be completed and tested by June 30, 1999. The Company's major systems, including its manufacturing, general ledger and payroll systems have been due for upgrades in order to maintain vendor support. The Company, therefore, would be devoting the efforts of its internal resources to some or all of these projects through the normal course of business even if Year 2000 issues had not existed. The Company relies upon third parties for its operations including, but not limited to, suppliers of inventory, software, telephone service, electric power, water and financial services. The Company is in the process of communicating with these third parties with whom it does significant business to determine their Year 2000 Compliance readiness and the extent to which the Company is vulnerable to any third party Year 2000 issues. Initial communications with these third parties is expected to be completed by June 30, 1999. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. If it has been determined that a vendor will not be Year 2000 compliant in a timely manner, the Company will replace them with an alternative vendor. In most cases, there are more than one vendor which can satisfy the Company's purchasing requirements. In the case of no alternative suppliers being available, the Company will build inventory to maintain production until the situation can be resolved. The Company is verifying that its major customers are Year 2000 compliant. If it is determined that a customer will not be compliant in a timely manner, the Company may request C.O.D. terms. However, in most cases the Company believes that its records will be sufficient to ensure collectibility from their customers. The total cost to the Company of these Year 2000 Compliance activities is estimated to be less than $250,000, including any software upgrades, equipment upgrades or incidentals and is not anticipated to be material to its future financial position, results of operations or cash flows in any given year. All costs will be funded through its regular operating and financing activities. These costs and the date on which the Company plans to complete the Year 2000 modification and testing processes are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ from those plans. Impact of New Accounting Pronouncements The Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, effective for all fiscal quarters beginning after June 15, 1999. The new standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company has not determined at this time what impact, if any, that this new accounting standard will have on its financial statements. Item 7A--Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to market risks from changes in interest rates and foreign currency exchange rates which may adversely affect its results of operations and financial condition. The Company seeks to minimize these risks through its regular operating and financing activities. The Company engages in neither speculative nor derivative financial or trading activities. Interest Rate Risk The Company has exposure to interest rate risk related to certain instruments entered into for other than trading purposes. Specifically, the Company has in place the Senior Credit Facility, which consists of a term 20 loan ($33.0 million at December 31, 1998) and the revolving credit facility ($9.7 million at December 31, 1998), which bears interest at variable rates. (See Note 7 to the Consolidated financial statements). Borrowings under the Senior Credit Facility (both the term loan and revolving credit facility) bear interest based on the Lenders' Reference Rate (as defined in the Senior Credit Facility) or LIBOR Rate plus an applicable margin. While changes in the Reference Rate or the LIBOR Rate could affect the cost of funds borrowed in the future, existing amounts outstanding at December 31, 1998 are primarily at fixed rates. The Company, therefore, believes the effect, if any, of reasonably possible near-term changes in interest rates on the Company's consolidated financial position, results of operations and cash flows would not be material. In September 1997, the Company consummated an offering of $95,000,000 aggregate principal amount of 10% Senior Subordinated Notes (the "Notes"), due 2004, (the "Offering"). The Company's Notes are at a fixed interest rate of 10%. As a result, a change in the fixed rate interest market would change the estimated fair market value of the Notes. The Company believes that a 10% change in the long term interest rate would not have a material effect on the Company's financial condition, results of operations and cash flows. While the Company historically has not used interest rate swaps, it may, in the future, use interest rate swaps to assist in managing the Company's overall borrowing costs and reduce exposure to adverse fluctuations in interest rates. Foreign Currency Exchange Risk The Company has seven foreign subsidiaries or divisions, located in Mexico, Germany, Jamaica, Barbados and Hong Kong as well as a Joint Venture in India. The Company generates about 18% of its net sales from customers located outside the United States. The Company's ability to sell its products in these foreign markets may be affected by changes in economic, political or market conditions in the foreign markets in which it does business. The Company experiences foreign currency translation gains and losses, which are reflected in the Company's consolidated statement of operations and comprehensive income, due to the strengthening and weakening of the US dollar against the currencies of the Company's foreign subsidiaries or divisions and the resulting effect on the valuation of the intercompany accounts and certain assets of the subsidiaries which are denominated in US dollars. The net gain resulting from foreign currency translations was $64,000 in 1998 compared to a loss of $4,000 and $2,000 in 1997 and 1996, respectively. The Company anticipates that it will continue to have exchange gains or loss from foreign operations in the future. Item 8--Financial Statements and Supplementary Data The consolidated financial statements of the Company are filed as a separate section of this report. 21 Item 9--Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 10--Directors and Executive Officers of the Registrant Executive Officers and Directors The executive officers and directors of the Company, and their ages and position with the Company as of December 31, 1998 are set forth below:
Name Age Position or Affiliation - ---- --- ----------------------- Ramzi A. Dabbagh........ 64 Chairman of the Board, Chief Executive Officer, and Director Michael A. Steinback.... 44 President, Chief Operating Officer and Director G. Daniel Taylor........ 62 Executive Vice President of Business Development and Director Richard L. Heggelund.... 52 Chief Financial Officer Michael J. Adams........ 42 Vice President for Sales and Marketing Theodore H. Anderson.... 42 Vice President Daniel R. McAllister.... 45 Vice President James R. Mikesell....... 56 Vice President Carl R. Freas........... 60 Vice President Brian P. Simmons........ 38 Director Andrew W. Code.......... 40 Director Steven R. Brown......... 29 Director Jon S. Vesely........... 33 Director Donald E. Dangott....... 66 Director
The present principal occupations and recent employment history of each of the executive officers and directors of the Company listed above are set forth below: Ramzi A. Dabbagh is the Chairman of the Board and Chief Executive Officer of the Company. He served as President of Communications Instruments from 1982 to 1995. Mr. Dabbagh served as President and Chairman of the National Association of Relay Manufacturers ("NARM") from 1991 to 1993 and has been a director of NARM since 1990. Michael A. Steinback became President of the Company in 1998, Chief Operating Officer of CII and a director of the Company in 1995. He served as the Vice President of Operations of CII from 1994 to 1995. From 1990 to 1993, Mr. Steinback was Vice President of Sales and Marketing for CP Clare Corporation. Mr. Steinback has served on the Board of Directors of NARM for two years. G. Daniel Taylor has been the Executive Vice President of Business Development of the Company since 1995 and a director of the Company since 1993. He served as a director of Kilovac from 1995 to 1997. He joined the Company in 1981 as Vice President of Engineering and Marketing and became Executive Vice President in 1984. He has served as the Company's representative to NARM and has acted as an advisor to the National Aeronautics and Space Administration ("NASA") for relay applications and testing procedures since 1967. Richard L. Heggelund became Chief Financial Officer of the Company in 1998. Prior to joining the Company, Mr. Heggelund was Vice President of Finance for the Abex/NWL division of Parker Hannifin Corporation. Prior to that he was Vice President and Chief Financial Officer of Power Control Technologies Inc. and Abex NWL Aerospace which were acquired by Parker Hannifin Corporation. From 1988 to 1995, Mr. Heggelund was Vice President and Chief Financial Officer of Datron Inc., an aerospace/defense manufacturer. Mr. Heggelund graduated from the University of Wisconsin-Madison with a B.B.A. degree in Accounting. 22 Michael J. Adams joined the Company in 1998 as Vice President of Sales and Marketing after six years with Square D Company, his last position being Operations Manager of its Asheville, North Carolina Facility. Mr. Adam's prior experience includes the establishment of the OEM business with Square D and the Director of Marketing for Square D's residential business. Theodore H. Anderson joined the Company in 1993 as Vice President and General Manager of the Juarez, Mexico operations and was promoted to Vice President and General Manager of North Carolina operations in January 1997. Mr. Anderson was employed by CP Clare Corporation from 1990 to 1993 as Product Marketing Manager, and was previously employed by Midtex Relays, Inc. as its General Manager from 1986 to 1990 at which time he joined CP Clare Corporation. Daniel R. McAllister has served as Vice President of the Company and Vice President of Manufacturing and Engineering of Kilovac since the Kilovac Acquisition in 1995 and had served as Vice President of Product Development of Kilovac since 1990. James R. Mikesell joined the Company as Vice President and General Manager of Hartman in 1996 upon the completion of the Hartman Acquisition. Mr. Mikesell joined Hartman Electrical Manufacturing in 1994, from IMO Industries, where he had been the General Manager of their Controlex Division for the previous five years. Carl R. Freas has been Vice President and General Manager of the Juarez, Mexico operations since December 1997 and previously served as director of manufacturing since 1993. Mr. Freas was employed by Seimens Electromechanical Division from 1984 to 1990 and held the position as Plant Manager, was self- employed from 1990 to 1993 as a business consultant and small business owner, at which time he joined the Company as Director of Manufacturing. He was promoted to General Manager of the Company in January 1997 and then to Vice President in December 1997. Brian P. Simmons is a Principal of Code, Hennessy & Simmons, Inc. Since founding Code, Hennessy & Simmons, Inc. in 1988, Mr. Simmons has been actively involved in the investment origination and investment management activities of such company. Prior to founding Code, Hennessy & Simmons, Inc., Mr. Simmons was a Vice President with Citicorp's Leveraged Capital Group and before that was employed by Mellon Bank. Andrew W. Code is a Principal of Code, Hennessy & Simmons, Inc. Since founding Code, Hennessy & Simmons, Inc. in 1988, Mr. Code has been actively involved in the investment organization and investment management activities of such company. Prior to founding Code, Hennessy & Simmons, Inc., Mr. Code was a Vice President with Citicorp's Leveraged Capital Group and before that was employed by American National Bank. Steven R. Brown is a Vice President of Code, Hennessy & Simmons, Inc. Mr. Brown was employed by Heller Financial from 1991 until 1994, at which time he joined Code, Hennessy & Simmons, Inc. Mr. Brown held various positions within Heller's commercial leveraged lending and real estate departments. Jon S. Vesely is a Principal of Code, Hennessy & Simmons, Inc. Prior to joining Code, Hennessy & Simmons, Inc. in 1991, Mr. Vesely was employed by First Chicago Corporation in its leveraged leasing group. Donald E. Dangott has served as a director of the Company from 1994 to September 17, 1997, and from October 30, 1997 to present. He held various positions at Eaton Corporation until 1993, including serving as the director of Business Development Commercial and Military Controls Operations from 1990 to 1993, and he presently serves as a business development consultant. He is the Executive Director and a member of the Board of Directors of the NARM. 23 Item 11--Executive Compensation Executive Compensation The following sets forth a summary of all compensation paid to the chief executive officer and the three other executive officers of the Company (the "Named Executive Officers") for services rendered in all capacities to the Company for the year ended December 31, 1998. Summary Compensation Table
Annual Long Term Compensation Compensation ---------------- ------------------- Securities Name and Principal Other Annual Underlying All Other Position Salary Bonus Compensation Options/SAR's (#'s) Compensation (1) - ------------------ -------- ------- ------------ ------------------- ---------------- Ramzi A. Dabbagh (4).... $198,616 $76,667 $25,121 495 $7,680 Chairman, and Chief Executive Officer Michael A. Steinback.... $163,411 $62,062 $28,280 350 $ 902 President and Chief Operating Officer G. Daniel Taylor (4).... $127,426 $49,235 $13,707 264 $4,689 Executive Vice President of Business Development Richard L. Heggelund (2).................... $ 43,978 $ 2,240 None None $ 710 Chief Financial Officer Michael J. Adams........ $120,170 $60,638 $ 7,150 None $ 642 Vice President of Sales And Marketing David Henning (3)....... $113,011 $55,025 $ 6,000 190 $1,682 Vice President Finance Corcom
- -------- (1) These amounts represent insurance premiums paid by the Company with respect to term life insurance. (2) Mr. Heggelund joined the Company as Chief Financial Officer on September 7, 1998 (3) Mr. Henning left his position as Chief Financial Officer on September 6, 1998 (4) The Company maintains key-man life insurance on Messrs. Dabbagh and Taylor and has agreed to pay out of the proceeds of such policy three years' salary to the estate of either officer in the event of the death of such officer.
Potential realizable value at assumed Annual rates of stock price appreciation For option Individual Grants term ----------------------------- ----------------------------- Number of Percent of total Securities Options/SARs Underlying Granted to Exercise Options/SARs Employees in of base Name Granted (#) fiscal year Price ($/Sh) Expiration Date 5%($) 10%($) - ---- ------------ ---------------- ------------ --------------- ------ ------ Ramzi A. Dabbagh........ 495 18.6% $10.00 12/31/07 $1,027 $1,312 Michael A. Steinback.... 350 13.2% $10.00 12/31/07 $ 726 $ 928 G. Daniel Taylor........ 264 9.9% $10.00 12/31/07 $ 548 $ 700 David Henning........... 190 7.1% $10.00 12/31/07 $ 394 $ 504
Executive compensation is determined by the compensation committee of the Company's Board of Directors (the "Compensation Committee"). The Compensation Committee is composed of Brian P. Simmons and Steven R. Brown. None of the Company's directors other than Donald E. Dangott receive compensation for services as directors. Mr. Dangott receives compensation for his services as a director in the amount of the greater of $1,000 per meeting or $1,000 per day of service. 24 Employment Agreements The Company is party to an employment agreement with Mr. Steinback which expires in April, 1999 and is subject to automatic renewal unless either the Company or Mr. Steinback elects to terminate such agreement. Mr. Steinback is entitled to receive an annual salary (subject to annual review) of approximately $172,000, annual auto allowances, and other standard employee benefits applicable to the Company's other executive officers, and is entitled to participate in the Company's executive bonus plan. Mr. Steinback is entitled to receive full salary and benefits for a year if he is terminated at any time during such year. Stock Option Plan Parent has established a stock option plan (the "Plan") which provides for the granting of options and other stock-based awards to officers and employees of Parent and the Company representing up to 5.4% of Parent's outstanding capital stock on a fully-diluted basis. The Company granted 2,658 shares under the Plan during 1998. All stock options were granted at an exercise price of $10.00 per share, which was the price of the Parent's stock at the time of the Recapitalization. Item 12--Security Ownership of Certain Beneficial Owners and Management Parent owns all of the Company's issued and outstanding capital stock. The following table sets forth certain information regarding beneficial ownership of the common stock of Parent after the consummation of the Recapitalization by (i) each stockholder who owns beneficially more than 5% of the outstanding capital stock of Parent and (ii) each director, each Named Executive Officer and all directors and executive officers of the Company as a group. Except as set forth in the footnotes to the table, each stockholder listed below has informed the Company that such stockholder has sole voting and investment power with respect to the shares of common stock of the Parent beneficially owned by such stockholder.
Shares of Parent Common Stock Beneficially Owned (1) ------------------------ Name and Address Number Percent - ---------------- ------------ ----------- Code, Hennessy & Simmons III, L. P. (2).............. 736,180 72.6% TCW/Crescent Mezzanine, L.L.C. (3)................... 90,101 8.8% Ramzi A. Dabbagh (4)................................. 48,330 4.8% Michael A. Steinback (4)............................. 30,713 3.0% G. Daniel Taylor (4)................................. 20,176 2.0% Richard L. Heggelund (4)............................. 2,264 0.2% Michael J. Adams (4)................................. 2,000 0.2% David Henning (4).................................... 10,940 1.1% Brian P. Simmons (5) (6)............................. 736,180 72.6% Andrew W. Code (5) (6)............................... 736,180 72.6% Jon S. Vesely (6).................................... -- -- ------------ --------- Steven R. Brown (6).................................. -- -- ------------ --------- Donald E. Dangott.................................... 5,600 * Directors and executive officers as a group (14 persons)............................................ 873,200 85.3%
- -------- * Amount represents less than 2% ownership (1) Pursuant to rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person has beneficial ownership of any securities as to which such person, directly or indirectly, through any contract, arrangement, undertaking, relationship or otherwise has or shares voting power and/or investment power and as to which such person has the right to acquire such voting and/or investment power within 60 days. Percentage of beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person by the sum of the number of shares outstanding as of such date and the number of shares as to which such person has the right to acquire voting and/or investment power within 60 days. 25 (2) The address of Code, Hennessy & Simmons III, L. P. is 10 South Wacker Drive, Suite 3175, Chicago, Illinois 60606. (3) Includes shares of common stock held by certain affiliates of TCW/Crescent Mezzanine, L.L.C. ("TCW/Crescent LLC") listed herein, and also includes 10,101 shares of common stock that TCW will have the right to acquire upon exercise of certain warrants issued to TCW in connection with the Recapitalization, TCW/Crescent LLC is the general partner of (i) TCW/Crescent Mezzanine Partners, L. P. (the "L. P."), which holds 6.0% of the Parent's outstanding common stock and (ii) TCW/Crescent Mezzanine Investment Partners, L. P. (the "Investment L. P."). The managing owner of TCW/Crescent Mezzanine Trust (the "Trust") is TCW/Crescent LLC. The general partner of TCW Shared Opportunity fund II, L. P. ("SHOP II") is TCW Investment Management Corporation ("TIMCO"). The investment adviser of TCW leveraged Income Trust, L. P. ("LINC") is TIMCO. The investment adviser of Crescent/Mach I Partners, L. P. ("MACH I") is TCW Asset Management Company ("TAMCO"). The entities referred to above are hereinafter collectively referred to as "TCW". TCW holds 100% of the Parent's outstanding warrants to purchase 10,101 shares of common stock; the L. P. holds 67.6% of the warrants, and the Trust holds 20.6% of the warrants. Messrs. Mark Attanasio, Robert Beyer, Jean-Marc Chapus and Mark Gold are portfolio managers of one or more of the L. P. Investment L. P., trust, SHOP II, MACH I or LINC, and with respect to such entities, exercise voting and dispositive powers on their behalf. The address of TCW is 11100 Santa Monica Boulevard, Suite 200, Los Angeles, California 94111. (4) The address of each such person is c/o CII Technologies Inc., 1396 Charlotte Highway, Fairview, North Carolina 28730. (5) All of such shares are held of record by Code, Hennessy & Simmons III, L. P. Messrs. Simmons and Code are officers, directors and stockholders of Code, Hennessy & Simmons, Inc., the sole general partner of CHS Management III, L. P., the sole general partner of Code, Hennessy & Simmons III, L. P. Messrs. Simmons and Code disclaim beneficial ownership of such shares. (6) The address of each such person is c/o Code, Hennessy & Simmons, Inc., 10 South Wacker Drive, Suite 3175, Chicago, IL 60606. Item 13--Certain Relationships and Related Transactions Management Agreement In connection with the Recapitalization, the Company entered into a Management Agreement with CHS Management III, L. P. ("CHS Management"), an affiliate of Code, Hennessy & Simmons, Inc. pursuant to which CHS Management will provide financial and management consulting services to the Company and receive a monthly fee of $41,667. In addition, pursuant to the Management Agreement, the Company paid $500,000 to CHS Management at the closing of the Transactions as compensation for services rendered in connection with the Transactions. The Management Agreement also provides that when and as the Company consummates the acquisition of other businesses, the Company will pay to CHS Management a fee equal to one percent of the acquisition price of each such business as compensation for services rendered by CHS Management to the Company in connection with the consummation of such acquisition. The Company paid $300,000 to CHS Management at the time of the Corcom Merger for services rendered in connection with the Merger. The term of the Management Agreement is five years, subject to automatic renewal unless either CHS Management or the Company elects to terminate; provided that the Management Agreement will terminate automatically upon the occurrence of a change of control of the Company. The Company believes that the fees to be paid to CHS Management for the professional services to be rendered are at least as favorable to the Company as those which could be negotiated with an unrelated third party. The Company also reimburses CHS Management for expenses incurred in connection with its services rendered to the Company and Parent. Stockholders Agreement In connection with the Recapitalization, Parent's stockholders entered into a Stockholders Agreement. This agreement provides, among other things, for the nomination of and voting for at least seven directors of Parent 26 by Parent's stockholders. The Stockholders Agreement also provides the number of directors (subject to a minimum of seven) to be determined by Code, Hennessy & Simmons, Inc. The following individuals were initially designated by Code, Hennessy & Simmons, Inc. to serve as directors of Parent: Ramzi A. Dabbagh, Michael A. Steinback, G. Daniel Taylor, Brian P. Simmons, Andrew W. Code, Jon S. Vesely, and Steve R. Brown. See "Item 10--"Directors and Executive Officers of the Registrant." Registration Agreement In connection with the Recapitalization, Parent's stockholders entered into a Registration Agreement. The Registration Agreement grants certain demand registration rights to Code, Hennessy & Simmons. An unlimited number of such demand registrations may be requested by Code, Hennessy & Simmons. In the event that Code, Hennessy & Simmons makes such a demand registration request, all other stockholders of Parent will be entitled to participate in such registration on a pro rata basis (based on shares held). Code, Hennessy & Simmons may request, pursuant to its demand registration rights, and each other stockholder may request, pursuant to his or its participation rights, that up to all of such stockholder's shares of common stock be registered by Parent. Parent is entitled to postpone such a demand registration for up to 180 days under certain circumstances. In addition, the parties to the Registration Agreement are granted certain rights to have shares included in registrations initiated by Parent or its stockholders ("piggyback registration rights"). Expenses incurred in connection with the exercise of such demand or piggyback registration rights shall, subject to limited exceptions, be borne by Parent. Tax Sharing Agreement The operations of the Company are included in the Federal income tax returns filed by Parent. Prior to the closing of the Initial Offering, Parent and the Company entered into a Tax Sharing Agreement pursuant to which the Company agreed to advance to Parent (i) so long as Parent files consolidated income tax returns that include the Company, payments for the Company's share of income taxes assuming the Company is a stand-alone entity, which in no event may exceed the group's consolidated tax liabilities for such year, and (ii) payments to or on behalf of Parent in respect of franchise or similar taxes and governmental charges incurred by it relating to the business, operations or finances of the Company. Recapitalization In connection with the Recapitalization, and subject to certain adjustments, Messrs. Dabbagh, Steinback, Taylor, and Henning received approximately $3.6 million, $1.21 million, $1.8 million, and $435,000, respectively, in net cash proceeds from their sale of shares of Parent and Parent's repayment of indebtedness owing to them. Upon the satisfaction of certain conditions, Messrs. Dabbagh, Steinback, Taylor and Henning could receive from funds escrowed at the time of the consummation of the Transactions approximately $251,000, $115,000, $148,000 and $41,000, respectively, in net cash proceeds. Old Credit Facility Bank of America National Trust and Savings Association ("Bank of America") was a lender and agent under the Old Credit Facility. A portion of the net proceeds of the Offering was used to satisfy the obligations outstanding under the Old Credit Facility. As a result of such repayment, Bank of America, as agent under the Old Credit Facility for the benefit of all the existing lenders thereunder, received a success fee of $1.5 million. Bank of America is a lender and the administrative agent in the Senior Credit Facility. Bank of America is an affiliate of BancAmerica Securities, Inc., one of the Initial Purchasers. In addition, an affiliate of Bank of America and BancAmerica Securities, Inc. owns a limited partnership interest in CII Associates, L P., which in turn, held a portion of the capital stock and certain indebtedness of Parent acquired and repaid in connection with the Recapitalization. Subject to certain adjustments, the net proceeds from the Recapitalization allocable to such affiliate based on such partnership interest equaled approximately $12.6 million. Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8-K 27 Communications Instruments, Inc. and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 1996, 1997 and 1998 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT Communications Instruments, Inc.: We have audited the accompanying consolidated balance sheets of Communications Instruments, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and 1998, and the related consolidated statements of operations and comprehensive income, stockholder's deficiency, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Greenville, South Carolina March 30, 1999 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except share amounts)
December 31, ------------------ ASSETS 1997 1998 ------ -------- -------- Current assets: Cash and cash equivalents................................ $ 298 $ 469 Accounts receivable (less allowance for doubtful accounts: 1997--$796; 1998--$479)....................... 11,602 15,598 Inventories.............................................. 19,377 26,656 Deferred income taxes.................................... 2,130 2,246 Other current assets..................................... 1,334 1,622 -------- -------- Total current assets................................... 34,741 46,591 -------- -------- Property, plant and equipment, net......................... 16,824 22,841 -------- -------- Other assets: Cash restricted for environmental remediation............ 445 340 Environmental settlement receivable...................... 1,160 1,220 Goodwill (net of accumulated amortization: 1997--$874; 1998--$1,872)........................................... 16,010 39,971 Intangible assets, net................................... 6,969 18,705 Other noncurrent assets.................................. 134 213 -------- -------- Total other assets..................................... 24,718 60,449 -------- -------- Total assets............................................... $ 76,283 $129,881 ======== ======== LIABILITIES AND STOCKHOLDER'S DEFICIENCY ---------------------------------------- Current liabilities: Accounts payable......................................... $ 4,753 $ 7,405 Accrued interest......................................... 2,820 2,799 Other accrued liabilities................................ 5,844 6,792 Current portion of long-term debt........................ 56 5,637 -------- -------- Total current liabilities.............................. 13,473 22,633 Long-term debt............................................. 101,566 133,044 Accrued environmental remediation costs.................... 2,364 2,353 Deferred income taxes...................................... 1,862 7,041 Other liabilities.......................................... 612 665 -------- -------- Total liabilities...................................... 119,877 165,736 -------- -------- Commitments and contingencies Stockholder's deficiency: Common stock--$.01 par value; 1,000 shares authorized, issued and outstanding.................................. -- -- Additional paid-in capital............................... 12,317 17,317 Accumulated deficit...................................... (55,827) (53,194) Accounts receivable--due from Parent..................... (42) -- Accumulated other comprehensive income (loss)............ (42) 22 -------- -------- Total stockholder's deficiency......................... (43,594) (35,855) -------- -------- Total liabilities and stockholder's deficiency............. $ 76,283 $129,881 ======== ========
See notes to consolidated financial statements. 2 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Dollars in thousands)
Year Ended December 31, -------------------------- 1996 1997 1998 ------- ------- -------- Net sales.......................................... $66,336 $89,436 $120,030 Cost of sales...................................... 46,779 59,601 81,285 ------- ------- -------- Gross margin....................................... 19,557 29,835 38,745 ------- ------- -------- Operating expenses: Selling expenses................................. 4,903 6,077 8,635 General and administrative expenses.............. 5,464 7,432 8,935 Research and development expenses................ 1,011 1,090 1,328 Amortization of goodwill and other intangible assets.......................................... 543 648 1,769 Acquisition related expenses..................... -- 260 -- ------- ------- -------- Total operating expenses....................... 11,921 15,507 20,667 ------- ------- -------- Operating income................................... 7,636 14,328 18,078 Interest expense and other financing costs, net.... (5,055) (6,573) (12,552) Other income (expense), net........................ 201 (17) (171) Cancellation fees.................................. -- (800) -- ------- ------- -------- Income before income taxes, minority interest and extraordinary item................................ 2,782 6,938 5,355 Income tax expense................................. 1,120 2,836 2,371 ------- ------- -------- Income before minority interest and extraordinary item.............................................. 1,662 4,102 2,984 Income applicable to minority interest in subsidiary........................................ (33) (55) -- ------- ------- -------- Income before extraordinary item................... 1,629 4,047 2,984 Extraordinary item--loss on early extinguishment of debt (net of income tax benefit: 1997--$266; 1998--$234)....................................... -- (398) (351) ------- ------- -------- Net income......................................... 1,629 3,649 2,633 Other comprehensive income (loss): Foreign currency translation adjustment............ (2) (4) 64 ------- ------- -------- Comprehensive income............................... $ 1,627 $ 3,645 $ 2,697 ======= ======= ========
See notes to consolidated financial statements. 3 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY (Dollars in thousands)
Accounts Accumulated Common Stock Additional Receivable Other ------------- Paid-in Accumulated Due From Comprehensive Shares Amount Capital Deficit Parent Income (loss) ------ ------ ---------- ----------- ---------- ------------- BALANCES AT DECEMBER 31, 1995................... 1,000 $-- $12,317 $ (1,744) $(244) $(36) Currency translation loss, net............ -- -- -- -- -- (2) Advances to Parent, net.................. -- -- -- -- (170) -- Net income............ -- -- -- 1,629 -- -- ----- ---- ------- -------- ----- ---- BALANCES AT DECEMBER 31, 1996................... 1,000 -- 12,317 (115) (414) (38) Currency translation loss, net............ -- -- -- -- -- (4) Repayments by Parent, net.................. -- -- -- -- 372 -- Dividend to Parent.... -- -- -- (59,361) -- -- Net income............ -- -- -- 3,649 -- -- ----- ---- ------- -------- ----- ---- BALANCES AT DECEMBER 31, 1997................... 1,000 -- 12,317 (55,827) (42) (42) Currency translation gain, net............ -- -- -- -- -- 64 Contributions from Parent............... -- -- 5,000 -- -- -- Repayments by Parent, net.................. -- -- -- -- 42 -- Net income............ -- -- -- 2,633 -- -- ----- ---- ------- -------- ----- ---- BALANCES AT DECEMBER 31, 1998................... 1,000 $-- $17,317 $(53,194) $ -- $ 22 ===== ==== ======= ======== ===== ====
See notes to consolidated financial statements. 4 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Year Ended December 31, ---------------------------- 1996 1997 1998 -------- -------- -------- Cash flows from operating activities: Net income..................................... $ 1,629 $ 3,649 $ 2,633 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................ 3,551 4,320 6,928 Extraordinary loss........................... -- 664 585 Deferred income taxes........................ (500) (401) (471) Minority interest............................ 33 55 -- Loss (gain) on disposal of assets............ (386) (5) 54 Other........................................ 1 11 (12) Changes in operating assets and liabilities, net of effects of acquisitions: Decrease (increase) in accounts receivable................................ 1,175 (1,812) 667 Decrease (increase) in inventories......... 607 2,023 (614) Decrease (increase) in other current assets.................................... 432 (605) 434 Increase (decrease) in accounts payable.... 1,462 (781) 1,129 Increase (decrease) in accrued liabilities............................... 554 (24) (1,873) Changes in other assets and liabilities.... (60) (656) (228) -------- -------- -------- Net cash provided by operating activities............................... 8,498 6,438 9,232 -------- -------- -------- Cash flows from investing activities: Acquisition of businesses and product lines, net of cash acquired.......................... (12,678) (10,561) (47,675) Investment in joint venture.................... (167) -- (95) Proceeds from sale of assets................... 746 18 22 Purchases of property, plant and equipment..... (2,449) (2,146) (2,795) -------- -------- -------- Net cash used in investing activities..... (14,548) (12,689) (50,543) -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of bonds................ $ -- $ 95,000 $ -- Net borrowings (repayments) under lines of credit........................................ -- (2,674) 3,900 Borrowings under long-term debt agreements..... 11,266 -- 35,100 Principal payments under long-term debt agreements.................................... (3,456) (22,125) (2,000) Payments of capital leases..................... (640) (23) (88) Payment of loan fees........................... (346) (4,763) (843) Payments of amounts owed to former stockholders of subsidiary................................. (745) -- (226) Additional paid in capital (from Parent)....... -- -- 5,000 Dividend to Parent............................. -- (59,361) -- Repayments from (advances to) Parent........... (104) 372 500 Other.......................................... (2) 7 139 -------- -------- -------- Net cash provided by financing activities............................... 5,973 6,433 41,482 -------- -------- -------- Net increase (decrease) in cash and cash equivalents.................................... (77) 182 171 Cash and cash equivalents, beginning of year.... 193 116 298 -------- -------- -------- Cash and cash equivalents, end of year.......... $ 116 $ 298 $ 469 ======== ======== ======== See notes 7 and 9 for interest and taxes paid, respectively Supplemental schedule of noncash investing activities: See Note 1 for assets acquired and liabilities assumed in acquisitions. During the year ended December 31, 1997, the Company entered into a noninterest bearing note payable to the former owners of ibex Aerospace, Inc. in the amount of $850 as a result of the acquisition of this business (see Notes 1 and 7).
See notes to consolidated financial statements. 5 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNLESS SPECIFIED, DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS) 1. BUSINESS DESCRIPTION, RECAPITALIZATION and ACQUISITIONS Business Description Communications Instruments, Inc. and Subsidiaries (the "Company") is engaged in the design, manufacture and distribution of electromechanical, electronic and filter products, which include high performance relays, general purpose relays, solenoids and EFI filters for the commercial/industrial equipment, commercial airframe, defense/aerospace, communications, automotive and automatic test equipment industries. Manufacturing and assembly operations are performed primarily in North Carolina, California, Virginia, Ohio, Illinois, Texas, Germany and Juarez, Mexico. The Company is a wholly owned subsidiary of CII Technologies Inc. (the "Parent"). Recapitalization On September 18, 1997, the Company entered into a series of recapitalization transactions (collectively, the "Transactions"). These transactions are described below. Code, Hennessy & Simmons III, L.P., certain members of Company management and certain other investors (collectively, the "New Investors") acquired approximately 87% of the capital stock of the Parent. Certain of the Parent's existing stockholders, including certain members of management, retained approximately 13% of the Parent's capital stock (collectively, the "Recapitalization"). Concurrently, the Company issued $95.0 million of 10% Senior Subordinated Notes due 2004 (the "Old Notes") pursuant to an Indenture, dated September 18, 1997, by and among Communications Instruments, Inc., Kilovac, Kilovac International, Inc. ("Kilovac International") and Norwest Bank Minnesota, National Association (the "Indenture") through a private placement offering permitted by Rule 144A of the Securities Act of 1933, as amended (the "Offering"). On January 30, 1998, the Company filed a registration statement with the Securities and Exchange Commission for the registration of its 10% Senior Subordinated Notes due 2004, Series "B" (the "Notes") to be issued in exchange for the Old Notes (the "Exchange"). The registration statement became effective on January 30, 1998 and the Exchange was completed on March 9, 1998. Also, on September 18, 1997, the Company borrowed approximately $2.7 million pursuant to a new senior credit facility with a syndicate of financial institutions providing for revolving loans of up to $25.0 million (the "Old Senior Credit Facility"). The Company repaid approximately $29.3 million of outstanding obligations under the then existing credit facility (the "Old Credit Facility"), including a success fee of approximately $1.5 million in connection therewith and certain other liabilities (the "Refinancing"). The Company paid a dividend of approximately $59.4 million to the Parent (the "Dividend"), which was used by the Parent in conjunction with the proceeds of issuances of the Parent's common stock (approximately $9.8 million), the Parent's preferred stock (approximately $2.0 million) and junior subordinated debt of the Parent (approximately $12.7 million) as follows: approximately $71.5 million was used to purchase shares of the Parent's capital stock from existing shareholders; approximately $3.5 million was used to pay Recapitalization and other financing expenses; and approximately $7.6 million was used to repay certain indebtedness of the Parent. 6 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Acquisitions Acquisitions, unless otherwise noted below, are accounted for as purchases. The purchase prices are allocated to the assets acquired and liabilities assumed based on their relative fair values, and any excess cost is allocated to goodwill. The fair value of significant property, plant and equipment and intangibles and other assets acquired are determined generally by appraisals. Hartman Electrical Division On July 2, 1996, the Company purchased certain assets and assumed certain liabilities of the Hartman Electrical Division ("Hartman") of Figgie International, Inc. for an aggregate purchase price of approximately $13.024 million including acquisition costs of approximately $1.0 million (the "Hartman Acquisition"). Hartman is a manufacturer and marketer of high current electromechanical relays for critical applications in the military and commercial aerospace markets. The transaction was financed through additional borrowings of approximately $13.0 million on the Old Credit Facility. Kilovac Corporation 20% Purchase On September 18, 1997, the Company purchased for approximately $4.5 million the remaining 20% of the outstanding stock of Kilovac Corporation ("Kilovac") that the Company did not then own (the "Kilovac Purchase"). The transaction was financed through proceeds from the Recapitalization and the issuance of senior subordinated notes. On October 11, 1995, the Company had purchased an 80% ownership interest in Kilovac for an aggregate purchase price of approximately $15.681 million including acquisition costs of approximately $1.3 million. Kilovac designs and manufactures high voltage electromechanical relays. The Company was obligated to purchase the remaining 20% interest in Kilovac at the option of the selling shareholders on either December 31, 2000 or December 31, 2005, or upon the occurrence of certain events, if earlier, at an amount determined in accordance with the terms of the purchase agreement. An estimated $2.3 million ($694 and $468 , net of tax at December 31, 1997 and 1998) was initially payable to the sellers upon the future realization of potential tax benefits associated with a net operating loss carryforward. ibex Aerospace Inc. On October 31, 1997, the Company acquired certain assets and assumed certain liabilities of ibex Aerospace Inc. ("ibex") for approximately $2.0 million (the "ibex Acquisition"). Of the $2.0 million, approximately $1.3 million was paid at closing. The Company issued a noninterest bearing note payable to the sellers in the amount of $850 (discounted to $697) for the remainder of the purchase price. This note is payable on October 31, 1999. Ibex was a manufacturer and marketer of high current electromechanical relays for critical applications in the military and commercial aerospace markets. In 1998, ibex was consolidated into Hartman. The transaction was financed through a draw on the Company's Old Senior Credit Facility and the issuance of the note payable to the sellers discounted to $697. Pro forma financial information is not presented relating to the ibex Acquisition as this entity was not a significant subsidiary of the Company in 1997. Genicom Relays Division On December 1, 1997, the Company acquired certain assets and assumed certain liabilities of the Genicom Relays Division ("GRD") of Genicom Corporation ("Genicom") for approximately $4.7 million (the "GRD Acquisition"). GRD, located in Waynesboro, Virginia, is a manufacturer of high performance signal relays. The GRD Acquisition was financed by a draw on the Company's Old Senior Credit Facility. 7 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company has announced the relocation of the manufacturing in its Waynesboro, VA facility to its facilities in North Carolina. These plans were finalized in late 1998. The relocation will be completed by the end of 1999. The estimated costs of this facility relocation, including estimated costs of employee separation and preparing the North Carolina facilities for the relocation, are approximately $1.0 million. Management expects that a significant portion of these costs will be expensed as incurred during 1999. Wilmar Electronics Inc. On May 6, 1998, the Company purchased certain assets and assumed certain liabilities of Wilmar Electronics Inc. ("Wilmar") for approximately $2.1 million (the "Wilmar Acquisition"). Wilmar was a producer of high performance protective relays. Wilmar was consolidated into the Company's Kilovac subsidiary in June 1998. The Wilmar Acquisition was financed with a draw on the Company's Old Senior Credit Facility. Pro forma financial information is not presented relating to the Wilmar Acquisition as this entity was not a significant subsidiary of the Company in 1998. Corcom, Inc. On June 19, 1998, the Company acquired all of the outstanding capital stock of Corcom, Inc., an Illinois corporation ("Corcom") pursuant to the merger of RF Acquisition Corp., a newly formed wholly owned subsidiary of the Company, with and into Corcom (the "Corcom Merger"). The Company paid $13.00 per share to the shareholders of Corcom in exchange for the shares received in the Merger (approximately $51.1 million in the aggregate). The Company used a portion of the proceeds of $48.1 million of borrowings under a $60.0 million credit facility entered into with Bank of America National Trust and Savings Association on June 19, 1998 (the "Senior Credit Facility"), additional paid-in capital of $5.0 million contributed by the Parent, and $7.4 million in cash from Corcom to finance the Merger, repay $7.4 million of debt and fund the related merger costs. Corcom is an electromagnetic interference filter manufacturer located in Libertyville, Illinois. The allocation of purchase price is subject to final determination based on changes in certain estimates that may occur within the first year of operations. Management believes that there will be no material changes to the allocation of the purchase price. Cornell Dubilier On July 24, 1998, the Company purchased certain assets and assumed certain liabilities of the Cornell Dubilier electronics relay division ("CD") for $848 (the "CD Acquisition"). During 1998, CD was consolidated into the Midtex Division. The CD Acquisition was financed through a draw on the Company's Senior Credit Facility. Pro forma financial information is not presented relating to the CD Acquisition as this entity was not a significant subsidiary of the Company in 1998. The following summarizes the purchase price allocations as of the respective dates of acquisition:
Hartman Kilovac ibex GRD Wilmar Corcom CD Acquisition Purchase Acquisition Acquisition Acquisition Merger Acquisition ----------- -------- ----------- ----------- ----------- -------- ----------- Current assets.......... $10,229 $ 47 $1,041 $3,887 $ 381 $ 12,761 $505 Property, plant and equipment.............. 3,172 169 150 2,045 80 7,374 82 Intangibles and other assets................. 3,799 4,577 1,762 24 2,023 35,550 380 Liabilities assumed..... (4,176) (293) (965) (1,273) (356) (10,635) (119) ------- ------ ------ ------ ------ -------- ---- Purchase price, net of acquired cash.......... $13,024 $4,500 $1,988 $4,683 $2,128 $ 45,050 $848 ======= ====== ====== ====== ====== ======== ====
8 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following unaudited 1996 pro forma financial information shows the results of operations of the Company as though the Hartman Acquisition, the Kilovac Purchase, the Transactions and the GRD Acquisition occurred as of January 1, 1996. The following unaudited 1997 pro forma financial information shows the results of operations of the Company as though the Kilovac Purchase, the Transactions, the GRD Acquisition and the Corcom Merger occurred as of January 1, 1997. The following unaudited 1998 pro forma financial information shows the results of operations as though the Corcom Merger occurred as of January 1, 1998. These results include, but are not limited to, the straight line amortization of excess purchase price over the net assets acquired over a thirty year period and an increase in interest expense as a result of the debt borrowed to finance the transactions.
1996 1997 1998 ------- -------- -------- Net sales..................................... $90,812 $140,568 $136,314 Operating income.............................. 8,654 18,862 18,339 Income (loss) before extraordinary item....... (2,671) 1,306 1,878 Net income (loss)............................. (2,671) 908 1,527
The unaudited pro forma financial information presented above does not purport to be indicative of either (i) the results of operations had the Corcom Merger taken place on January 1, 1998, had the Kilovac Purchase, the Transactions, the GRD Acquisition and the Corcom Merger taken place on January 1, 1997, or had the Hartman Acquisition, the Kilovac Purchase, the Transactions and the GRD Acquisition taken place on January 1, 1996 or (ii) future results of operations of the combined businesses. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation--The accompanying consolidated financial statements include Communications Instruments, Inc. and its wholly owned subsidiaries, Electro-Mech S.A., Kilovac and Corcom. All intercompany transactions have been eliminated in consolidation. Cash and Cash Equivalents--All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Investment--In November 1995, the Company formed a joint venture in India with Guardian Controls Ltd., an Indian Company, a bank and certain financial investors. The Company has a 40% interest in the joint venture which was formed for the purpose of manufacturing relays, relay components, and subassemblies in India for the domestic Indian market and global markets. The Company accounts for the joint venture using the equity method. The joint venture started production during the fourth quarter of 1996. The balance of the investment in the joint venture at December 31, 1997 and 1998, was $108 and $171, respectively. Revenue Recognition--Except as stated below, sales and the related cost of sales are recognized upon shipment of products sold, net of estimated discounts and allowances. Certain sales of Kilovac, which constitute an immaterial component of total consolidated sales, represent revenues received under long-term fixed price development contracts. Revenues under these contracts are recognized based on the percentage of completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. Costs in excess of contract revenues on cost sharing development contracts are expensed in the period incurred as costs of sales. Provision for estimated losses, if any, on fixed price contracts is made in the period such losses are determined by management. Certain sales of Hartman represent revenues received under long-term commercial and governmental contracts. Provision for estimated losses, if any, on long-term contracts is made in the period such losses are determined by management. 9 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Warranty Costs--Estimated warranty costs are provided based on known claims and historical claims experience. Allowance for Doubtful Accounts--Allowance for doubtful accounts is provided based on management's assessment of collectibility of the Company's accounts receivable and historical experience. The changes in the allowance for doubtful accounts receivable consist of the following at December 31:
1996 1997 1998 ----- ---- ----- Allowance, beginning of year......................... $ 420 $466 $ 796 Provision for (recovery of) uncollectible accounts... 93 428 (42) Write-off of uncollectible accounts, net............. (147) (98) (383) Effect of acquisitions and other..................... 100 -- 108 ----- ---- ----- Allowance, end of year............................... $ 466 $796 $ 479 ===== ==== =====
The write-off of uncollectible accounts in 1998 relates primarily to one customer receivable balance, which was provided for during 1997. The Company settled the claim made by this customer during 1998. Inventories--Inventories are stated at the lower of cost (first-in, first- out method) or market. Property, Plant and Equipment--Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to twenty years. Goodwill--Goodwill represents the excess of cost over net assets acquired and is being amortized by the straight-line method over the estimated period benefited of thirty years due to the long life cycles of the products. The Company evaluates goodwill for impairment based on anticipated undiscounted future cash flows. Intangible Assets--Intangible assets are amortized on a straight-line basis over the estimated lives of the related assets or, in the case of the debt issuance costs, using a method which approximates the effective interest method over the life of the related debt issue. Income Taxes--The Company accounts for income taxes using an asset and liability approach as prescribed by Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities. The Company files a consolidated Federal income tax return with the Parent. Current and deferred tax expenses are allocated to the Company from the Parent as if the Company filed a separate tax return. Long-lived Assets--The Company analyzes the carrying value of intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Research and Development--Research and development costs are charged to expense as incurred. Use of Estimates in the Preparation of Financial Statements--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the 10 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) reporting period. Actual results could differ from those estimates. Examples of significant estimates and assumptions made in the preparation of these financial statements include the Company's allowance for doubtful accounts, reserves for inventory obsolescence, fair values of assets acquired and liabilities assumed in connection with purchase business combinations, accrual for environmental remediation costs, and provision for losses, if any, to be incurred on fixed price sales contracts. Fair Value of Financial Instruments--The estimated fair values of the Company's financial instruments, including primarily cash and cash equivalents, accounts receivable and accounts payable, approximate their carrying values at December 31, 1997 and 1998, due to their nature. The fair value of the Company's Senior Credit Facility (as defined) is estimated using the current rates that would be available for borrowing a like amount from the bank and the fair value of the Notes (as defined) is estimated based on quoted market prices. Accumulated Other Comprehensive Income (Loss)--Accumulated other comprehensive income (loss) is comprised solely of foreign currency translation adjustments. Financial information related to foreign operations is translated into US dollars based on exchange rates as obtained from a local U.S. bank and The Wall Street Journal. Assets and liabilities are translated based on rates in effect on the balance sheet date. Income statement amounts are translated using average exchange rates in effect during the period. The income tax effect of the foreign currency translation adjustments was not material for any year during the three year period ended December 31, 1998. New Accounting Standard--The Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, effective for all fiscal quarters beginning after June 15, 1999. The new standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company has not determined at this time what impact, if any, that this new accounting standard will have on its financial statements. Reclassifications--Certain 1996 and 1997 amounts have been reclassified to conform with the 1998 presentation. 3. INVENTORIES Inventories consist of the following at December 31:
1997 1998 ------- ------- Finished goods......................................... $ 2,882 $ 6,786 Work-in-process........................................ 8,981 9,093 Raw materials and supplies............................. 12,520 17,401 Reserve for obsolescence............................... (5,006) (6,624) ------- ------- Total.............................................. $19,377 $26,656 ======= =======
11 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following at December 31:
1997 1998 ------- ------- Land and land improvements.............................. $ 655 $ 1,450 Buildings............................................... 2,645 3,290 Machinery and equipment................................. 23,577 32,715 Construction in progress................................ 662 489 ------- ------- 27,539 37,944 Less accumulated depreciation........................... (10,715) (15,103) ------- ------- Total............................................... $16,824 $22,841 ======= =======
Property, plant and equipment generally are depreciated using the following lives: land improvements--7 years, buildings--20 years and machinery and equipment--3 to 8 years. 5. INTANGIBLE ASSETS Intangible assets consist of the following at December 31:
Range of 1997 1998 Asset Lives ------ ------- ----------- Debt issuance costs.......................... $4,763 $ 4,937 5-7 Covenants not to compete..................... 380 675 2.5-5 Patents and patent application............... 2,069 6,534 11-17 Trademarks................................... 450 5,085 30 Acquired workforce........................... -- 1,390 5 Acquired customer base....................... -- 1,710 14 Acquired computer software -- 290 4 Other........................................ 3 3 5 ------ ------- 7,665 20,624 Less accumulated amortization................ (696) (1,919) ------ ------- Total.................................... $6,969 $18,705 ====== =======
6. OTHER ACCRUED LIABILITIES Significant items comprising this account balance at December 31, 1997 and 1998, respectively, were accrued loss contingencies related to long-term sales contracts of $573 and $150, accrued warranty liabilities of $736 and $391, and accrued vacation liabilities of $1,011 and $1,087, respectively. 12 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 7. LONG-TERM DEBT Long-term debt consists of the following at December 31:
1997 1998 -------- -------- Senior Credit Facility term loan payable to a bank due in quarterly installments of $1,000 from March 31, 1999 through June 30, 1999, $1,375 from September 30, 1999 through June 30, 2000, $1,750 from September 30, 2000 through June 30, 2001, $2,125 from September 30, 2001 through June 30, 2002, and $2,500 from September 30, 2002 to the final $2,500 payment on June 19, 2003. Interest is at base rate, or LIBOR rate, plus applicable margin. $ -- $ 33,000 Senior Credit Facility revolving loan payable to a bank due June 19, 2003. Interest at base rate, or LIBOR rate, plus applicable margin. -- 9,700 Old Senior Credit Facility revolving loan payable to a bank, repaid in 1998. Interest at base rate, or LIBOR rate, plus applicable margin. 5,800 -- 10% Senior Subordinated Notes due 2004, Series "B" 95,000 95,000 Note payable to former owners of ibex Aerospace Inc., non- interest bearing note discounted using 10% interest rate, due October 31, 1999 708 782 Note payable to the City of Mansfield, 6% interest rate, due in four equal annual installments of $25 to the final payment on May 22, 2002 -- 100 Obligations under capital leases 114 99 -------- -------- 101,622 138,681 Less--current portion (56) (5,637) -------- -------- Total $101,566 $133,044 ======== ========
Debt maturities at December 31, 1998 are as follows: 1999............................................................. $ 5,637 2000............................................................. 6,294 2001............................................................. 7,775 2002............................................................. 9,275 2003............................................................. 14,700 Thereafter....................................................... 95,000 -------- Total........................................................ $138,681 ========
The Company has a borrowing arrangement with a bank which provides for a maximum credit facility of $60.0 million (including $3.0 million for stand-by letters of credit), limited by outstanding indebtedness under the initial $35.0 million term loan agreement, or availability under the borrowing base, as defined in the loan agreement (the "Senior Credit Facility"). The amount available for borrowings under the Senior Credit Facility at December 31, 1998 was approximately $14.4 million. All funds may be borrowed as either a base rate loan, or LIBOR loan. For base rate loans and LIBOR loans an applicable margin is added to the base rate interest rate or the LIBOR interest rate based on a Consolidated Senior Leverage Ratio Level (as defined in the Senior Credit Facility). The base rate is the higher of a Reference Rate (as defined in the Senior Credit Facility) or the federal funds rate plus 1/2%. At December 31, 1998, LIBOR borrowing rates ranged from 7.625%-8.125%. At December 31, 1998, the base-rate borrowing rate was a 9.25%. The weighted average borrowing rate on the Senior Credit Facility, calculated based on borrowings outstanding at December 31, 1998 under base rate and LIBOR loans, was 7.74%. The weighted average borrowing rate on the Old Senior Credit Facility at December 31, 1997 was 8.68%. The estimated fair value of the Senior Credit Facility approximates its carrying value at December 31, 1997 and December 31, 1998. The Company and its wholly owned subsidiaries, Kilovac and Kilovac International, have guaranteed the 10% Senior Subordinated Notes (the "Notes") on a full, unconditional, and joint and several basis, which 13 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) guarantees are fully secured by the assets of such guarantors. The Company and its wholly-owned subsidiaries, including Kilovac and Kilovac International, have guaranteed the Senior Credit Facility on a full, unconditional, and joint and several basis, which guarantees are fully secured by the assets of such guarantors. Interest on the 10% Senior Subordinated Notes is payable semi-annually in arrears on March 15 and September 15 of each year and began on March 15, 1998. The Notes will mature on September 15, 2004, unless previously redeemed, and the Company will not be required to make any mandatory redemption or sinking fund payment prior to maturity except in connection with a change in ownership. The Notes may be redeemed, in whole or in part at any time, on or after September 15, 2001 at the option of the Company, at the redemption prices set forth in the Indenture, plus, in each case, accrued and unpaid interest and premium, if any, to the date of redemption. In addition, at any time prior to September 15, 2000, the Company may, at its option, redeem up to 33.3% in aggregate principal amount of the Notes at a redemption price of 110% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption, with the net cash proceeds of an equity offering (as defined in the Indenture), provided that not less than $63.4 million aggregate principal amount of the Notes remains outstanding immediately after the occurrence of such redemption. The estimated fair value of the Notes at December 31, 1997 and 1998 was approximately $95.0 million and $91.2 million, respectively. Letters of credit outstanding under credit facilities at December 31, 1997 and 1998 were $850 and $950, respectively. The Senior Credit Facility requires the Company to pay commitment fees at an annual rate of 0.5% on the undrawn amount of the Senior Credit Facility, subjected to adjustment based on the Consolidated Senior Leverage Ratio of the Company. On June 19, 1998, the Company extinguished all outstanding debt which was outstanding at December 31, 1997, under the Old Senior Credit Facility. The extraordinary loss recorded in the 1998 consolidated statement of operations relates to the write-off of the unamortized portion of the debt issuance costs related to the Old Senior Credit Facility. On September 18, 1997, the Company extinguished all debt which was outstanding at December 31, 1996, under former debt agreements (see Note 1). The extraordinary loss recorded in the 1997 consolidated statement of operations relates to the write-off of the unamortized portion of the debt issuance costs related to such former debt agreements. The terms of the Senior Credit Facility and the Indenture (see Note 1) place certain restrictions on the Company including, but not limited to, the Company's ability to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments (as defined), consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of the assets of the Company and its subsidiaries. The Senior Credit Facility also contains financial covenants including interest coverage ratios, leverage ratios, limitations on capital expenditures and minimum levels of consolidated earnings before interest, taxes, depreciation and amortization, as defined by the Senior Credit Facility. As of December 31, 1998, the Company was in compliance with the financial covenants of the Senior Credit Facility and the Indenture. Interest Expense and Other Financing Costs--Interest expense and other financing costs include interest expense and costs associated with an initial public offering withdrawn by the Company during 1996. Interest expense and other financing costs for the years ended December 31, 1996, 1997 and 1998 are as follows:
1996 1997 1998 ------ ------ ------- Interest expense.................................... $3,427 $6,573 $12,552 Other financing costs............................... 1,628 -- -- ------ ------ ------- Total........................................... $5,055 $6,573 $12,552 ====== ====== =======
14 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In addition, commitment fees and other expenses incurred in connection with a credit facility to provide financing in the event that the Offering was not consummated (cancellation fees) were $800 in the year ended December 31, 1997. On September 18, 1997, the Company paid a success fee to the lender of the Old Credit Facility, which was based upon the market value or appraised value of the Company on the valuation date, as required by a change in control per the terms of the agreement. The amount of the success fee paid was $1,466. At December 31, 1996, $567 was accrued related to this fee, based on management's estimate of the value of the Company. The remainder of the fee was charged to 1997 operations and is included in interest expense and other financing costs in the accompanying 1997 consolidated statement of operations. Interest paid amounted to $2,826, $4,129 (including success fee) and $12,694 for the years ended December 31, 1996, 1997 and 1998, respectively. 8. LEASES The Company leases certain office equipment under capital lease arrangements. The leased assets have a net book value of $114 and $99 at December 31, 1997 and 1998, respectively. The future minimum lease obligation under capital leases as of December 31, 1997 and 1998, is included in long-term debt (see Note 7). The Company leases certain premises and equipment under noncancelable operating leases which have remaining terms from one to five years and which provide for various renewal options. Total rent expense charged to operations was approximately $815, $1,053 and $1,340 for the years ended December 31, 1996, 1997 and 1998, respectively. Future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 1998 are as follows: 1999............................................................... $1,297 2000............................................................... 768 2001............................................................... 435 2002............................................................... 132 2003............................................................... 23 ------ Total.......................................................... $2,655 ======
9. INCOME TAXES The significant components of income tax expense are:
Year Ended December 31, ---------------------- 1996 1997 1998 ------ ------ ------ Current tax expense: Federal......................................... $1,404 $2,724 $2,370 State........................................... 175 453 368 Foreign......................................... 41 60 104 ------ ------ ------ Total current tax expense......................... 1,620 3,237 2,842 Deferred tax benefit.............................. (500) (401) (471) ------ ------ ------ Total tax expense............................. $1,120 $2,836 $2,371 ====== ====== ======
15 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In addition, the Company recorded an income tax benefit from an extraordinary item totaling $266 and $234 during the years ended December 31, 1997 and 1998, respectively. Income tax payments amounted to approximately $1,142, $2,251 and $1,574 for the years ended December 31, 1996, 1997 and 1998, respectively. The Company's effective tax rate differs from the statutory rate for the following reasons:
Year Ended December 31, ---------------- 1996 1997 1998 ---- ---- ---- Provision at statutory Federal tax rate............... 34.0% 34.0% 34.0% Effective state income tax rate....................... 3.5 4.4 3.0 Nondeductible meals, entertainment and officers' life insurance expenses................................... 0.9 0.4 0.7 Mexican income taxes.................................. 1.5 0.9 1.9 Nondeductible goodwill................................ -- 1.5 5.3 Other, net............................................ 0.9 (0.3) (0.6) ---- ---- ---- 40.8% 40.9% 44.3% ==== ==== ====
Deferred income taxes consisted of the following at December 31:
1997 1998 ------ ------- Current deferred tax assets: Federal net operating loss carryforward............... $ 222 $ -- State net operating loss carryforward................. 57 -- Other................................................. 2,287 2,584 ------ ------- Total current deferred tax assets....................... 2,566 2,584 Current deferred tax liabilities........................ 436 338 ------ ------- Total current deferred tax assets, net.................. $2,130 $ 2,246 ====== ======= Long-term deferred tax assets: Accrued expenses...................................... $ 428 $ 440 Federal net operating loss carryforward............... 886 1,470 State net operating loss carryforward................. 106 159 Federal tax credit carryforward....................... 317 848 ------ ------- 1,737 2,917 Less--Valuation allowance............................. (110) (75) ------ ------- Total long-term deferred tax assets..................... 1,627 2,842 ------ ------- Long-term deferred tax liabilities: Property and equipment................................ 2,437 3,401 Intangibles........................................... 862 5,448 Other................................................. 190 1,034 ------ ------- Total long-term deferred tax liabilities................ 3,489 9,883 ------ ------- Total long-term deferred tax liabilities, net........... $1,862 $ 7,041 ====== ======= Deferred tax assets (liabilities), net.................. $ 268 $(4,795) ====== =======
At December 31, 1998, the Company had a Federal net operating loss carryforward of approximately $4.7 million which expires beginning in 2010. Internal Revenue Code Section 382 imposes certain limitations on the ability of a taxpayer to utilize its Federal net operating losses in any one year if there is a change in ownership 16 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of more than 50% of the Company. Management has considered the Section 382 limitation and believes that it is more likely than not that the entire Federal net operating loss carryforward will be utilized. For state tax purposes, California tax law limits loss carryforwards to a five-year period. A valuation allowance has been recorded relating to Kilovac for the portion of the California net operating loss carryforward which may not be realized due to the previously mentioned limitation. In addition, Kilovac has Federal general business and alternative minimum tax credit carryforwards subject to Internal Revenue Code Section 382 which expire beginning in 2016. Realization of tax benefits is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The amount of the deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. 10. CONTINGENCIES Litigation From time to time the Company is a party to certain lawsuits and administrative proceedings that arise in the conduct of its business. While the outcome of these lawsuits and proceedings cannot be predicted with certainty, management believes that the lawsuits and proceedings, either singularly or in the aggregate, would not have a material adverse effect on the financial condition or results of operations of the Company. Environmental Remediation The Company has been notified by the State of North Carolina Department of Environment, Health & Natural Resources ("NCDHNR") that its manufacturing facility in Fairview, North Carolina has sites containing hazardous wastes resulting from activities by a prior owner (the "Prior Owner"). Additionally, the Company has been identified as a potentially responsible party for remediation at two superfund sites which formerly were used by hazardous waste disposal companies employed by the Company. Several soil and groundwater contaminations have been noted at the Fairview facility, the most serious of which is TCE contamination in the groundwater. Remedial investigations have been on-going at the facility and the NCDHNR has placed the facility on the Inactive Hazardous Sites Inventory. Soil remediation was completed in January 1996 and the groundwater remediation system was formally set in operation on April 1, 1997. In the acquisition agreement of the predecessor company, the Company obtained indemnity from the selling shareholders for any environmental clean up costs as a result of existing conditions which would not be paid by the Prior Owner. The indemnity was limited to the extent of amounts owed to the selling shareholders through the subordinated note. On May 11, 1995, the Company reached a settlement with the Prior Owner which resulted in a cash deposit of $1.75 million to an escrow account and an obligation for the Prior Owner to pay to the escrow account after the groundwater remediation system has been operating at least at 90% capacity for three years, an amount equal to the lesser of 90% of the present value of the long term operating and maintenance costs of the groundwater remediation system or $1.25 million. The Company has reflected the present value of the receivable, discounted at 5% (approximately $1.16 million and $1.22 million at December 31, 1997 and 1998, respectively) and the cash as restricted assets as the funds are held in escrow to be used specifically for the Fairview facility environmental remediation and monitoring and will become unrestricted only when the NCDHNR determines that no further action is required. In October, 1995, the Company released the selling shareholders from their indemnity obligation. This action resulted in the recording of a separate environmental remediation liability and the recognition in 1995 operations of an expense of $951 of environmental related costs which are not covered under the settlement 17 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) with the Prior Owner. The environmental remediation liability is recorded at the present value, discounted at 5%, of the best estimate of the cash flows to remediate and monitor the remediation over the estimated thirty year remediation period, which was developed by a third party environmental consultant based on experience with similar remediation projects and methods and taking inflation into consideration. Total amounts estimated to be paid related to environmental liabilities are approximately $3.814 million calculated as follows at December 31, 1998: 1999............................................................. $ 135 2000............................................................. 135 2001............................................................. 135 2002............................................................. 135 2003............................................................. 135 Thereafter....................................................... 3,139 ------- 3,814 Discount to present value........................................ (1,461) ------- Liability at present value....................................... $ 2,353 =======
Assets recorded in relation to the above environmental liabilities are approximately $1.605 million and $1.56 million at December 31, 1997 and 1998, respectively. In connection with the Hartman Acquisition, the Company entered into an agreement (the "Lease") pursuant to which it leases from the former owner of Hartman a manufacturing facility in Mansfield, Ohio (the "Mansfield Property"), at which Hartman has conducted operations. The Mansfield Property may contain contamination at levels that will require further investigation and may require soil and/or groundwater remediation. As a lessee of the Mansfield Property, the Company may become subject to liability for remediation of such contamination at and/or from such property, which liability may be joint and several except under certain circumstances. The Lease of the Mansfield Property includes an indemnity from the former owner of Hartman to the Company for certain environmental liabilities in connection with the Mansfield Property, subject to a dollar limitation of $12.0 million (the "Indemnification Cap"). In addition, the former owner has placed $515 in escrow for potential environmental remediation costs at the Mansfield Property to be credited towards the Indemnification Cap as provided in the Lease. The Company believes that, while actual remediation costs may exceed the cash amount escrowed, such costs will not exceed the Indemnification Cap. Accordingly, no liability has been recorded in the accompanying consolidated financial statements for the potential environmental remediation. 11. EMPLOYEE BENEFITS The Company has a self-funded welfare benefit plan (the "Plan") for its employees. The Plan was formed in 1981 to provide hospitalization and medical benefits for substantially all full-time employees of the Company and their dependents. The Plan is funded principally by employer contributions in amounts equal to the benefits provided. Employee contributions vary depending upon the amount of coverage elected by the employee. Employer contributions amounted to $792, $1,252 and $2,437 for the years ended December 31, 1996, 1997 and 1998, respectively. Effective January 1, 1988, the Company implemented an investment retirement plan (the "Retirement Plan") pursuant to Section 401(k) of the Internal Revenue Code for all employees who qualify based on tenure with the Company. The Retirement Plan provides for employee and Company contributions subject to certain limitations. The cost of the Retirement Plan charged to operations was approximately $297, $412 and $348 during the years ended December 31, 1996, 1997 and 1998, respectively. 18 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 12. STOCK PLAN On September 18, 1997, the Parent adopted the 1997 Management Stock Plan (the "1997 Plan"). The 1997 Plan is administered by the Compensation Committee of the Board of Directors. All employees of the Company who are selected by the Compensation Committee are eligible to participate in the 1997 Plan. The 1997 Plan provides for the granting of non-qualified incentive stock options. The shares of common stock issuable under the 1997 Plan are common shares of the Parent and may be either authorized unissued shares, or treasury shares, or any combination thereof. A total of 53,163 shares of the Parent's common stock are subject to options under the 1997 Plan, subject to adjustment at the discretion of the Compensation Committee or the Board of Directors. The Company accounts for options granted under the 1997 Plan in accordance with the requirements of Accounting Principles Board Opinion No. 25 and related interpretations. The Company granted 2,658 shares under the 1997 Plan during 1998 (no grants were issued in 1997). All such shares granted expire on December 31, 2007, subject to earlier expiration in certain circumstances. Shares under option vest as follows: 33 1/3% of the options vested immediately, 33 1/3% vested on December 31, 1998, and the remaining 33 1/3% vest on December 31, 1999. All stock options were granted at an exercise price of $10.00 per share, which was the issuance price of the Parent's stock at the time of the Recapitalization (see Note 1) and the estimated fair value of the Parent's stock at the date of the grant. Accordingly, no compensation cost for such grants has been reflected in the Company's 1998 consolidated statement of operations. A summary of stock option activity under the 1997 Plan is as follows:
1998 ----- Granted during year................................................ 2,658 Exercised during year.............................................. (417) Forfeited during year.............................................. (76) ----- Outstanding at December 31......................................... 2,165 ===== Exercisable at December 31......................................... 1,302 =====
The exercise price of all options granted, exercised and forfeited during 1998, and of all of the options outstanding and exercisable at December 31, 1998 was $10.00 per share. The Parent's common stock is closely held by Code, Hennessy & Simmons III, LP, certain members of Company management and certain other investors. Based on information available to the Company, including trading activity in the Parent's common stock during 1998, the Company has determined that compensation cost, had it been determined based on the fair value at the grant date for options under the 1997 Plan, would have been immaterial. As such, management believes the pro forma effect on net income for the year ended December 31, 1998 is immaterial. 13. SIGNIFICANT CUSTOMERS Approximately 20% of the Company's net sales in 1998 were made, directly or indirectly, to the U.S. Department of Defense. 19 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 14. RELATED PARTY TRANSACTIONS Nonemployee shareholder groups (or their affiliates) of the Parent provide management services to the Company. In connection with the Recapitalization, the Company entered into an agreement with CHS Management III, L.P., ("CHS Management"), an affiliate of Code, Hennessy & Simmons, Inc., pursuant to which the Company will pay $500,000 per year to CHS Management for financial and management services provided by CHS Management. The term of this agreement is five years, subject to automatic renewal unless either CHS Management or the Company elects to terminate (subject to earlier termination in certain circumstances). The Company was charged $150, $283 and $529 for services provided by CHS Management or other nonemployee shareholder groups of the Parent for the years ended December 31, 1996, 1997 and 1998, respectively. Additionally, such groups were paid $130 in 1996 for fees related to the Hartman acquisition, $267 in 1997 for fees related to the Recapitalization, and $300 in 1998 for fees related to the Corcom Merger (see Note 1). Included in Other Accrued Liabilities at December 31, 1998 are payables owed to the Parent of approximately $458. Such amounts are due to the Parent primarily as a result of a tax sharing agreement between the Company and the Parent. 15. BUSINESS SEGMENTS The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, during the fourth quarter of 1998. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The adoption of SFAS No. 131 results in revised and additional disclosures but had no effect on the financial position or results of operations of the Company. The information for 1996 and 1997 has been restated from the prior year's presentation in order to conform to the 1998 presentation. The Company has five business units which have separate management teams and infrastructures that offer electronic products. These five business units have been aggregated into two reportable segments that are managed separately because each operating segment represents a strategic business platform that offers different products and serves different markets. The Company's two reportable operating segments are: (i) the High Performance Group ("HPG") and (ii) the Specialized Industrial Group ("SIG"). HPG includes the Communications Instruments Division, Kilovac and Hartman. Products manufactured by HPG include high performance signal level relays and power relays, high voltage and power switching relays, solenoids and other electronic products. HPG accounted for 74% of 1998 consolidated net sales. SIG includes Corcom and the Midtex Division. Products manufactured by SIG include RFI filters and general purpose relays. SIG accounted for 26% of 1998 consolidated net sales. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies (See Note 2). Intersegment sales, which are eliminated in consolidation, are recorded at standard cost. In evaluating financial performance, management focuses on operating income as a segment's measure of profit or loss. Operating income is before interest expense, interest income, cancellation fees, other income and expense, income taxes and extraordinary items. 20 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Financial information for the Company's operating segments and a reconciliation of reportable segment net sales, operating income, and assets to the Company's consolidated totals are as follows:
1996 1997 1998 ------- ------- -------- Net sales: High Performance Group.......................... $56,145 $77,483 $ 89,089 Specialized Industrial Group.................... 10,434 12,201 31,363 Intersegment elimination (1).................... (243) (248) (422) ------- ------- -------- Consolidated net sales............................ $66,336 $89,436 $120,030 ======= ======= ======== Operating income: High Performance Group.......................... $ 6,210 $12,384 $ 14,769 Specialized Industrial Group.................... 1,426 1,944 3,309 ------- ------- -------- Consolidated operating income..................... 7,636 14,328 18,078 ------- ------- -------- Interest expense and other financing costs, net... (5,055) (6,573) (12,552) Other income (expense), net....................... 201 (17) (171) Cancellation fees................................. -- (800) -- ------- ------- -------- Consolidated income before income taxes, minority interest and extraordinary items................. $ 2,782 $ 6,938 $ 5,355 ======= ======= ======== Depreciation and amortization expense: High Performance Group.......................... $ 3,230 $ 3,819 $ 4,365 Specialized Industrial Group.................... 69 100 1,839 ------- ------- -------- 3,299 3,919 6,204 Amortization of debt issuance costs (2)......... 252 401 724 ------- ------- -------- Consolidated depreciation and amortization expense.......................................... $ 3,551 $ 4,320 $ 6,928 ======= ======= ======== Purchases of property, plant and equipment: High Performance Group.......................... $ 2,274 $ 1,953 $ 2,034 Specialized Industrial Group.................... 175 193 761 ------- ------- -------- Consolidated capital expenditures................. $ 2,449 $ 2,146 $ 2,795 ======= ======= ======== Assets: High Performance Group.......................... $56,094 $71,403 $ 69,351 Specialized Industrial Group.................... 4,631 4,880 60,530 ------- ------- -------- Consolidated assets............................... $60,725 $76,283 $129,881 ======= ======= ========
- -------- (1)--represents net sales between HPG and SIG (2)--included on the consolidated statements of cash flows as depreciation and amortization and included in the consolidated statement of operations as interest expense. Management does not consider these costs in managing the operations of the reportable segments 21 COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded) Financial information for the Company's net sales by Geographic Area is as follows:
Net sales ------------------------ 1996 1997 1998 ------- ------- -------- United States.................................... $53,718 $74,703 $ 98,094 North America (Non US)........................... 1,748 3,226 4,853 United Kingdom................................... 4,272 3,554 7,020 Germany.......................................... 140 206 3,085 France........................................... 647 564 1,459 Japan............................................ 219 158 1,537 Other international.............................. 5,592 7,025 3,982 ------- ------- -------- Total........................................ $66,336 $89,436 $120,030 ======= ======= ========
Revenues are attributed to countries based on location of customer. Direct and indirect net sales to the department of defense were approximately 27% of HPG 1998 net sales and less than 1% of SIG 1998 net sales. 16. SUBSEQUENT EVENTS (UNAUDITED) On January 29, 1999, the Company formed a joint venture, Shanghai CII Electronics Co. Ltd. with Shanghai CI Electric Appliance Co. Ltd. Each party holds 50% of the shares of the new company. The new joint venture is a manufacturer and marketer of relay components. The Company's initial investment is expected to be approximately $100. On March 19, 1999, the Company purchased all of the outstanding equity securities of Products Unlimited Corporation ("Products"), a marketer and manufacturer of relays, transformers, and contactors for the HVAC industry. Pursuant to the Stock Purchase Agreement, the Company paid approximately $59.4 million. In addition, if Products achieves certain sales targets for the years ending December 31, 1999 and December 31, 2000, the Company will make additional payments to the former shareholders of Products not to exceed $4.0 million in the aggregate. The payment of the purchase price and related fees was financed by the issuance of $55.0 million of Tranche Term B loans, in accordance with an amendment to the Senior Credit Facility, the contribution of $5.0 million in additional paid in capital by the Parent, and a draw on the revolving loan portion of the Company's Senior Credit Facility. Products has manufacturing facilities in Sterling and Prophetstown, Illinois and Sabula and Guttenberg, Iowa and has approximately 1,000 employees. The acquisition will be accounted for under the purchase method of accounting. ******** 22 PART IV ITEM 14.--EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K (a)The following documents are filed as a part of this report: 1. Financial Statements. 2. None. 3. EXHIBITS. 2.1+ Agreement and Plan of Merger, dated as of March 10, 1998, by and among the Company, RF Acquisition Corp. and Corcom, Inc. is incorporated by reference to Report on Form 8-K (File Number 333-38209). 3.1 Articles of Incorporation of the Company is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 3.2 By-laws of the Company is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 3.3 Articles of Incorporation of Kilovac Corporation ("Kilovac") is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 3.4 By-laws of Kilovac Corporation is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 3.5 Articles of Incorporation of Kilovac International, Inc. ("Kilovac International") is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 3.6 By-laws of Kilovac International is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 3.7 Amended and Restated Articles of Incorporation of Corcom, Inc. 3.8 By-laws of Corcom, Inc. 4.1 Indenture dated as of September 18, 1997 by and among the Company, Kilovac, Kilovac International and Norwest Bank Minnesota, National Association is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 4.2 Purchase Agreement dated as of September 12, 1997 between the Company, Kilovac and Kilovac International and BancAmerica Securities, Inc. and Salomon Brothers, Inc is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 4.3 Registration Rights agreement dated as of September 18, 1997 between the Company, Kilovac and Kilovac International and BancAmerica Securities, Inc. and Salomon Brothers, Inc is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 4.4 Supplemental Indenture, dated as of June 18, 1998 between Corcom, Inc. and Norwest Bank Minnesota, National Association. 10.1 Employment Agreement dated as of May, 1993 between the Company and Ramzi A. Dabbagh is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.2 Employment Agreement dated as of May, 1993 between the Company and G. Daniel Taylor is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.3 Employment Agreement dated as of May, 1993 between the Company and Michael A. Steinbeck is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.4 Employment Agreement dated as of January 7, 1994 between the Company and David Henning is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.5 Management Agreement, dated as of September 18, 1997 among the Company, Parent and CHS Management III, L.P. is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.6 Tax Sharing Agreement dated as of September 18, 1997 between the Company, Parent, Kilovac International and Kilovac International FSC Ltd. is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.7+ Credit Agreement dated as of September 18, 1997 between the Company, Parent, various banks, Bank of America National Trust and Savings Association and BancAmerica Securities, Inc. is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.8 Pledge Agreements dated as of September 18, 1997 by Parent, the Company, Kilovac and Kilovac International in favor of Bank of America Trust and Savings Association is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.9 Subsidiary Guarantee dated as of September 18, 1997 by Kilovac and Kilovac International in favor of Bank of America National Trust and Savings Association is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.10 Security Agreement dated as of September 18, 1997 among Parent, the Company, Kilovac and Kilovac International in favor of Bank of America National Trust and Savings Association is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.11 Stock Subscription and Purchase Agreement dated as of September 20, 1995, by and among the Company, Kilovac and the stockholders and optionholders of Kilovac named therein is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.12+ Asset Purchase Agreement dated as of June 27, 1996 between the Company and Figgie International Inc. is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.13 Environmental Remediation and Escrow Agreement, dated as of July 2, 1996 is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.14 Lease Agreement dated as of July 2, 1996 by and between Figgie Properties, Inc. and Communications Instruments, Inc. dba Hartman Division of CII Technologies Inc. is in- corporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.15 Second Amendment to Stock Subscription and Purchase Agreement dated as of August 26, 1996, by and among the Company, Kilovac and certain selling stockholders is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.16+ Recapitalization Agreement dated as of August 6, 1997 and among Parent, certain investors and certain selling stockholders is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.17 Amendment to the Recapitalization Agreement dated as of September 18, 1997 by and among Parent, certain investors and certain selling stockholders is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.18 Indemnification and Escrow Agreement dated as of September 18, 1997 by and among Parent, certain investors, certain selling stockholders and American National Bank and Trust Company of Chicago is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.19 Stockholders Agreement dated September 18, 1997 by and among Parent and certain of its stockholders is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.20 Registration Agreement dated as of September 18, 1997 by and among Parent and certain of its stockholders is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.21 Form of Junior Subordinated Promissory Note of Parent is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.22 Employment Agreement dated as of October 11, 1995 between Kilovac and Dan McAllister is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.23 Employment Agreement dated as of October 11, 1995 between Kilovac and Pat McPherson is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.24 Employment Agreement dated as of October 11, 1997 between Kilovac and Rick Danchuk is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.25 Employment Agreement dated as of October 11, 1997 between Kilovac and Robert A. Helman is incorporated by reference to Registration Statement on Form S-4 (File number 333-38209). 10.26 Asset Purchase Agreement dated as of November 30, 1997 by and between the Company and Genicom Corporation is incorporated by reference to Report on Form 8-K (File Number 333-38209). 10.27+ Stock Purchase Agreement dated as of October 31, 1997 by and between the Company and Societe Financiere D'Investissements Dans L'Equipement et la Construction Electrique, S.A., the sole stockholder of IBEX Aerospace Technologies, Inc. 10.28+ Asset Purchase Agreement dated May 6, 1998, between Kilovac Corporation, Zerubavel Heifetz, Cesar Marestaing and Wilmar Electronics, Inc. 10.29+ Asset Purchase Agreement dated as of July 24, 1998, by and between the Company and Cornell-Dubilier Electronics, Inc. 10.30 Voting Agreement dated as of March 10, 1998, by and among RF Acquisition Corp., Werner E. Neuman and James A. Steinback. 10.31+ Credit Agreement dated as of June 19, 1998, among the Company, Parent, Bank of America National Trust and Savings Association and certain other lending institutions from time to time a party thereto. 10.32+ Pledge Agreement dated as of June 19, 1998, among Parent, the Company, Kilovac and Kilovac International in favor of Bank of America National Trust and Savings Association. 10.33+ Subsidiary Guarantee dated as of June 19, 1998 by Kilovac, Kilovac International and Corcom, Inc. in favor of Bank of America National Trust and Savings Association. 10.34+ Security Agreement dated as of June 19, 1998, among Parent, the Company, Kilovac, Kilovac International and Corcom, Inc. in favor of Bank of America National Trust and Savings Association. 12.1 Statement of Computation of Ratios. 21.1 Subsidiaries of the Company, Kilovac, Corcom, Inc. and Kilovac International 24.1 Powers of Attorney. 27 Financial Data Schedule. - ------- + The Company agrees to furnish supplementally to the Commission a copy of any omitted schedule to such agreement upon the request of the Commission in accordance with Item 601 of Regulation S-K. EX-3.7 2 AMEND & RESTATE ART. OF INC. OF CORCOM, INC Exhibit 3.7 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CORCOM, INC. ARTICLE ONE The name of the corporation is Corcom, Inc., and the corporation's file number is 3508-193-3. ARTICLE TWO The registered agent is National Registered Agents, Inc. The registered office is 208 South LaSalle Street, Suite 1855, Chicago, IL 60604. ARTICLE THREE The purpose for which the corporation is organized: To engage in any lawful act or activity for which corporations may be organized under the Illinois Business Corporation Act of 1983, as amended. ARTICLE FOUR The corporation shall have authority to issue 1,000 shares of Common Stock, par value $.01 per share of which 1,000 shares are issued and outstanding for an aggregate consideration of $1,000.00. - 1 - EX-3.8 3 BY-LAWS OF CORCOM Exhibit 3.8 BY-LAWS OF CORCOM, INC. ARTICLE I OFFICES The principal office of the corporation in the State of Illinois shall be located in Chicago, Illinois or without the State of Illinois, as the business of the corporation may require from time to time. The registered office of the corporation required by the Business Corporation Act to be maintained in the State of Illinois may be, but need not be, identical with the principal office in the State of Illinois, and the address of the registered office may be changed from time to time by the board of directors. ARTICLE II SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall be held the 31st day of December or at such date and at such time as the board of directors may designate for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. SECTION 2. SPECIAL MEETING. Special meetings of the shareholders, other than those regulated by statute may be called either by the president, a majority of the board of directors or by the holders of not less than twenty percent (20%) of all the outstanding shares of stock of the corporation entitled to vote, for the purpose or purposes stated in the call of the meeting. SECTION 3. PLACE OF MEETING. The board of directors, or a Waiver of Notice signed by all of the shareholders, may designate any place, either within or without the State of Illinois, as the place of meeting for any annual meeting or for any special meeting of the shareholders. If no designation is made, the place of meeting shall be the principal place of business of the corporation in the State of Illinois. 1 SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, date, and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days prior to the date of the meeting, or, in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets outside the ordinary course of business, not less than twenty (20) nor more than sixty (60) days prior to the date of the meeting, either personally, or by mail, by or at the direction of the president, or the secretary, or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the records of the corporation, with postage thereon prepaid. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. SECTION 5. INFORMAL ACTION BY SHAREHOLDERS. Any action required by the Illinois Business Corporation Act to be taken at any annual or special meeting of the shareholders of the corporation, or any other action which may be taken at a meeting of the shareholders, except as provided in Section 12.10 of the Illinois Business Corporation Act, may be taken without a meeting and without a vote, if a consent in writing, setting forth the action so taken, shall be signed (i) by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting or (ii) by all of the shareholders entitled to vote with respect to the subject matter thereof. If such consent is signed by less than all of the shareholders entitled to vote, then such consent shall become effective only if, at least five (5) days prior to the execution of the consent, written notice is delivered to all of the shareholders entitled to vote with respect to the subject matter thereof and, after the effective date of the consent, prompt notice of the taking of the corporate action shall be delivered in writing to those shareholders who have not consented in writing. In the event that the action which is consented to is such as would have required the filing of a certificate under any section of the Illinois Business Corporation Act if such action had been voted on by the shareholders at a meeting thereof, the certificate filed shall state, in lieu of any statement required by such section concerning any vote of shareholders, that written consent has been in accordance with the provisions of Section 7.10 of the Illinois Business Corporation Act and that written notice has been delivered as provided in such Section 7.10. SECTION 6. FIXING OF RECORD DATE. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors of the corporation may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty (60) days and, for a meeting of shareholders, not less than twenty (20) days, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty (20) days prior to the date of such meeting. If no record date is fixed for the determination of 2 shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. A determination of shareholders entitled to vote at any meeting of shareholders shall apply to any adjournment of the meeting. SECTION 7. VOTING LISTS. The officer or agent having charge of the transfer book for shares of the corporation shall make, within twenty (20) days after the record date for a meeting of shareholders or ten (10) days prior to the date for such meeting, whichever is earlier, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be subject to inspection by any shareholder, and to copying at the shareholder's expense, at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in this State, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholders. SECTION 8. QUORUM. The holders of a majority of the outstanding shares of the corporation, entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for consideration of such matter at any meeting of shareholders, but in no event shall a quorum consist of less than one-third of the outstanding shares entitled so to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on a matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Illinois Business Corporation Act, the Articles of Incorporation or these By-laws. Withdrawal of shareholders from any meeting shall not cause failure of a duly constituted quorum at that meeting. SECTION 9. PROXIES. Each shareholder may appoint a proxy to vote or otherwise act for him or her at any meeting of shareholders by signing an appointment form and delivering it to the person so appointed. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy will continue in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in the Illinois Business Corporation Act or these By-Laws. Revocation of a proxy may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy. SECTION 10. VOTING OF SHARES. Unless otherwise provided in the Articles of Incorporation or these By-Laws, each outstanding share, regardless of class, shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. 3 SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Corporation held by the corporation in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares entitled to vote at any given time. Shares registered in the name of another corporation, domestic or foreign, may be voted by any officer, agent, proxy or other legal representative authorized to vote such shares under the law of incorporation of such corporation. The corporation may treat the president or other person holding the position of chief executive officer of such other corporation as authorized to vote such shares, together with any other person indicated and any other holder of an office indicated by the corporate shareholder to the corporation as a person or an office authorized to vote such shares. Such persons and offices indicated shall be registered by the corporation on the transfer books for shares and included in any voting list prepared in accordance with Section 7 of this Article II. Shares registered in the name of a deceased person, a minor ward or a person under legal disability, may be voted by his or her administrator, executor or court appointed guardian, either in person or by proxy without a transfer of such shares into the name of such administrator, executor or court appointed guardian. Shares registered in the name of a trustee may be voted by him or her, either in person or by proxy. Shares registered in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Any number of shareholders may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote or otherwise represent their shares, for a period not to exceed ten (10) years, by entering into a written voting trust agreement specifying the terms and conditions of the voting trust, and by transferring their shares to such trustee or trustees for the purpose of the agreement. Any such trust agreement shall not become effective until a counterpart of the agreement is deposited with the corporation at its registered office. The counterpart of the voting trust agreement so deposited with the corporation shall be subject to the same right of examination by a shareholder of the corporation, in person or by agent or attorney, as are the books and records of the corporation, and shall be subject to examination by any holder of a beneficial interest in the voting trust, either in person or by agent or attorney, at any reasonable time for the proper purpose. SECTION 12. VOTING PROCEDURE. In all elections for directors, every shareholder shall have the right to vote, in person or in proxy, the number of shares owned by such shareholder for each director to be elected, however, there shall be no right to cumulate such votes. 4 The articles of incorporation may be amended to limit or eliminate cumulative voting rights in all or specified circumstances, or to limit or deny voting rights or to provide special voting rights as to any class or classes or series of shares of the corporation. SECTION 13. INSPECTORS. At any meeting of shareholders, the chairman of the meeting may, or upon the request of any shareholder, shall appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by the inspector or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. SECTION 14. VOTING BY BALLOT. Voting on any question or in any election may be by voice unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. ARTICLE III DIRECTORS SECTION 1. DIRECTORS. Except as otherwise provided by law or the Articles of Incorporation or these By-laws, management of the corporation and its business and affairs shall be vested in its board of directors. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall be two (2). The number of directors may be increased or decreased from time to time by vote of the shareholders or board of directors. A decrease in the number of directors does not shorten an incumbent director's term. The directors need not be residents of Illinois or shareholders of the corporation. Each director shall hold office until the next annual meeting of shareholders or until a successor shall have been elected. The members of the board of directors shall be elected at the annual meeting of shareholders as provided in Article II of these Bylaws, or as otherwise prescribed by statute. 5 SECTION 3. ANNUAL MEETINGS. An annual meeting of the board of directors shall be held without other notice than this Bylaw, immediately after and at the same place as the annual meeting of shareholders. SECTION 4. REGULAR MEETINGS. The board of directors may provide, by resolution, the time and place, either within or without the State of Illinois, for the holding of additional regular meetings without other notice than such resolution. SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the president, a majority of the board of directors or by the holders of not less than twenty percent (20%) of all the outstanding shares of stock of the corporation. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or without the State of Illinois, as the place for holding any special meeting of the board of directors called by them. SECTION 6. NOTICE. Notice of any special meeting shall be given at least ten (10) days previous thereto by written notice if delivered by mail with postage thereon prepaid and five (5) days if notice is delivery personally or by telecopier, telegram or overnight courier, to each director at his or her business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail and if delivered by any other means such notice shall be deemed to be received when delivered. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Except as provided by the Illinois Business Corporation Act, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice at such meeting. At any meeting at which all of the directors shall be present, although held without notice, any business may be transacted which might have been transacted if the meeting had been duly called. SECTION 7. QUORUM. A majority of the number of directors specified in Section 2 of this Article III shall constitute a quorum for transaction of business at any meeting of the board of directors, provided that, if less than a majority of such number of directors is present at said meeting, a majority of the directors present may adjourn the meeting at any time without further notice. The members of the board of directors or of any committee of the board of directors may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting by means of such communication equipment shall constitute attendance and presence in person at the meeting of the person or persons so participating. SECTION 8. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless 6 the act of a greater number is required by the Illinois Business Corporation Act, the Articles of Incorporation, or these By-laws. SECTION 9. REMOVAL OF DIRECTORS. One or more of the directors may be removed, with or without cause, at a meeting of shareholders by the affirmative vote of the holders of a majority of the outstanding shares then entitled to vote at an election of directors, except as follows: (a) No director shall be removed at a meeting of shareholders unless the notice of such meeting shall state that a purpose of the meeting is to vote upon the removal of one or more directors named in the notice. Only the named director or directors may be removed at such meeting. (b) If a director is elected by a class or series of shares, that director may be removed only by the shareholders of that class or series. SECTION 10. VACANCIES. Any vacancy occurring on the board of directors and any directorship to be filled by reason of an increase in the number of directors, may be filled by election at an annual or special meeting of shareholders. A majority of the board of directors may fill any vacancy prior to such annual or special meeting of shareholders. SECTION 11. INFORMAL ACTION BY DIRECTORS. Unless specifically prohibited by the Articles of Incorporation or these By-laws, any action required by the Illinois Business Corporation Act to be taken at a meeting of the board of directors or any other action which may be taken at a meeting of the board of directors or a committee thereof may be taken without a meeting if a consent, in writing, setting forth the action so taken, shall be signed by all the directors entitled to vote with respect to the subject matter thereof, or by all the members of such committee, as the case may be. Any such consent signed by all the directors or all the members of a committee shall have the same effect as a unanimous vote, and may be stated as such in any document filed with the Secretary of State. SECTION 12. COMPENSATION. The board of directors, by the affirmative vote of a majority of directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise, notwithstanding any director conflict of interest. By resolution of the board of directors, the directors may be paid their expenses, if any, of attendance at each meeting. No such payment previously mentioned in this section shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. SECTION 13. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless the director's dissent shall be entered in the minutes of the meeting or unless the director shall file written dissent to such action 7 with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 14. RESIGNATION. Any director may resign at any time by giving notice to the board of directors, its chairman, or to the president or secretary of the corporation provided that the party to whom such notice is given is other than the individual director giving the notice. A resignation is effective when the notice is given unless the notice specifies a future date. The pending vacancy may be filled before the effective date, but the successor shall not take office until the effective date. ARTICLE IV OFFICERS SECTION 1. NUMBER. The officers of the corporation shall be a president, a secretary, and such other officers as may be elected or appointed by the board of directors. Any two or more offices may be held by the same person. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected annually by the board of directors at a meeting held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Vacancies may be filled or new officers elected at any meeting of the board of directors. Each officer shall hold office until a successor shall have been duly elected and shall have qualified or until his or her earlier death or resignation or until his or her removal in the manner hereinafter provided. Election of an officer shall not of itself create contract rights. SECTION 3. REMOVAL. Any officer or agent elected or appointed by the board of directors may be removed by the board of directors whenever in its judgment the best interest of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term. SECTION 5. PRESIDENT. The president shall be the chief executive officer of the corporation. Subject to the direction and control of the board of directors, the president shall be in control of the general and active management and supervision over the administration and operation of the business of the corporation and supervision of its policies and affairs and its several 8 officers, employees and agents. He or she shall see that the resolutions and directions of the board of directors are carried into effect except in those instances in which that responsibility is specifically assigned to some other person by the board of directors; and, in general, he or she shall discharge all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. He or she shall preside at all meetings of the shareholders and of the board of directors. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors or these By-laws, the president may execute, for the corporation certificates for its shares, the issue of which shall have been authorized by the board of directors, and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized to be executed, and he or she may accomplish such execution either under or without the seal of the corporation and either individually or with the secretary, any assistant secretary, or any other officer authorized by the board of directors, according to the requirements of the form of the instrument. The president may vote all securities which the corporation is entitled to vote except as and to the extent such authority shall be vested in a different officer or agent of the corporation by the board of directors. The president shall perform such other duties as from time to time may be assigned by the board of directors or these By-laws. SECTION 6. THE VICE PRESIDENTS. In the event one or more vice presidents are elected, each of the vice presidents shall assist the president in the discharge of his or her duties as the president may direct and shall perform such other duties as from time to time may be assigned to him or her by the president or by the board of directors. In the absences of the president or in the event of his or her inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated by the board of directors, or by the president if the board of directors has not made such a designation, or in the absence of any designation, then in the order of seniority of tenure as vice president) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president and shall not act contrary to the policies set by the board of directors or the president. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors or these By-laws, the vice president (or each of them if there are more than one) may execute for the corporation certificates for its shares, the issue of which shall have been authorized by the board of directors, and any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized to be executed, and he or she may accomplish such execution either under or without the seal of the corporation and either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. SECTION 7. THE TREASURER. In the event a treasurer is elected, the treasurer shall be the principal accounting and financial officer of the corporation. The treasurer shall: (a) have charge of and be responsible for the maintenance of adequate books of account for the corporation; (b) have charge and custody of all funds and securities of the corporation, and be responsible therefor and for the receipt and disbursement thereof; and (c) perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned by the 9 president or by the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of the treasurer's duties in such sum and with such surety or sureties as the board of directors may determine. The cost of such bond shall be borne by the corporation. SECTION 8. THE SECRETARY. The secretary shall: (a) record the minutes of the meetings of the shareholders and of the board of directors, if invited, in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-laws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation; (d) keep a register of the post-office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) sign with the president, or vice president, or any other officer authorized by the board of directors, certificates for shares of the corporation, the issue of which shall have been authorized by the board of directors, and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized to be executed, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors or these By-laws; (f) have general charge of the stock transfer books of the corporation; (g) have authority to certify the by-laws, resolutions of the shareholders and board of directors and committees thereof, and other documents of the corporation as true and correct copies thereof, and (h) perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him or her by the president or by the board of directors. SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant treasurers and assistant secretaries shall perform such duties as shall be assigned to them by the treasurer or the secretary, respectively, or by the president or the board of directors. The assistant secretaries may sign with the president, or a vice president, or any other officer thereunto authorized by the board of directors, certificates for shares of the corporation, the issue of which shall have been authorized by the board of directors, and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized to be executed, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors or these by-laws. The assistant treasurers shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. SECTION 10. COMPENSATION. The compensation of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V COMMITTEES SECTION 1. COMMITTEES. A majority of the directors may create one or more committees and appoint members of the board to serve on the committee or committees. Each 10 committee shall have two or more members, who serve at the pleasure of the board. Unless the appointment by the board of directors requires a greater number, a majority of any committee shall constitute a quorum and a majority of a quorum is necessary for committee action. A committee may act by unanimous consent in writing without a meeting and the committee by majority vote of its members shall determine the time and place of meetings and the notice required thereof. SECTION 2. REVIEW OF THE COMMITTEES. Any actions of the committees shall be reported to the board of directors at the next meeting of the board of directors succeeding such action, and shall be subject to rejection, revision or alteration by the board of directors. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the board of directors may select. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. The issued shares of a corporation shall be represented by certificates or shall be uncertified shares. Certificates representing shares of the corporation shall be signed by the chairman of the board, the president or a vice president or by such officer as shall be designated by resolution of the board of directors, and by the secretary or an assistant secretary, or such other officer as shall be designated by a resolution 11 of the board of directors, and may be sealed with the seal or a facsimile of the seal of the corporation, if the corporation uses such a seal. If both of the signatures of the officers be by facsimile, the certificate shall be manually signed by or on behalf of a duly authorized transfer agent or clerk. Each certificate representing shares shall be consecutively numbered or otherwise identified, and shall also state the name of the person to whom issued, the number and class of shares (with designation of series, if any), the date of issue, and that the corporation is organized under the Illinois Business Corporation Act. If the corporation is authorized and does issue shares of more than one class, the certificate shall also contain such information or statement as may be required by law. The name and address of each shareholder, the number and class of shares held and the date on which the certificates for the shares were issued shall be entered on the books of the corporation. The person in whose name shares stand on the books of the corporation shall be deemed the owner thereof for all purposes as regard the corporation. SECTION 2. LOST CERTIFICATES. If a certificate representing shares has allegedly been lost or destroyed, the board of directors may, in its discretion, except as may be required by law, direct that a new certificate be issued upon receipt by the corporation from the shareholder of such indemnification and other reasonable requirements as it may impose. SECTION 3. TRANSFER OF SHARES. Transfers of shares of the corporation shall be made only on the books of the corporation by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, and on surrender for the cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation. SECTION 4. RESTRICTIONS ON TRANSFER OF SHARES. Except as otherwise provided by written agreement between a shareholder and the corporation, and adopted by corporate resolution, or other provision of these By-laws, all shares of stock issued by the corporation from time to time, whether now or hereafter authorized, shall be governed by the following restrictions: No shareholder or any executor, administrator or personal representative of the shareholder, or any other person or entity may sell, give, pledge, assign, transfer or in any manner dispose of or encumber any shares of the corporation, voluntarily or by operation of law, without first offering to sell such shares to the corporation on the same terms and conditions and for a price not to exceed that offered by a qualified bona fide prospective purchaser of said stock. In the event there is no bona fide prospective purchaser, then the offering shareholder shall first offer said shares to the corporation at the book value of said shares. The book value per share (the "book value per share") shall be determined by the then acting Certified Public Accountant of the corporation from the last previously filed Federal income tax return, adjusted to the last day of the month in which the sale shall occur. In determining book value per share, all machinery and equipment, furniture and fixtures and all other tangible assets shall be valued at the fair cash market value thereof as fixed by an appraiser selected by said Certified Public Accountant. The book value per share so determined by said Certified Public Accountant shall be binding and conclusive upon all parties. Such offer 12 shall be made in writing by certified mail, return receipt requested, to the corporation and the other shareholders, and the corporation shall have thirty (30) days from and after the receipt of such offer within which to purchase such shares for cash ("corporation's option period"). If the corporation shall fail to purchase said shares within the corporation's option period, said shareholder or the shareholder's representative shall then offer such shares to the remaining shareholders pro rata, who shall have thirty (30) days from the end of the corporation's option period to purchase such shares on the same terms and conditions as did the corporation ("shareholder's option period"). If any such shares are not so purchased by the corporation or other shareholders, they may be sold, assigned, pledged, given or otherwise disposed of or encumbered as set forth in the original offer; PROVIDED HOWEVER, that should a shareholder or the shareholder's representative fail to sell said shares within a period of sixty (60) days after said initial offer as hereinabove set forth in this SECTION 4, then the restrictions and requirements contained in the provisions of this SECTION 4 shall again apply to the shareholder's shares of stock, and such shareholder, the shareholder's representatives or any other person or entity, may not sell, pledge, give, assign, transfer or in any manner dispose of or encumber shares of stock of this corporation without full compliance with such restrictions and requirements. Certificates evidencing shares of this corporation shall have endorsed thereon a suitable legend referring to the foregoing restrictions on the transfer of shares, as follows: NOTICE IS HEREBY GIVEN that the sale, assignment and transfer of the shares of stock represented by this certificate are subject to the restrictions provided in ARTICLE VII of the By-laws of the corporation and the amendments thereto. ARTICLE VIII FISCAL YEAR The fiscal year of the corporation shall be determined by resolution of the board of directors. ARTICLE IX DISTRIBUTIONS The board of directors may, from time to time authorize, and the corporation may pay, distributions to its shareholders in the manner and subject to any restrictions provided by the Illinois Business Corporation Act and its Articles of Incorporation. 13 ARTICLE X SEAL The board of directors may provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Illinois." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced, provided that the affixing of the corporate seal to an instrument shall not give the instrument additional force or effect, or change the construction thereof, and the use of the corporate seal is not mandatory. ARTICLE XI WAIVER OF NOTICE Whenever any notice whatever is required to be given under the provisions of these By-laws or under the provisions of the Illinois Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein for the meeting or other action which is subject of the notice, shall be deemed equivalent to the giving of such notice. ARTICLE XII INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE SECTION 1. AUTHORIZATION FOR INDEMNIFICATION. (a) The corporation shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interest of the corporation, or, with 14 respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (b) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. (c) To the extent that a director, officer, employee or agent of the corporation has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in paragraphs (a) and (b), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by and such person in connection therewith. SECTION 2. AUTHORIZATION BY DIRECTORS, LEGAL COUNSEL OR SHAREHOLDERS. Any indemnification under Section 1, paragraphs (a) and (b) of this Article XII (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 1 of this Article XII. Such determination shall be made: (a) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding; or (b) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the shareholders. SECTION 3. REPAYMENT. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding, as authorized by the board of directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation as hereinabove provide. SECTION 4. NOT EXCLUSIVE OF OTHER RIGHTS. The indemnification provided by this Article XII (a) shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any other By-law, agreement, vote of shareholders 15 or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and (b) shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 5. INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation has the power to indemnify such person against such liability under the provisions of this Article XII and whether or not such person is entitled to indemnification under this Article XII. SECTION 6. SHAREHOLDER NOTIFICATION. If the corporation has paid indemnity or has advanced expenses to a director, officer, employee or agent, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders meeting. ARTICLE XIII REPAYMENT OF DISALLOWED REIMBURSEMENTS OR EXCESS COMPENSATION Any payments made to a director, officer or employee of the corporation, including but not limited to, salary, commission, bonus, interest, rent, travel, or entertainment expense incurred by him or her, which shall be disallowed in whole or in part as a deductible expense by the Internal Revenue Service, shall be reimbursed by such officer to the corporation to the full extent of such disallowance. It shall be the duty of the board of directors to enforce payment of each such amount disallowed. In lieu of payment by such person, subject to the determination of the board of directors, proportionate amounts may be withheld from his or her future compensation payments until the amount owed to the corporation has been recovered. 16 ARTICLE XIV AMENDMENTS The power to make, alter, amend, or repeal the By-laws of this corporation shall be reserved to either the holders of the voting common stock of the corporation, who may do so by a majority vote of all the voting shares issued and outstanding, or by the board of directors, who may do so by a majority vote. However, no Bylaw adopted by the shareholders may be altered, amended or repealed by the board of directors. ARTICLE XV GENDER AND NUMBER The use of the masculine, feminine or neuter gender and the use of the singular and plural shall not be given the effect of any exclusion or limitation herein; and the use of the word "person" or "party" shall mean and include any individual, trust, corporation, partnership or other entity. CONCLUSION OF BY-LAWS 17 EX-4.4 4 SUPPLEMENTAL INDENTURE Exhibit 4.4 SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of June 19, 1998 between Corcom, Inc. (the "New Subsidiary Guarantor"), a subsidiary of Communications Instruments, Inc., a North Carolina corporation (the "Company"), and Norwest Bank Minnesota, National Association, as trustee under the indenture referred to below (the "Trustee"). Capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Indenture (as defined below). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of September 18, 1997, providing for the issuance of an aggregate principal amount of $95,000,000 of 10% Senior Subordinated Notes due 2004 (the "Senior Subordinated Notes"); WHEREAS, Sections 4.18 and 11.03 of the Indenture provide that under certain circumstances the Company is required to cause certain of its Subsidiaries to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiaries shall unconditionally guarantee all of the Company's Obligations under the Senior Subordinated Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Senior Subordinated Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO SUBSIDIARY GUARANTEE. The New Subsidiary Guarantor hereby agrees, jointly and severally with all other Subsidiary Guarantors, to guarantee the Company's Obligations under the Senior Subordinated Notes and the Indenture on the terms and subject to the conditions set forth in Article 11 of the Indenture and to be bound by all other applicable provisions of the Indenture. 3. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, shareholder or agent of any Subsidiary Guarantor, as such, shall have any liability for any obligations of the Company or any Subsidiary Guarantor under the Senior Subordinated Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Subordinated Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Senior Subordinated Notes. 4. NEW YORK LAW TO GOVERN. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture. 5. COUNTERPARTS The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 6. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 7. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the correctness of the recitals of fact contained herein, all of which recitals are made solely by the New Subsidiary Guarantor. * * * IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written. Dated: June 19, 1998 CORCOM, INC. By: /s/ David Henning ---------------------------- Name: David Henning --------------------- Title: Vice President & Secretary -------------------- Dated: June 19, 1998 NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By: /s/ Jane Y. Schweiger ---------------------------- Name: Jane Y. Schweiger --------------------- Title: Corporate Trust Officer -------------------- EX-10.27 5 STOCK PURCHASE AGREEMENT DATED 10/31/97 Exhibit 10.27 STOCK PURCHASE AGREEMENT BETWEEN COMMUNICATIONS INSTRUMENTS, INC. AND SOCIETE FINANCIERE D'INVESTISSEMENTS DANS L'EQUIPEMENT ET LA CONSTRUCTION ELECTRIQUE, S.A. DATED OCTOBER 31, 1997 TABLE OF CONTENTS Page # ARTICLE 1 DEFINITIONS.........................................................1 ARTICLE 2 PURCHASE AND SALE OF STOCK..........................................3 2.1. Purchase and Sale of Stock.................................3 2.2. Purchase Price and Repayment of Indebtedness...............4 2.3. Purchase Price Adjustments.................................4 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER...................6 3.1. Ownership of Stock and Authority Relative to Agreement.....6 3.2. Existence and Good Standing................................6 3.3. Capital Stock..............................................6 3.4. Subsidiaries and Investments...............................7 3.5. Non-Contravention..........................................7 3.6. Financial Statements.......................................7 3.7. No Changes.................................................8 3.8. Books and Records..........................................8 3.9. Title to Properties; Encumbrances..........................8 3.10. Real Property..............................................9 3.11. Leases.....................................................9 3.12. Material Contracts.........................................9 3.13. Restrictive Documents.....................................10 3.14. Litigation................................................10 3.15. Taxes.....................................................11 3.16. Intellectual Properties...................................11 3.17. Compliance with Laws......................................13 3.18. Accounts Receivable.......................................13 3.19. Employment Relations......................................14 3.20. Employee Benefit Plans....................................14 3.21. Environmental Laws and Regulations........................17 3.22. Interests in Clients, Suppliers, Etc......................18 3.23. Insurance.................................................18 3.24. Licenses and Permits......................................18 3.25. Bank Accounts, Powers of Attorney and Compensation of Employees..............................................19 i 3.26. Disclosure................................................19 3.27. Broker's or Finder's Fees.................................19 3.28. Inventories...............................................19 3.29. Consents and Approvals....................................19 3.30. Payments..................................................19 3.31. Renegotiation.............................................20 3.32. Returns, Warranty Claims, and Purchase Commitments........20 3.33. Customers and Suppliers...................................20 3.34. Products Liability........................................20 3.35. Transactions with Certain Persons.........................20 3.36. No Implied Representation.................................20 ARTICLE 4 REPRESENTATIONS OF CII.............................................21 4.1. Organization and Valid Existence of CII...................21 4.2. Consents and Approvals....................................21 4.3. Brokers or Finders Fee....................................21 4.4. Litigation................................................21 4.5. Securities Act............................................21 ARTICLE 5 CLOSING DELIVERIES.................................................22 5.1. Deliveries by the Stockholder.............................22 5.2. Deliveries by CII.........................................23 ARTICLE 6 POST-CLOSING COVENANTS.............................................23 6.1. USRPHC Report to Internal Revenue Service.................23 6.2. Preservation of Books and Records.........................23 6.3. Accounts Receivable Guarantee.............................24 6.4. Products Liability Policy.................................24 6.5. Satisfaction of Ibex Notes................................24 ARTICLE 7 INDEMNIFICATION AND SET-OFF........................................25 7.1. Survival of Representations and Warranties................25 7.2. Indemnification...........................................25 7.3. Indemnification Claims Procedures.........................26 7.4. Indemnity Basket..........................................27 7.5. Limitations on Indemnification Obligation.................28 ii 7.6. Effect of Tax Benefits and Insurance......................28 7.7. Sole Remedy...............................................28 7.8. Deferred Amount...........................................28 7.9. Subrogation...............................................30 7.10. Treatment of Indemnity Payments...........................30 ARTICLE 8 MISCELLANEOUS......................................................30 8.1. Expenses..................................................30 8.2. Governing Law; Consent to Jurisdiction....................30 8.3. Captions..................................................30 8.4. Publicity and Confidentiality.............................30 8.5. Notices...................................................31 8.6. Counterparts..............................................31 8.7. Amendments................................................31 8.8. Savings Clause............................................32 8.9. Entire Agreement..........................................32 8.10. Delays....................................................32 8.11. No Third Party Beneficiaries..............................32 8.12. No Partnership............................................32 8.13. No Assignment.............................................32 8.14. Attorneys' Fees...........................................32 8.15. Exhibits and Schedules....................................32 LIST OF EXHIBITS LIST OF SCHEDULES iii LIST OF EXHIBITS Exhibit A Form of CII Note Exhibit B Balance Sheet dated April 30, 1997; Interim Financial Statements dated September 30, 1997 Exhibit C Form of USRPHC Affidavit and Notice of Non-U.S. Real Property Holding Corporation Status Exhibit D Amended 690CA Know How Transfer Agreement Exhibit E Amended IC121 Know How Transfer Agreement Exhibit F Form of Distribution Agreement Exhibit G Description of Products Liability Policy LIST OF SCHEDULES Schedule 3.1 Ownership of Stock Schedule 3.3 Capital Stock Schedule 3.5 Non-Contravention Schedule 3.7 No Changes Schedule 3.9 Title to Properties; Encumbrances Schedule 3.10 Real Property Schedule 3.11 Leases Schedule 3.12 Material Contracts Schedule 3.13 Restrictive Documents Schedule 3.14 Litigation Schedule 3.15 Taxes Schedule 3.16 Intellectual Property Schedule 3.19 Employment Relations Schedule 3.20 Employee Benefit Plans Schedule 3.21 Environmental Matters Schedule 3.23 Insurance Policies Schedule 3.25 Bank Accounts, Powers of Attorney and Compensation of Employees Schedule 3.33 Customers and Suppliers Schedule 4.1 Organization and Valid Existence of CII Schedule 6.3 Uncollectible Accounts Receivable STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT ("this Agreement") dated as of October 31, 1997, is made by and between COMMUNICATIONS INSTRUMENTS, INC., a North Carolina corporation ("CII"), and SOCIETE FINANCIERE D'INVESTISSEMENTS DANS L'EQUIPEMENT ET LA CONSTRUCTION ELECTRIQUE, S.A., a French company ("SOFIECE"or the "Stockholder"), the sole stockholder of IBEX AEROSPACE TECHNOLOGIES, INC., a Delaware corporation (the "Company"). ARTICLE 1 DEFINITIONS The terms defined in this Article shall have the following respective meanings for all purposes of this Agreement: 1.1. "Affiliate" means, with respect to any Person, any immediate family member sharing the same home as a Person and any Person controlling, controlled by or under common control with such Person. 1.2. "Business" means the business conducted as of the date of this Agreement or as of the Closing Date, as the context permits or implies, by the Company, including, without limitation, manufacturing and marketing of aeronautical equipment and components thereof. 1.3. "Closing" means the consummation and effectuation of the transactions contemplated herein pursuant to the terms and conditions of this Agreement, which shall be held on October 31, 1997. 1.4. "Closing Date" means the date on which the Closing actually occurs. 1.5. "Copyrights" means United States and foreign copyrights, whether registered or unregistered, and pending applications to register the same. 1.6. "GAAP" means generally accepted accounting principles as in effect in the United States on the date of the financial statements to which GAAP is applied. 1.7. "Intellectual Property" means all material intellectual property and property rights, including, without limitation, all Patent Rights, Copyrights, Trademarks, Licenses, Trade Names, Trade Secrets, Software Contracts and all other forms of proprietary information. 1.8. "Licenses" means all licenses to which the Company is a party granting rights to use any Intellectual Property. A "Licensed Product" means any product or Intellectual Property which is the subject of a License. 1.9. "Net Asset Value" means the difference between the total assets of the Company (excluding deferred taxes) and the total liabilities of the Company (excluding notes payable) as of the Closing Date. 1.10. "Net Operating Loss" means the sum of the net operating loss of the Company generated in the current fiscal year plus the sum of any net operating loss carryforwards of the Company for prior fiscal years pursuant to the Code (as defined in Section 3.15) as of the Closing Date and as calculated in accordance with the procedures set forth in Section 2.3 of this Agreement. 1.11. "Patent Rights" means all United States and foreign patents, patent applications, continuations, continuations in part, divisions and reissues. 1.12. "Permitted Liens" shall have the meaning set forth in Section 3.9. 1.13. "Person" means an individual, partnership, corporation, trust, unincorporated organization, association or joint venture or a government agency, political subdivision or instrumentality thereof, as applicable. 1.14. "Pre-Closing Periods" means all Tax periods ending on or before the Closing Date and, with respect to any Tax period that includes but does not end on the Closing Date, the portion of such period that ends on and includes the Closing Date. 1.15. "Purchase Price" has the meaning set forth in Section 2.2. 1.16. "Related Party" means the Stockholder, each director or officer of the Stockholder and any corporation, partnership, joint venture or other entity owned or controlled by the Stockholder. 1.17. "Returns" means all Tax returns, reports, estimates and information returns required to be filed prior to the Closing by the Company. 1.18. "Shareholders' Agreement" means that Agreement among Shareholders of Ibex Aerospace Technologies, Inc. dated as of September 14, 1992, as amended and supplemented, among Ibex Aerospace Technologies, Inc., a Delaware corporation, Billybob Aerospace, Inc. (formerly know as Ibex Aerospace Technologies, Inc.), a Florida corporation, SOFIECE, Daniel J. Babcock, David Markle, Dennis Ridgeway and Kenneth S. Steele. 1.19. "Shares" means one thousand (1000) shares of the Stock, representing as of the Closing Date one hundred percent (100%) of the issued and outstanding Stock. 2 1.20. "Software" means material computer program code in whatever language or format, including, but not limited to, object code and source code and related technical or user documentation. 1.21. "Software Contracts" means all contracts and agreements to which the Company is a party respecting the ownership, license, acquisition, design, development, distribution, marketing, use, or maintenance of Software. 1.22. "Stock" means the Company's common stock, $1.00 par value. 1.23. "Tax" or "Taxes" means any federal, state, local, foreign or other income, gross receipts, profits, franchise, license, transfer, sales, use, ad valorem, customs, payroll, withholdings, employment, occupation, property (real or personal), excise or other taxes, fees, duties, assessments, and withholdings (including interest, penalties or additions to such items). 1.24. "Technical Documentation" means all technical and descriptive materials relating to the acquisition, design, development, use or maintenance of the Intellectual Property. 1.25. "Trademarks" means any trademark, service mark or trade dress at common law, under the Lanham Act or under the corresponding laws of any foreign country, whether registered or not, which is used to identify the source and quality of goods or services or to distinguish them from those of others, and all registrations and applications for registration, including intent-to-use registrations and applications for registration. 1.26. "Trade Names" means all names used to identify a particular company, business, subsidiary, Affiliate or division thereof. 1.27. "Trade Secrets" means confidential and proprietary ideas, trade secrets, know-how, concepts, methods, processes, formulae, reports, data, customer lists, mailing lists, business plans, or other proprietary information, including, without limitation, any formulae, pattern, device, or compilation of information which is used in the Business and which derives independent commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use. ARTICLE 2 PURCHASE AND SALE OF STOCK 2.1. Purchase and Sale of Stock. Subject to the terms and conditions set forth in this Agreement, at the Closing, the Stockholder shall sell, assign, transfer and convey to CII, and CII shall purchase and accept from the Stockholder, all of the Stockholder's right, title and interest in and to the Shares in consideration of the Purchase Price. 3 2.2. Purchase Price and Repayment of Indebtedness. (a) In full consideration for the purchase by CII of the Shares, CII shall pay to the Stockholder an aggregate of One Million Seven Hundred Seventy Two Thousand and 00/100 Dollars ($1,772,000), as may be adjusted pursuant to Section 2.3 (the "Purchase Price"), payable as follows: (i) Nine Hundred Twenty Two Thousand Dollars ($922,000) to the Stockholder by wire transfer of immediately available funds on the Closing Date (the "Cash Purchase Price"); and (ii) Eight Hundred Fifty Thousand Dollars ($850,000) (the "Deferred Amount") to be payable on the second anniversary of the Closing Date. The Deferred Amount shall be evidenced by a non-interest bearing promissory note of CII in a principal amount equal to the Deferred Amount, payable to the Stockholder, and in the form attached as Exhibit A hereto (the "CII Note" or the "Holdback Note") which CII Note shall be payable in accordance with its terms. Payment under the CII Note shall be supported by a standby letter of credit in favor of First Union National Bank and for the account of CII issued by Bank of America (the "LC Bank") in a stated amount equal to the Deferred Amount (the "Letter of Credit"). All fees and expenses of the LC Bank and the Escrow Agent (as hereinafter defined) shall be apportioned equally between the parties hereto, and each party shall pay when due its applicable share thereof. (b) At the Closing, CII shall further pay to SOFIECE by wire transfer of immediately available funds the amount of Three Hundred Seventy Thousand Dollars ($370,000.00), representing repayment in full of all outstanding indebtedness owed by the Company to the Stockholder under the line of credit established under the Shareholders' Agreement (the "Debt Repayment"), including all amounts due under (i) the loan agreement dated February 7, 1996 evidencing a loan in the amount of $150,000 by the Stockholder to the Company (and the related promissory note(s)), (ii) the loan agreement dated October 27, 1995 evidencing a loan in the amount of $50,000 by the Stockholder to the Company (and the related promissory note(s)), (iii) the loan agreement dated May 19, 1995 evidencing a loan in the amount of $50,000 by the Stockholder to the Company (and the related promissory note(s)), and (iv) the loan agreement dated February 25, 1995, evidencing a loan in the amount of $120,000 by the Stockholder to the Company (and the related promissory note(s)). The promissory notes referred to in this subsection 2.2(b) shall be referred to hereinafter as the "Ibex Notes." 2.3. Purchase Price Adjustments. (a) Adjustment Procedures. Not later than 60 days after the Closing Date, CII will prepare and deliver to the Stockholder (i) an unaudited balance sheet of the Company as of the Closing Date (the "Closing Balance Sheet") together with a related computation of the Net Asset Value based on such balance sheet, with such balance sheet and Net Asset Value being prepared in accordance with generally accepted accounting principles applied consistently with the Balance Sheet (as defined in Section 3.6), and (ii) a calculation of the Net Operating Loss (the "NOL 4 Calculation"). If within 15 business days following delivery of the Closing Balance Sheet and the NOL Calculation (or the next business day if such 15th day is not a business day), the Stockholder has not given CII notice of the Stockholder's objection to the computation of the Net Asset Value as set forth in the Closing Balance Sheet or the NOL Calculation (such notice to contain a statement in reasonable detail of the nature of the Stockholder's objection), then the Net Asset Value reflected in the Closing Balance Sheet and the NOL Calculation will be deemed mutually agreed by CII and the Stockholder. If the Stockholder shall have given such notice of objection in a timely manner, then the issues in dispute will be submitted to a "Big Six" accounting firm mutually acceptable to CII and the Stockholder (the "Accountants") for resolution. If issues in dispute are submitted to the Accountants for resolution: (i) each party will furnish to the Accountants such workpapers and other documents and information relating to the disputed issues as the Accountants may request and are available to the party or its subsidiaries (or its independent public accountants) and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) the Accountants will be instructed to determine the Net Asset Value and the Net Operating Loss based upon their resolution of the issues in dispute; (iii) such determination by the Accountants of the Net Asset Value and the Net Operating Loss, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties absent fraud or manifest error; and (iv) CII and the Stockholder shall each bear 50% of the fees and expenses of the Accountants for such determination. The date on which the Net Asset Value and the Net Operating Loss are finally determined is referred to hereinafter as the "Closing Financials Determination Date." (b) Net Asset Value Adjustment. To the extent that the Net Asset Value, as deemed mutually agreed by the parties or as determined by the Accountants, as aforesaid, is less than $547,000 (the "Net Asset Value Shortfall"), the Stockholder shall be obligated to pay the amount of the Net Asset Value Shortfall to CII, together with interest on such amount at the prime rate of Bank of America from time to time in effect from the Closing Date to the date of payment, within 10 days of the Closing Financials Determination Date. To the extent that the Net Asset Value, as deemed mutually agreed by the parties or as determined by the Accountants, as aforesaid, is greater than $597,000 (the "Net Asset Value Excess"), CII shall be obligated to pay the amount of the Net Asset Value Excess to the Stockholder, together with interest on such amount at the prime rate of Bank of America from time to time in effect from the Closing Date to the date of payment, within 10 days of the Closing Financials Determination Date. (c) NOL Adjustment. To the extent that the Net Operating Loss as determined in accordance with subsection 2.3(a) above is less than $618,000, the Stockholder shall be obligated to pay to CII within 10 days of the Closing Financials Determination Date an amount equal to (i) the difference between $618,000 and the Net Operating Loss as determined in accordance with subsection 2.3(a) above, (ii) multiplied by 0.375. 5 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER The Stockholder hereby represents and warrants to CII and agrees with CII as set forth below. For purposes of this Article 3, "to the knowledge of the Stockholder" and other similar references to the knowledge of the Stockholder shall mean such matters as are actually known or should have reasonably been known by the Stockholder after reasonable inquiry. 3.1. Ownership of Stock and Authority Relative to Agreement. The Stockholder is the beneficial and record owner of the Shares, free and clear of all liens, pledges, encumbrances, security interests, conditions, options, rights, restrictions and claims of every kind (collectively, "Liens"). The Stockholder has full legal right, power and authority to enter into and perform its obligations under this Agreement. The execution and delivery by the Stockholder of this Agreement and the consummation by the Stockholder of the transactions contemplated hereby have been duly authorized by the Stockholder. No other proceedings on the part of the Stockholder are necessary to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Stockholder and is a valid and binding agreement of the Stockholder, enforceable in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium and other laws generally affecting the rights of creditors and general principles of equity and applicable laws which may affect the availability of equitable remedies. Except as set forth on Schedule 3.1, there are no voting trusts, stockholder agreements or other agreements of any kind affecting the Stock to which the Stockholder is a party or by which it is bound. The sale, assignment and delivery of the Stock by the Stockholder to CII pursuant to the terms hereof will transfer to CII good and marketable title to the Shares free and clear of all Liens, which Shares will be validly issued, fully paid and nonassessable shares of capital stock of the Company. Except as set forth on Schedule 3.1, no approvals or consents to consummate the transactions contemplated hereby are required to be obtained from any person or entity pursuant to any material contracts, agreements, instruments or commitments to which the Stockholder is a party or by which it is bound. 3.2. Existence and Good Standing. The Company is a corporation duly organized and incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has full power and authority to own its properties and assets and to carry on its business as now being conducted. Except as set forth in Schedule 3.15, the Company is duly qualified to do business and is in good standing in all jurisdictions in which the character or location of the properties owned or leased by the Company or the nature of the business conducted by the Company makes such qualification necessary, except for those jurisdictions where the failure to so qualify would not have a material adverse effect on the financial condition of the Company. The copies of the Certificate of Incorporation and Bylaws of the Company, as amended, which have been delivered to CII are complete and correct, and such instruments are in full force and effect. 3.3. Capital Stock. The Company has an authorized capitalization consisting solely of one thousand (1000) shares of common capital stock, $1.00 par value, of which one thousand shares 6 are issued and outstanding. All such outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth on Schedule 3.3, no shares of the capital stock of the Company are reserved for issuance and there are no outstanding options, warrants, rights, calls, subscriptions, claims, obligations, convertible or exchangeable securities, rights of exchange or other commitments or agreements, contingent or otherwise, of any nature whatsoever relating to the capital stock of the Company or pursuant to which the Company is or may become obligated to purchase, redeem, sell, issue or exchange any shares of its capital stock. The Shares constitute One Hundred Percent (100%) of the outstanding capital stock of the Company. 3.4. Subsidiaries and Investments. The Company does not own, directly or indirectly, any capital stock or other equity or ownership or proprietary interest in any corporation, partnership, limited liability company, association, trust, joint venture or other entity. 3.5. Non-Contravention. Except as set forth in Schedule 3.5, the consummation of the transactions contemplated by this Agreement will not violate any provision of the Certificate of Incorporation or Bylaws of the Company, as amended, or violate, or result with the giving of notice or the lapse of time or both in a violation of, any provision of any material mortgage, lien, lease, agreement, license, instrument, law, ordinance, regulation, order, arbitration award, judgment or decree to which the Company or any of its properties or assets (real, personal or mixed, tangible or intangible) are bound. 3.6. Financial Statements. Attached as Exhibit B is the audited balance sheet of the Company as of April 30, 1997 (the "Balance Sheet"). The Balance Sheet, including the footnotes thereto, has been prepared in accordance with GAAP consistently followed throughout the periods indicated. The Balance Sheet fairly presents the financial condition of the Company as of the date thereof (the "Balance Sheet Date") and reflects all claims against and all debts and liabilities of the Company, fixed or contingent, as of the date thereof to the extent that the same are required to be so reflected under GAAP as so applied. Also attached as Exhibit B is the unaudited interim balance sheet of the Company as of September 30, 1997 (the "Interim Balance Sheet") and the related unaudited statement of income for the nine month period then ended (the "Interim Statement of Income") (the Interim Balance Sheet and the Interim Statement of Income are collectively referred to herein as the "Interim Financial Statements"), as prepared by the Company. The Interim Financial Statements, including the footnotes thereto, have been prepared in accordance with GAAP consistently followed throughout the periods indicated and with the Balance Sheet. The Interim Balance Sheet fairly presents the financial condition of the Company as of the date thereof (the "Interim Balance Sheet Date") in all material respects and the Interim Statement of Income fairly presents the results of operations of the Company and the changes in its financial position for the period indicated in all material respects. To the knowledge of the Stockholder, the Company has no outstanding claims, liabilities, obligations or indebtedness of any nature, whether accrued, absolute, contingent or otherwise (each a "Liability" and collectively, the "Liabilities"), except as set forth in the Balance Sheet or as disclosed in this Agreement and the Exhibits and Schedules hereto, other than Liabilities incurred subsequent to September 30, 1997 in the ordinary course of business not involving borrowings by the Company. The Company does not owe any amount to, and is not owed any amount by, any Related Party or any of the directors, officers or employees of 7 the Company (except for payroll amounts owed to employees in the ordinary course of business) other than as set forth in the Balance Sheet. 3.7. No Changes. Except as set forth in Schedule 3.7, since March 20, 1997, the Company has not: (a) experienced a material adverse change in the assets or liabilities, the business or in the results of operations of the Company; (b) to the knowledge of the Stockholder, incurred any Liability other than Liabilities incurred in the ordinary course of business not involving borrowings by the Company and other than liabilities or obligations arising out of or relating to matters which are expressly covered by any other representations and warranties contained in this Article 3; (c) permitted any of its assets to be subjected to any Lien (other than Permitted Liens, as defined in Section 3.9 below); (d) sold, transferred or otherwise disposed of any assets except sales of products in the ordinary course of business; (e) made any capital expenditure or commitment therefor, except in the ordinary course of business; (f) declared or paid any dividend or made any distribution on any shares of its capital stock; (g) redeemed, purchased or otherwise acquired any shares of its capital stock; (h) granted or issued any option, warrant or other right to purchase, acquire or exchange any shares of its capital stock; (i) made any distribution or bonus payment to the Stockholder or to any employees of the Company or profit sharing distribution or payment of any kind; (j) increased its indebtedness for borrowed money, except current borrowings from banks in the ordinary course of business, or made any loan or guarantee to any person or entity; (k) written off as uncollectible any notes or accounts receivable, except write-offs in the ordinary course of business charged to applicable reserves, none of which individually or in the aggregate is material to the Company; (l) granted any increase in the rate of wages, salaries, bonuses or other remuneration of any executive employee or other employees except in the ordinary course of business; (m) increased any benefits to or for employees under any employee benefit plans, policies or arrangements or adopted any new such plans, policies or arrangements; (n) canceled or knowingly waived any claims or rights of substantial value; (o) made any change in any method of accounting or auditing practice; (p) otherwise conducted its business or entered into any transaction except in the usual and ordinary manner and in the ordinary course of business; or (q) agreed, whether or not in writing, to do any of the foregoing. 3.8. Books and Records. The minute books of the Company as previously made available to CII and its representatives contain materially accurate records of all meetings of, and all material corporate action taken by (including action taken by written consent), the shareholders and Board of Directors of the Company. All of the Company's books and records have been maintained in the usual, regular and ordinary course of business and accurately and completely reflect in all material respects all of the material transactions of the Company. All records and data of the Company are stored or maintained under the ownership and direct control of the Company or its agents. 3.9. Title to Properties; Encumbrances. Except as set forth on Schedule 3.9, and except for (a) properties and assets reflected in the Interim Financial Statements or acquired since September 30, 1997 which have been sold or otherwise disposed of in the ordinary course of business and (b) Intellectual Property (the Company's title to which is described in Section 3.16 of this Agreement), the Company has good, valid and marketable title to (i) all of its properties and assets (real and personal, tangible and intangible), including, without limitation, all of the properties 8 and assets reflected in the Interim Financial Statements, except as indicated in the notes thereto, and (ii) all of the properties and assets purchased by the Company since September 30, 1997; in each case subject to no Lien except for (A) Liens reflected in the Interim Financial Statements or incurred in the ordinary course of business since September 30, 1997, (B) Liens which do not materially detract from the value of, or materially impair the use of, such property by the Company in the operation of its business, and (C) Liens for current Taxes, assessments or governmental charges or levies not yet delinquent (Liens of the type described in clauses (A) through (C) are referred to herein as the "Permitted Liens"). All material tangible personal property of the Company is in good operating condition, normal wear and tear excepted. 3.10. Real Property. Schedule 3.10 sets forth a complete and accurate description of all of the real property and interests therein leased by the Company (the "Real Property"). The Company does not own any Real Property. 3.11. Leases. Schedule 3.11 sets forth a complete and accurate description of all leases of real or personal properties to which the Company is a party, whether as lessee or lessor (the "Leases"). Each Lease is in full force and effect; all rents and additional rents due to date on each such Lease have been paid; and, except as set forth on Schedule 3.11, to the knowledge of the Stockholder, there exists no material event of default or event, occurrence, condition or act (including the purchase of the Stock hereunder) which, with the giving of notice, the lapse of time or both, would become a material default by the Company or, to the knowledge of the Stockholder, any other party under such lease. The Company has not violated any of the terms or conditions under any such Lease in any material respect, and to the knowledge of the Stockholder all of the covenants to be performed by any other party under any such Lease have been performed in all material respects. To the knowledge of the Stockholder, the properties leased by the Company are in good operating condition, normal wear and tear excepted. 3.12. Material Contracts. Schedule 3.12 sets forth a complete and correct list of each material agreement, contract, instrument, commitment or understanding, whether written or oral, to which the Company is a party or by which it is bound other than purchase orders and contracts with a contract value of less than $25,000 and reflecting sales and purchases of the Company's goods and services in the ordinary course of business. Except as set forth on Schedule 3.12, the Company does not have and is not bound by (a) any agreement, contract or commitment relating to the employment of any person by the Company, or any bonus, deferred compensation, change in control, pension, profit sharing, stock option, employee stock purchase, retirement, termination or other employee benefit plan, policy or arrangement, (b) any agreement, indenture or other instrument which contains restrictions with respect to payment of dividends or any other distribution in respect of its capital stock, (c) any agreement, contract or commitment relating to capital expenditures except as arising in the ordinary course of business, (d) any loan or advance to, or investment in, any person or entity or any agreement, contract or commitment relating to the making of any such loan, advance or investment, (e) any guarantee or other contingent liability in respect of any indebtedness or obligation of any other person or entity (other than the endorsement of negotiable instruments for collection in the ordinary course of business), (f) any management or consulting contract, (g) any agreement, contract or commitment limiting the ability of the Company or any subsidiary to engage 9 in any line of business or to compete with any person, (h) any partnership or joint venture agreement, or (i) related to the licensing by the Company of any Intellectual Property. Each contract or agreement set forth on Schedule 3.12 is in full force and effect and, to the knowledge of the Stockholder, there exists no default or event of default or event, occurrence, condition or act (including the purchase of the Stock under this Agreement) which, with the giving of notice, the lapse of time or both, would become a material default or event of default on the part of the Company or, to the knowledge of the Stockholder, any other party thereunder. The Company has not violated any of the terms or conditions of any contract or agreement set forth on Schedule 3.12 in any material respect, and, to the knowledge of the Stockholder, all of the covenants to be performed by any other party thereto have been performed in all material respects. Except as specifically described in Schedule 3.12, the consummation of the transactions contemplated by this Agreement will not violate any of the terms or conditions of the contracts identified on Schedule 3.12 or cause the rights of the Company under such contracts to be subject to termination or modification as a result thereof. Except as specified on Schedule 3.12, to the knowledge of the Stockholder, all such contracts contain terms and conditions obtained from independent third parties which are unrelated to or unaffiliated with the Stockholder and which have been negotiated in good faith at arms-length. Except as specified on Schedule 3.12, to the knowledge of the Stockholder, the Company is not a party to any contract, agreement or understanding, whether written or oral, with any person who is a director, officer, shareholder or employee of the Company or any entity in which any such individual has an interest or is otherwise affiliated or related. 3.13. Restrictive Documents. Except as disclosed on Schedule 3.13, the Company is not subject to, or a party to, (a) any charter or by-law or, to the knowledge of the Stockholder, any mortgage, lien, lease, license, permit, agreement, contract, instrument, law, rule, ordinance, regulation, order, judgment or decree, or any other restriction of any kind or character, which would prevent the continued operation of the Company's business after the date hereof on substantially the same basis as previously operated, (b) any contract or agreement which would materially restrict the ability of the Company to acquire any property or conduct business in any area, or (c) any agreement which contains any provision pursuant to which the Company will be obligated to make any payment as a result of the change in control of the Company to occur as a result of the transactions contemplated hereby. 3.14. Litigation. Except as set forth on Schedule 3.14, there is no action, suit, arbitration, investigation or any other proceeding, at law or in equity, pending or, to the knowledge of the Stockholder, threatened against, involving or related to the Company or any of its properties or rights or its Employee Benefit Plans, as defined in Section 3.20 (other than routine claims for benefits), and the Stockholder does not know of any specific facts or circumstances, conditions or occurrences that could reasonably be anticipated to form the basis of any such action, proceeding or investigation. The Company is not (a) subject to any judgement, order or decree entered in any lawsuit or proceeding which may have a material adverse effect on any of its financial condition, operations or business practices or on its ability to acquire any property or conduct business in any area or (b) a party to any lawsuit or proceeding pending or threatened which involves a claim by the Company for specific performance or other equitable relief or for money damages. 10 3.15. Taxes. Except as set forth on Schedule 3.15 hereto, (i) all Returns have been filed when due in timely fashion (or extension requests have been timely filed and complied with); (ii) all Taxes required to be shown on the Returns have been paid when due in timely fashion; (iii) the Returns completely and correctly reflect in all material respects the facts regarding the income, properties, operations and status of any entity required to be shown thereon; (iv) the charges, accruals, and reserves for Taxes due, or accrued but not yet due, relating to the income, properties or operations of the Company for any Pre-Closing Period as reflected on the books and financial statements of the Company as of the date hereof are adequate to cover such Taxes; (v) there is no action, suit, proceeding, audit or claim now pending or, to the knowledge of the Stockholder, investigation pending, regarding any Taxes relating to the income, properties or operations of the Company for any Pre-Closing Period; (vi) there are no agreements for the extensions of the time for assessment of any Taxes relating to the income, properties or operations of the Company for any Pre-Closing Period; (vii) all Tax deficiencies which have been proposed (to the knowledge of the Stockholder) or asserted against the Company have been fully paid or finally settled, and, to the knowledge of the Stockholder, no issue has been raised in any examination which, by application of similar principles, can be expected to result in the proposal or assertion of a Tax deficiency for any other year not so examined; (viii) there is no, and will not be any, agreement or consent made under Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"), affecting the Company; (ix) there are no liens for any Tax on the assets of the Company; (x) there are no Tax sharing agreements or arrangements to which the Company is now or ever has been a party; (xi) with respect to any period up to and including the Closing Date for which Returns have not yet been filed or for which taxes are not yet due and payable, the Company has only incurred liabilities for Taxes in the ordinary course of its business; (xii) except as set forth on Schedule 3.15, the Company has withheld from each payment made to any of its past and present shareholders, directors, officers, employees and agents the amount of all taxes and other deductions required to be withheld and has paid or made adequate provision for the payment of such amounts to the proper taxing authorities; and (xiii) the Company is not a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) ("USRPHC") and has not been a USRPHC at any time during the applicable period under Code Section 897(c)(1)(A)(ii)(II). 3.16. Intellectual Properties. (a) Schedule 3.16(a) contains a list and description of all Intellectual Property owned by the Company or used by the Company pursuant to Licenses in the conduct of the Business, subdivided under the following categories: (i) Copyrights owned by, licensed to or used by the Company, showing in each case the owner, licensor, if any, and, where registered, the country of registration and the registration number. (ii) Software used or possessed by the Company which is the subject of a License in favor of the Company, showing in each case the name and release number of the Licensed Product, the owner of the Copyright in the product, the serial number or registration number of the Licensed Product, a brief description of the Licensed Product's function, whether the 11 License is transferable, whether the License will remain in effect upon the consummation of the transaction contemplated by this Agreement, and whether the Company may sublicense the Licensed Product to third parties. (iii) Software owned by the Company, showing in each case the name of the product, the current release number of the product, the release numbers of all prior releases and the date of such releases, and the registration number, if any, of all registered Copyright in such product. (iv) Software Contracts relating to or arising from the Business. (v) Trademarks and Trade Names adopted and used by the Company, showing in each case the Trademark or Trade Name, its U.S. and foreign registration numbers, if any, the countries of such registration, whether it is registered on the U.S. Principal or Supplemental Register, its date of registration and the date of its most recent renewal or affidavit of continued use, if any. (vi) Patent Rights owned or used by the Company in the Business, showing where applicable in each case the country of registration, the registration number, the title and date of issue. (b) Except as disclosed in Schedule 3.16(b), the Company owns all rights, title and interest in the Intellectual Property required to be identified on Schedule 3.16(a), free and clear of any Liens other than Permitted Liens. (c) Except as disclosed in Schedule 3.16(c), (i) all registrations for Copyrights (including for Software), Patent Rights and Trademarks required to be identified in Schedule 3.16(a) as being owned by the Company are valid and in force and all applications to register any unregistered Copyrights, Patent Rights and Trademarks so identified are pending and in good standing, all, to the knowledge of the Stockholder, without challenge of any kind, and the Stockholder does not know of any specific facts or circumstances, conditions or occurrences that could reasonably be anticipated to form the basis for any such challenge; (ii) the Intellectual Property owned by the Company is valid and enforceable; and (iii) the Company has the exclusive right to bring acts for infringement or unauthorized use of the Intellectual Property and, to the knowledge of the Stockholder, there is no basis for any such action. (d) Except as disclosed in Schedule 3.16(d), all Software required to be disclosed on Schedule 3.16(a) is subject to valid and enforceable Copyright solely owned by the Company, and no fees or royalties are payable or will be payable under the Software Contracts as a result of the Company's use of the licensed Software in the ordinary course of its business, other than fees or royalties due for upgrades. In no instance has the eligibility of the Software for protection under applicable copyright law been forfeited to the public domain. 12 (e) Except as disclosed in Schedule 3.16(e), (i) the Company has promulgated and used its best efforts to enforce a Trade Secret protection program and, to the knowledge of the Stockholder, there has been no material violation of such program by any Person, and (ii) to the knowledge of the Stockholder, the proprietary information relating to the Trade Secrets (A) has at all times been maintained in confidence and (B) has not been disclosed to employees, consultants or other third parties except on a "need to know" basis in connection with their respective performance of duties to the Company. (f) Except as disclosed in Schedule 3.16(f), all personnel contributing to or participating in the conception and development of the Intellectual Property required to be disclosed on Schedule 3.16(a) have been either: (1) employees of the Company thereby conferring in the Company the status of sole statutory author and owner of such Intellectual Property, or (2) non-employees, consultants, contractors or agents who have executed appropriate instruments of assignment in favor of the Company as assignee that have conveyed to the Company full, effective and exclusive ownership of all tangible and intangible property thereby arising. (g) No claims have been asserted in writing by any Person to the ownership of or right to use any of the Intellectual Property required to be disclosed on Schedule 3.16(a) and the Stockholder does not know of any specific facts or circumstances, conditions or occurrences that could reasonably be anticipated to form the basis of any such claim. To the knowledge of the Stockholder, the use of such Intellectual Property by the Company has not infringed on the rights of any person; and no claim of infringement or any misuse or misappropriation of any such Intellectual Property of any other person has been made or asserted against the Company, nor does the Stockholder know of any specific facts or circumstances, conditions or occurrences that could reasonably be anticipated to form the basis of any such claim. (h) Except as disclosed on Schedule 3.16(h), the Company has not granted, transferred, or assigned any right or interest in its Intellectual Property to any Person, and there are no contracts, agreements, Licenses or other commitments and arrangements in effect with respect to the marketing, distribution, licensing or promotion of any Intellectual Property by any independent sales person, distributor, sublicensor or other remarketer or sales organization. 3.17. Compliance with Laws. The Company is in compliance in all material respects with all laws, rules, regulations, ordinances, interpretations, notices, orders, judgments and decrees applicable to the Company and the violation of which would have a material adverse effect on the business, assets or financial condition of the Company. Notwithstanding the foregoing, the representation and warranty set forth in this Section 3.17 shall not apply with respect to any subject matter specifically covered by any other representation and warranty in this Article 3, including, without limitation, Sections 3.19, 3.20 and 3.21. 3.18. Accounts Receivable. The accounts receivable of the Company (i) arose from bona fide sales of goods or services in the ordinary course of business and consistent with past practice, (ii) are accurately reflected on the Interim Balance Sheet or, with respect to accounts receivable arising after the Interim Balance Sheet Date, are accurately reflected in all material respects in the 13 books and records of the Company, and (iii) are not subject to any counterclaim or set off except to the extent of the total amount of the reserve for doubtful accounts reflected in the Interim Balance Sheet. There has been no material adverse change since the Interim Balance Sheet Date in the amount of accounts receivable or other debts due the Company on the allowances with respect thereto, or in the amount of accounts payable or other debts of the Company from that reflected in the Interim Balance Sheet. 3.19. Employment Relations. Except as set forth on Schedule 3.19: (a) the Company is in material compliance with all federal, state and other applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours; (b) the Company has not and is not engaged in any unfair labor practice and no unfair labor practice complaint against the Company is pending before the National Labor Relations Board; (c) there is no labor strike, dispute, slowdown or stoppage or union organizing activity actually pending or, to the knowledge of the Stockholder, threatened against or involving the Company; (d) no arbitration proceeding arising out of or under any collective bargaining agreement is pending and, to the knowledge of the Stockholder, no claim therefor has been asserted against the Company, and, to the knowledge of the Stockholder, no grievance under any collective bargaining agreement which might have an adverse effect upon the Company exists; (e) no collective bargaining agreement is currently being negotiated by the Company; and (f) the Company has not experienced any material labor strike, dispute, slowdown or stoppage or union organizing activity during the last three years. Except as set forth in Schedule 3.19, the Company is not and has never been a party to any collective bargaining agreement or other labor contract and there has never been any application for certification of a collective bargaining unit in respect of the employees of the Company. Schedule 3.19 contains an accurate and complete list of all current employees of the Company and their pay levels. 3.20. Employee Benefit Plans. (a) Set forth in Schedule 3.20 is an accurate and complete list of all Employee Benefit Plans (as defined below) established, maintained or contributed to (or with respect to which an obligation to contribute has been undertaken) by the Company (including, for this purpose and for the purpose of all of the representations in this Section 3.20, all entities (whether or not incorporated) which by reason of common control are treated together with the Company as a single employer within the meaning of Section 414 (b), (c), (m), (n) or (o) of the Code) or for which the Company has or is likely to have any continuing liability. The term "Employee Benefit Plan" shall include all employee benefit plans within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder ("ERISA"), and also shall include, without limitation, any other pension, retirement, profit sharing, savings, thrift, stock bonus, stock option, stock purchase, restricted stock purchase, stock ownership, stock appreciation right, phantom stock, deferred compensation, supplemental retirement, deferred bonus, severance, change of control, parachute, health, medical, dental, vision, prescription drugs, fitness, dependent care, educational assistance, group legal services, life insurance, accidental death, accidental dismemberment, sick pay, short-term or long-term disability, Code Section 125 or other cafeteria plan, supplemental unemployment income, training, apprenticeship, scholarship, tuition reimbursement, employee assistance, employee discount, subsidized cafeteria, fringe benefit, vacation, holiday, employer-sponsored recreational facility, or other employee or retiree pension benefit or welfare benefit plan, policy, contract, or 14 arrangement, or other similar fringe or employee benefit plan, program, policy, contract, or arrangement, written or oral, qualified or nonqualified, funded or unfunded, foreign or domestic, covering employees or former employees of the Company. The Company has delivered to CII true and complete copies of all written Employee Benefit Plans and related documents. Except as disclosed and described on Schedule 3.20, the Company does not have any oral Employee Benefit Plans. (b) Except as set forth on Schedule 3.20, the Company does not maintain or contribute to any Employee Benefit Plan subject to ERISA and/or the Code which is not in material compliance with ERISA and the Code, and, to the knowledge of the Stockholder, neither the Company nor any Employee Benefit Plan is liable for any additional contribution, fine, penalty, excise tax or loss of income tax deduction with respect to the operation of any Employee Benefit Plan. All required reports and descriptions (including, but not limited to, Form 5500 annual reports, summary annual reports and summary plan descriptions) with respect to each Employee Benefit Plan have been properly filed with the appropriate governmental authority and distributed to participants as required by law. Except as set forth on Schedule 3.20, the Company does not maintain or contribute to any Employee Benefit Plan which is an "employee pension benefit plan" as such term is defined in Section 3(2) of ERISA. Except as set forth on Schedule 3.20, the Company has been and is now in material compliance with the applicable requirements of Section 601 et. seq. of ERISA and Section 4980B of the Code and any applicable state laws. Except as set forth on Schedule 3.20, the Company does not maintain any Employee Benefit Plan (whether qualified or nonqualified within the meaning of Section 401(a) of the Code) providing for health and/or life insurance or other welfare benefits after termination of employment except to the extent required by ERISA or any state continuation or conversion laws. Except as set forth on Schedule 3.20, the Company does not maintain any Employee Benefit Plan which is an "Employee Welfare Benefit Plan" (as such term is defined in Section 3(1) of ERISA) which Employee Benefit Plan has provided any benefit which is a "Disqualified Benefit" (as such term is defined in Section 4976(b) of the Code) for which an excise tax would be imposed. (c) Full payment has been made of all amounts which the Company is required, under applicable law or under any Employee Benefit Plan or any agreement relating to any Employee Benefit Plan to which the Company is a party, to have paid as contributions thereto as of the last day of the most recent fiscal year of such Employee Benefit Plan ended prior to the date hereof and/or within the time prescribed by applicable law. The Company has made adequate provision for reserves to meet contributions that have not been made because they are not yet due under the terms of any Employee Benefit Plan or related agreements. Benefits under all Employee Benefit Plans are as represented and have not been increased subsequent to the date as of which documents have been provided. (d) Except as set forth on Schedule 3.20: (i) the Company does not maintain or contribute, and has never maintained or contributed, to any Employee Benefit Plan intended to be qualified under Section 401(a) of the Code or subject to Title IV of ERISA or considered to be a 15 "multiemployer plan" (as such term is defined in Section 3(37) of ERISA; (ii) each Employee Benefit Plan established, maintained or contributed to by the Company that is intended to be qualified under Section 401(a) of the Code and any trust maintained in connection therewith intended to be tax-exempt under Section 501(a) of the Code has been determined to be so qualified by the Internal Revenue Service and nothing has occurred since the date of the last determination which resulted in or is likely to result in the revocation of such determination; (iii) the Company does not maintain or contribute to, and has never maintained or contributed to, any "employee pension benefit plan" within the meaning of Section 3(2) of ERISA that is subject to the provisions of Title IV of ERISA or any "multiemployer plan" (as such term is defined in Section 3(37) of ERISA) for or under which there is any current, continuing or future liability; (iv) no Employee Benefit Plan has incurred an accumulated funding deficiency within the meaning of Section 412 of the Code, or has applied for or obtained a waiver from the Internal Revenue Service of any minimum funding requirement under the Code; (v) the Company has not incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC") in connection with any Employee Benefit Plan covering any employees or former employees of the Company or ceased operations at any facility or withdrawn from any such plan in a manner that could subject it to liability under ERISA, and, to the knowledge of the Stockholder, there are no facts or circumstances, conditions or occurrences that could reasonably give rise to any liability of the Company to the PBGC under ERISA that could reasonably be anticipated to result in any claims being made against CII by the PBGC; and (vi) the Company does not have any withdrawal liability (including any contingent or secondary withdrawal liability) within the meaning of ERISA to any Employee Benefit Plan that is a "multiemployer plan" (as such term is defined in Section 3(37) of ERISA). (e) No "reportable event" (as such term is defined in ERISA) for which the 30- day notice requirement has not been waived by the PBGC has occurred with respect to any Employee Benefit Plan. Neither the Company nor, to the knowledge of the Stockholder, any of the directors, officers or employees of the Company has engaged in any transaction with respect to any Employee Benefit Plan or breached any of their responsibilities or obligations imposed upon fiduciaries under Title I of ERISA which would subject the Company to a Tax, penalty or liability for prohibited transactions under ERISA or the Code or which could reasonably give rise to any claim being made under or by or on behalf of any such Plan by any party with standing to make such claim. (f) The Company has furnished to CII complete financial information regarding the estimated present and future liabilities of any and all deferred compensation, salary contribution, split-dollar or other Employee Benefit Plans which are not qualified under Section 401 of the Code. The Company has furnished to CII copies of any and all insurance policies or other assets held by the Company, directly or indirectly, in connection with such nonqualified plans (including any policies or assets which are not formally designated as being held in connection with such plans, but were purchased to provide informally assets to be used in the future in connection with such plans), and a list of premium or other payments both made to date and which have been proposed to be made for such policies and assets. 16 (g) Except as set forth on Schedule 3.20, the execution of, and consummation of the transactions contemplated by, this Agreement do not constitute a triggering event under any Employee Benefit Plan, arrangement, or agreement which (either alone or together with the occurrence of any additional or subsequent event) will or could reasonably be anticipated to result in any payment (whether of severance pay or otherwise), acceleration, vesting or increase in benefits to any employee or former employee or director of the Company or any of its subsidiaries. 3.21. Environmental Laws and Regulations. Except as set forth on Schedule 3.21, (a) Hazardous Materials (as defined below) have not since April 11, 1991 been generated, used, treated or stored on, or transported or arranged for transportation to or from, any Company Property, (as defined below), (b) since April 11, 1991, Hazardous Materials have not at any time been Released or disposed of on any Company Property, (c) the Company is not in material violation of any Environmental Laws (as defined below) or the requirements of any permits issued under such Environmental Laws with respect to any Company Property, (d) there are no past, pending or, to the knowledge of the Stockholder, threatened Environmental Claims (as defined below) against the Company or any Company Property, (e) there are no specific facts or circumstances, conditions or occurrences regarding any Company Property that could reasonably be anticipated (A) to form the basis of an Environmental Claim against the Company or any Company Property or (B) to cause such Company Property to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law, and (f) to the knowledge of the Stockholder, there are not now and never have been any underground storage tanks located on any Company Property other than underground storage tanks the presence of and condition of which do not violate any Environmental Law. For purposes of this Agreement, the following terms shall have the following meanings: (A) "Company Property" means any real property and improvements currently or at any time after April 11, 1991 and prior to the Closing Date owned, leased, used, operated or occupied by the Company or any of its predecessors or Ibex Aerospace Technologies, Inc., a Florida corporation now dissolved; (B) "Hazardous Materials" means (i) any petroleum or petroleum products or by-products, radioactive materials, asbestos in any form that is or could become friable, transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls in excess of regulated levels; and (ii) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "pollutant" or "contaminant" under any applicable Environmental Law, as such laws are in effect as of the date hereof; and (iii) any other chemical, material or substance that would give rise to liability under any Environmental Law; (C) "Environmental Law" means any federal, state or local statute, law, rule, regulation, ordinance, code, policy, order or rule of common law in effect and in each case as amended as of the date hereof relating to pollution or the emission, discharge, spillage, storage or Release of Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601 et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss. 6901 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Safe Drinking Water Act, 42 17 U.S.C. ss. 3808 et seq.; and any analogous state and local laws, and the regulations implementing such acts; (D) "Environmental Claims" means any and all actions, suits, liabilities, demands, demand letters, claims, Liens, investigations or proceedings arising under, or notices of liability or of potential liability or of noncompliance or violation relating in any way to, any Environmental Law (for purposes of this subclause (D), "Claims") or to any permit issued under any such Environmental Law, including, without limitation, (i) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment; and (E) "Release" means disposing, discharging, injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and the like, into or upon any land or water or air, or otherwise entering into the environment. 3.22. Interests in Clients, Suppliers, Etc. Neither the Stockholder nor, to the knowledge of the Stockholder, any officer or director of the Company possesses, directly or indirectly, any financial interest in (excluding less than or equal to 5% of the issued and outstanding shares of stock in any entity the equity ownership interests of which are publicly traded), or is a director, officer or employee of, any person or entity (other than the Stockholder) which is a client, supplier, customer, lessor, lessee or competitor of the Company. 3.23. Insurance. Set forth on Schedule 3.23 is an accurate and complete list of insurance policies which the Company maintains with respect to its businesses, properties and employees. Such policies are in full force and effect. Such policies, with respect to their amounts and types of coverage, are customary with respect to the size of the Company and the industry in which the Company operates. All premiums currently due with respect to such insurance policies have been paid, no notice of cancellation or termination has been received with respect to any such policy, the providers of such policies will not have the right to terminate such policies as a result of the consummation of the transactions contemplated by this Agreement, and there has been no gap in coverage from the date of the organization of the Company to the Closing Date. The products liability insurance policy described on Exhibit G to this Agreement covers the losses described in such policy with respect to aeronautical products of the Company delivered prior to the Closing Date, provided that the loss occurs prior to the expiration of such policy (which the Stockholder has covenanted to maintain in force for three (3) years following the Closing Date) and provided that the claim for such loss is asserted in accordance with the terms of such policy. Such policy defines aeronautical products as an entire aircraft, components thereof, and any equipment or part installed either on board an aircraft or on the ground and used for the operation on the ground or in flight of such aircraft, including the ground equipment produced by the Company. 3.24. Licenses and Permits. The Company has obtained and maintains all licenses, permits and other authorizations required to be obtained or maintained to operate its current business and own its properties except where the failure to obtain or maintain such licenses, permits or other authorizations would not have a material adverse effect on the Company. The Company is in compliance with each such license, permit or authorization, and there is no proceeding pending or, 18 to the knowledge of the Stockholder, threatened to revoke or terminate any such license, permit or authorization. 3.25. Bank Accounts, Powers of Attorney and Compensation of Employees. Set forth on Schedule 3.25 is an accurate and complete list showing (a) the name and address of each bank in which the Company has an account or safe deposit box, the number of any such account or any such box and the names of all persons authorized to draw thereon or to have access thereto, (b) the names of all persons, if any, holding powers of attorney from the Company and a summary statement of the terms thereof and (c) the names of all persons whose compensation from the Company for the fiscal year ended on the Balance Sheet Date exceeded an annualized rate of $50,000, together with a statement of the full amount paid or payable to each such person for services rendered during such fiscal year. 3.26. Disclosure. None of this Agreement, any Schedule, Exhibit or certificate attached hereto or delivered pursuant to this Agreement or any document or statement in writing which has been supplied by or on behalf of the Stockholder in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits any statement of a material fact necessary in order to make the statements contained herein or therein not misleading. 3.27. Broker's or Finder's Fees. No agent, broker, person or firm acting on behalf of the Stockholder or the Company is, or will be, entitled to any commission or broker's or finder's fees from the Company in connection with any of the transactions contemplated by this Agreement. 3.28. Inventories. The inventories of the Company reflected in the Interim Balance Sheet will not include any items of a quality or quantity not usable in the normal course of business of the Company as currently conducted in excess of the reserve for obsolescence reflected in the Interim Balance Sheet. 3.29. Consents and Approvals. No consent, authorization, order, license, permit, or approval of or registration with any governmental entity or other regulatory body, domestic or foreign, is required in connection with the execution and delivery of this Agreement by the Stockholder and the consummation by the Stockholder of the transactions contemplated hereby. 3.30. Payments. Neither the Stockholder nor the Company nor any Affiliate of the Company or the Stockholder has, directly or indirectly, paid or delivered any fees, commissions or other sums of money or items of property however characterized to any finders, agents, customers, government officials or other parties, in the United States or in any other country, which in any manner are related to the business or operations of the Company, and which have been illegal under any federal, state or local laws of the United States or any other country or territory having jurisdiction over the Company. The Company has not participated, directly or indirectly, in any illegal boycotts or similar practices. 19 3.31. Renegotiation. The Company is not subject to renegotiation, redetermination or excess profit recovery with respect to any fiscal year by reason of U.S. Government contracts performed by it. 3.32. Returns, Warranty Claims, and Purchase Commitments. As of the date hereof, there are no material claims against the Company or any of its Affiliates to return any funds by reason of alleged overshipments, defective merchandise or otherwise, or of merchandise in the hands of customers under an understanding that such merchandise would be returnable. To the knowledge of the Stockholder, no outstanding purchase or outstanding lease commitment of the Company is in excess of the normal, ordinary and usual requirements of its business or contains terms and conditions more onerous than those usual and customary in the business of the Company. Except for product return, product recall, product repair or replacement or warranty claims arising in the ordinary course of business, the Stockholder does not know of any specific facts or circumstances, conditions or occurrences that could reasonably be anticipated to form the basis for any product return, product recall, product repair or replacement or warranty claim. 3.33. Customers and Suppliers. Schedule 3.33 contains a complete and accurate list of (i) the ten (10) largest customers of the Company in terms of revenues during the Company's last fiscal year, showing the approximate total sales to each such customer during such fiscal year, and (ii) the eight (8) largest suppliers of the Company in terms of purchases during the Company's last fiscal year, showing the approximate total purchases from each such supplier during such fiscal year. Except as disclosed on Schedule 3.33, since the Balance Sheet Date, there has been no material adverse change in the business relationship of the Company with any customer or supplier named in Schedule 3.33. 3.34. Products Liability. There are no claims pending or, to the knowledge of the Stockholder, threatened against the Company or any of its Affiliates for products liability, whether in tort or strict liability or on account of any express or implied warranty, and the Stockholder does not know of any specific facts or circumstances, conditions or occurrences which could reasonably be anticipated to form the basis of any such claim against the Company or its Affiliates. 3.35. Transactions with Certain Persons. To the knowledge of the Stockholder, neither any officer, director, shareholder or employee of the Company nor any member of any such person's immediate family is presently a party to any material transaction with the Company relating to the business of the Company, including, without limitation, any contract, agreement or other arrangement (i) providing for the furnishing of material services by (other than for services as officers, directors or employees of the Company), (ii) providing for the rental of material real or personal property from, or (iii) otherwise requiring material payments to (other than for services as officers, directors or employees of the Company) any such person or corporation, partnership, trust or other entity in which any such person has a substantial interest as a shareholder, officer, director, trustee or partner. 3.36. No Implied Representation. Notwithstanding anything contained in this Article 3, it is the explicit understanding and intent of the parties that, except for those representations and 20 warranties of the Stockholder set forth in this Article 3 and the Schedules corresponding thereto, the Stockholder is not making any representation or warranty whatsoever, express or implied, and no such warranties shall be implied under any applicable law or in equity. ARTICLE 4 REPRESENTATIONS OF CII CII hereby represents and warrants to the Stockholder as follows: 4.1. Organization and Valid Existence of CII. CII is a corporation duly incorporated, validly existing and in good standing under the laws of the State of North Carolina. CII has the corporate power and authority to execute and perform its obligations under this Agreement and the CII Note. This Agreement, the CII Note and all transactions contemplated hereby and thereby have been duly authorized and approved by all requisite corporate action of CII. No other proceedings on the part of CII are necessary to authorize the execution and delivery of this Agreement or the CII Note and the consummation of the transactions contemplated hereby and thereby. This Agreement and the CII Note have been duly executed and delivered by CII and are the valid and binding legal agreements of CII, enforceable in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium and other laws generally affecting the rights of creditors and general principals of equity and applicable laws which may affect the availability of equitable remedies. Except as set forth on Schedule 4.1, no approvals or consents to enter into or consummate the transactions contemplated under this Agreement and the CII Note are required to be obtained from any person or entity pursuant to any material contracts, agreements, instruments or commitments to which CII is a party or by which it is bound. 4.2. Consents and Approvals. No consent, authorization, order or approval of or registration with any governmental entity or other regulatory body is required in connection with the execution and delivery of this Agreement or the CII Note by CII and the consummation by CII of the transactions contemplated hereby and thereby. 4.3. Brokers or Finders Fee. CII shall be responsible for any commission or fee to which any agent, broker, person or firm acting on behalf of CII is, or will be, entitled in connection with the transactions contemplated by this Agreement. 4.4. Litigation. CII is not subject to any judgment, order or decree entered in any lawsuit or proceeding which may materially and adversely affect its ability to perform its obligations under this Agreement or the CII Note. 4.5. Securities Act. The Shares are being acquired by CII for investment only and not with a view to any distribution thereof, and CII shall not offer to sell or otherwise dispose of the Shares in violation of any applicable registration requirements of the Securities Act of 1933, as amended, or applicable State securities laws. 21 ARTICLE 5 CLOSING DELIVERIES 5.1. Deliveries by the Stockholder. On the date hereof, the Stockholder shall deliver or cause to be delivered to CII the following, in form and substance satisfactory to CII: (a) an opinion, dated the date hereof, of Coudert Brothers, the Stockholder's United States counsel, and the Stockholder's French counsel; (b) (i) copies of the Company's certificate of incorporation, including all amendments thereto, in each case certified by the appropriate official of the Company's jurisdiction of incorporation, (ii) a certificate from the appropriate official of the Company's jurisdiction of incorporation to the effect that the Company is in good standing in such jurisdiction and listing all charter documents of the Company on file, and (iii) a copy of the bylaws of the Company, certified by the President of the Company as being true and correct and in effect on the date hereof; (c) all necessary consents with respect to all material contracts of the Company which may be adversely affected by the consummation of the transactions contemplated hereby; (d) resignations of each director and officer of the Company, effective as of the date hereof; (e) evidence satisfactory to CII that the Agreement Among Shareholders of IBEX Aerospace Technologies, Inc. dated September 14, 1992, as amended to the date hereof (the "IBEX Stockholders' Agreement"), has been terminated as of the date hereof and that any provisions of the IBEX Stockholders' Agreement that may prohibit, limit, hinder or adversely affect the consummation of the transactions contemplated by this Agreement have been waived or otherwise rendered ineffective on or prior to the Closing Date; (f) a USRPHC affidavit and Notice of Non-U.S. Real Property Holding Corporation Status substantially in the form attached hereto as Exhibit C; (g) the Amended 690CA Know-How Transfer Agreement in the form attached hereto as Exhibit D and the Amended IC121 Know-How Transfer Agreement in the form attached hereto as Exhibit E executed by the Company and L'Equipement et la Construction Electrique, S.A.; (h) certificates representing all of the Stock, with appropriate stock transfer forms attached, duly endorsed in blank, together with evidence of payment of any applicable transfer taxes; (i) an executed Distribution Agreement between the Company and ECE substantially in the form attached hereto as Exhibit F; 22 (j) evidence satisfactory to CII that the Products Liability Policy, as defined in Section 6.4 below, is in full force and effect through the Closing Date; and (k) an effective executed power of attorney authorizing William N. Furey, Jr. to execute all documents required to be executed by the Stockholder pursuant to this Agreement. 5.2. Deliveries by CII. On the date hereof, CII shall deliver or cause to be delivered to the Stockholder the following: (a) the Debt Repayment; (b) the Cash Purchase Price in the manner required by Section 2.2(b); (c) the CII Note; (d) the Escrow Agreement; (e) the Letter of Credit (f) a copy, certified the date hereof by an appropriate officer of CII, of the resolutions of CII's Board of Directors authorizing the execution, delivery and performance of this Agreement and the CII Note by CII; (g) executed counterparts of each of the agreements specified in subsection 5.1 above to which CII is a party; and (h) an opinion, dated the date hereof, of CII's counsel. ARTICLE 6 POST-CLOSING COVENANTS 6.1. USRPHC Report to Internal Revenue Service. Within thirty (30) days after the date of each affidavit delivered to CII pursuant to Section 5.1(g) of this Agreement, the Stockholder shall mail to the Internal Revenue Service the report contemplated by Treasury Regulation 1.897-2(h)(2), if such report has not already been filed by CII, and shall provide proof of such mailing to CII in such form as may be acceptable to CII. 6.2. Preservation of Books and Records. Following the Closing, CII shall retain or cause the Company to retain the books of accounts, minute books, stock records and other documents and records of the Company. During business hours and upon at least 72 hours prior notice to the Company, the Stockholder shall have the right to inspect and copy such books of account, minute 23 books, stock records, at its own expense. At any time after ten years following the Closing Date, such records may nevertheless be destroyed by CII and/or the Company. 6.3. Accounts Receivable Guarantee. (a) Except as disclosed on Schedule 6.3, all accounts receivable arising through the Closing Date, less prompt payment discounts made in the ordinary course of business and net of any allowance for doubtful accounts shown in the Interim Financial Statements, shall be collected in full within 200 days of the Closing Date. From and after the Closing Date, CII shall (i) use its best reasonable efforts consistent in all material respects with the Company's past practices and policies (including, without limitation, use of a collection agency the fees of which shall be paid in equal portions by the Stockholder and CII but excluding resort to litigation), to collect the accounts receivable described in Section 3.18 and (ii) credit any payments made by account debtors to the oldest accounts receivable outstanding for such account debtor, unless such payment is designated by the payor as pertaining to one or more expressly identified invoices or, in the absence of such specification, unless a bona fide dispute exists with respect to such oldest account receivable. CII shall not compromise, reduce or settle any account receivable which is subject to this Section 6.3(a) for other than the full face amount thereof without the approval of the Stockholder. (b) Not less than 200 nor more than 230 days following the Closing Date, CII shall submit to the Stockholder an itemized statement setting forth the amount of any claim it may have for indemnity in connection with the representation and warranty contained in this Section 6.3, and, subject to the terms of this Section 6.3, the Stockholder shall remit to CII the undisputed amount set forth in such statement within 10 days of receipt of such statement. Upon satisfaction in full of such claim, CII shall deliver to the Stockholder an executed assignment in favor of the Stockholder of all right, title and interest of CII in and to any such accounts receivable which remain uncollected and are the subject of the claim and shall furnish to the Stockholder such other information relating to such unpaid accounts receivable as may be reasonably requested by the Stockholder. (c) Within thirty (30) days after the end of each of the first five (5) calendar months following the Closing Date, CII shall deliver to the Stockholder a trial balance showing the status of the accounts receivable which are the subject to Section 6.4(a) above and shall give the Stockholder prompt notice of any collection problems experienced with any account debtor as the same may arise and become known to CII. 6.4. Products Liability Policy. The Stockholder will maintain from and after the Closing Date for a period of three years the products liability insurance policy described on Exhibit G attached hereto and incorporated herein by reference and further described in Section 3.23. 6.5. Satisfaction of Ibex Notes. Within thirty (30) days following the Closing Date, the Stockholder shall deliver to CII the original Ibex Notes marked to indicate that such notes have been satisfied and that all amounts due thereunder have been paid in full or, if such Ibex Notes have been lost, certificates in form and substance satisfactory to CII to the same effect and indemnifying CII against any and all future claims relating to or arising from such lost Ibex Notes. 24 ARTICLE 7 INDEMNIFICATION AND SET-OFF 7.1. Survival of Representations and Warranties. (a) The representations, warranties, covenants and undertakings of the Stockholder and CII contained in this Agreement (including, without limitation, the indemnification obligations of the parties under this Article 7) and in any Schedule of Exhibit attached hereto shall survive the purchase and sale of the Stock pursuant to this Agreement, but shall terminate upon the expiration of the periods of time following the Closing Date as indicated below: (i) the representations and warranties set forth in Sections 3.1 and 3.3 hereof shall terminate upon the tenth anniversary of the Closing Date; (ii) the representations and warranties set forth in Sections 3.15, 3.19, and 3.20 hereof, and the indemnification obligations of the Stockholder under Subsection 7.2(b) below, shall terminate after a period of years following the Closing Date equal to any applicable statute of limitations with respect to the matters covered by such sections; and (iii) the representations and warranties not otherwise identified in subsections 7.1(a)(i) and 7.1(a)(ii) above shall terminate upon the third anniversary of the Closing Date. (b) Notwithstanding Subsection 7.1(a), if an Indemnified Party (as defined below) provides notice (as provided for in Subsection 7.3(a) hereof) to the Indemnifying Party of a claim for indemnification prior to the expiration of the relevant representation and warranty period set forth above, the Indemnifying Party's obligations with respect to the asserted right to indemnification shall continue until such claim is Definitively Resolved. (c) The Stockholder's obligation to indemnify CII shall not apply to the extent a reserve exists for such matter in the Interim Balance Sheet and such amount remains in reserve on the books and records of the Company as of the Closing Date. 7.2. Indemnification. (a) The Stockholder agrees to indemnify and hold CII and its officers, directors, stockholders, affiliates, employees, and agents (each an "Indemnitee" and, collectively, the "Indemnitees") harmless from any and all claims, demands, costs, charges, obligations, liabilities, actions, suits, damages, judgments, deficiencies, losses or expenses (including, without limitation, interest and penalties, reasonable attorneys' and paralegal fees and expenses and all reasonable amounts paid in settlement of any claim, action or suit to the extent permitted under Section 7.5 below) suffered or paid as a result of or arising out of the failure of any representation or warranty 25 made by the Stockholder in this Agreement or in any Exhibit or Schedule attached hereto to be true and correct in all respects as of the Closing Date or any failure of the Stockholder to fulfill any of the agreements, covenants and other obligations of the Stockholder contained in this Agreement. (b) CII agrees to indemnify and hold the Stockholder and its Indemnitees harmless from any and all claims, demands, costs, charges, obligations, liabilities, actions, suits, damages, judgments, deficiencies, losses or expenses (including, without limitation, interest and penalties, reasonable attorneys' and paralegal fees and expenses and all reasonable amounts paid in settlement of any claim, action or suit to the extent permitted under Section 7.5 below) suffered or paid as a result of or arising out of the breach of any representation or warranty made by CII in this Agreement or any failure of CII to fulfill any of the agreements, covenants and other obligations of CII contained in this Agreement (claims submitted by the Stockholder pursuant to the indemnification obligation of CII in this Section 7.2(b) shall be referred to hereinafter as "Stockholder Indemnity Claims"). (c) The obligations to indemnify and hold harmless pursuant to this Section 7.2 shall survive the consummation of the transactions contemplated by this Agreement for the respective periods set forth in Section 7.1 above. 7.3. Indemnification Claims Procedures. All claims for indemnification by any party seeking indemnification (the "Indemnified Party") from the other party (the "Indemnifying Party") under Section 7.2 shall be asserted and resolved as follows: (a) In the event that any claim or demand for which the Indemnifying Party would be liable to any Indemnified Party hereunder is asserted against or sought to be collected from any Indemnified Party by a third party, the Indemnified Party shall promptly notify the Indemnifying Party (and any pertinent insurance carrier) in reasonable detail of such claim or demand and the amount or a good faith estimate for the amount thereof to the extent then feasible (which estimate shall not be conclusive of the final amount of such claim and demand) (the "Claim Notice"). The Indemnifying Party shall have forty-five (45) days from the personal delivery or mailing of the Claim Notice (the "Notice Period") to notify the Indemnified Party whether or not the Indemnifying Party desires to defend the Indemnified Party against such claim or demand. All costs and expenses incurred by the Indemnifying Party in defending such claim or demand shall be a liability of, and shall be paid by, the Indemnifying Party. In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such claim or demand and except as hereinafter provided, the Indemnifying Party shall have the right to defend the Indemnified Party by counsel of the Indemnifying Party's own choosing, either in the Indemnifying Party's name, or in the Indemnified Party's name by appropriate proceedings. If any Indemnified Party desires to participate in, but not control, any such defense or settlement, it may do so at its sole cost and expense and, in any event, the Indemnified Party shall cooperate with the Indemnifying Party and its counsel. To the extent the Indemnifying Party shall control or participate in the defense or settlement of any third party claim or demand, the Indemnified Party shall give to the Indemnifying Party and its counsel access to, during normal business hours, the relevant business records and other documents, and shall permit them to consult with the employees 26 and counsel of the Indemnified Party, to the extent consistent with the application of relevant evidentiary privileges. The Indemnifying Party shall keep the Indemnified Party reasonably apprised of the course of any negotiations or proceedings and the Indemnifying Party shall not settle any claim or demand without the consent of the Indemnified Party, which consent shall not be unreasonably withheld or unduly delayed. As soon as reasonably practicable after the Indemnifying Party has reached a final decision as to whether or not all or any portion of the obligations related to such claim or demand are the obligations for which the Indemnifying Party is required to indemnify such Indemnified Party hereunder and, in any event, prior to entering any such settlement or other final resolution of any claim or demand, the Indemnifying Party shall notify the Indemnified Party in writing of its position as to whether or not all or any portion of the obligations related to such claim or demand are the obligations for which the Indemnifying Party is required to indemnify such Indemnified Party in accordance with this Article 7. (b) If the Indemnifying Party elects or is deemed to have elected (by virtue of not having elected to do so during the Notice Period) not to take over the defense of any such claim or demand, the Indemnified Party shall have the right to defend, compromise and settle such claim or demand on such terms as the Indemnified Party in its discretion may determine, subject to the prior consent of the Indemnifying Party, which consent shall not be unreasonably withheld or unduly delayed, and the Indemnifying Party shall continue to be bound to indemnify the Indemnified Party in accordance with and to the extent provided under the terms of this Article 7. The Indemnified Party shall or shall direct in writing its counsel to deliver to the Indemnifying Party copies of all correspondence and other matters relating to such claim or demand. Notwithstanding the foregoing, to the extent that the claim or demand involves or could result in claims against, or potential liability of, the Indemnifying Party the extent or nature of which were not known by the Indemnifying Party as of the date the Indemnifying Party elects or is deemed to have elected not to take over the defense of such claim or demand, the Indemnifying Party shall, by written notice to the Indemnified Party, be entitled to take over the defense of such claim or demand. (c) In the event an Indemnified Party should have a claim against the Indemnifying Party hereunder which does not involve a claim or demand being asserted against or sought to be collected from it by a third party, the Indemnified Party shall promptly send a Claim Notice with respect to such claim to the Indemnifying Party. (d) The Indemnified Party's failure to give reasonably prompt notice to the Indemnifying Party of any actual, threatened or possible claim or demand which may give rise to a right of indemnification hereunder shall not relieve the Indemnifying Party of any liability which it may have to an Indemnified Party except to the extent the failure to give such notice prejudiced the Indemnifying Party. 7.4. Indemnity Basket. Notwithstanding the foregoing, except as set forth in this Section 7.4, the Stockholder shall have no liability under Section 7.2 of this Agreement unless and until the aggregate amount of claims under Section 7.2 exceeds Fifty Thousand Dollars ($50,000) (the "Indemnity Threshold"), in which case the Stockholder shall only be liable to indemnify CII for any amount indemnifiable hereunder in excess of the Indemnity Threshold; provided, that the Indemnity 27 Threshold shall not apply to the amount of any indemnification obligation of the Stockholder to CII or any other Indemnitee as a result of, arising out of, or relating to the breach of the representations and warranties made by the Stockholder in Section 3.15 and Section 3.32 of this Agreement, which indemnification obligations are hereinafter referred to collectively as "Zero Threshold Claims." 7.5. Limitations on Indemnification Obligation. In no event shall the maximum aggregate liability of each of the Stockholder and CII with respect to all Payable Claims (as hereinafter defined) exceed the amount of One Million Seven Hundred Seventy Two Thousand Dollars ($1,772,000). 7.6. Effect of Tax Benefits and Insurance. The determination of any liability, claim, lien, encumbrance, charge, fine, penalty, cost or expense for which indemnification may be claimed under this Article 7 shall be net of (i) the Tax benefit, if any, realized by the Indemnified Party (or any Indemnitee) as a result of the facts and circumstances giving rise to the liability for indemnification and (ii) insurance proceeds, if any, received (but also net of recovery costs and adjusted for any Tax incurred as a result of the receipt of such insurance proceeds, reimbursement, funding and indemnification payments) by the party bearing such liability, claim, lien, encumbrance, charge, fine or penalty as a result thereof. 7.7. Sole Remedy. The sole and exclusive remedy of the parties for any and all breaches of this Agreement, other than a breach by the Stockholder of the representations and warranties of the Stockholder contained in the last sentence of Section 3.23 of this Agreement or a breach by the Stockholder of the Post-Closing covenant contained in Section 6.4 of this Agreement, shall be the indemnities provided for in this Article 7. Any claims for indemnification not submitted in writing by the Indemnified Party prior to the expiration of the time periods set forth in Section 7.1 shall be deemed to have been waived. 7.8. Deferred Amount. (a) Nature and Purpose. The Deferred Amount shall be held by CII in order to secure the indemnification obligations of the Stockholder hereunder and shall be evidenced by the CII Note. Subject to the following provisions of this Section 7.9, (i) an amount equal to the accumulated amount of all Payable Claims for which CII is the Indemnified Party shall be deducted from the Deferred Amount and shall be retained by CII for its own account and (ii) the net amount of the Deferred Amount, after deduction of all Payable Claims for which CII is the Indemnified Party, shall be paid by CII to the Stockholder on the second anniversary of the Closing Date. (b) Settlement of Claims. Following its receipt of any Claim Notice, the Indemnifying Party shall have forty-five (45) days in which to advise the Indemnified Party if it disputes the claim identified in such Claim Notice in whole or in part. For purposes hereof, any claim for indemnification hereunder shall be deemed to have been "Definitively Resolved" when any of the following events has occurred: 28 (i) a claim is settled by mutual written agreement of CII and the Stockholder; or (ii) a final judgment, order or award of a court of competent jurisdiction or arbitrator deciding such claim has been rendered, as evidenced by a certified copy of such judgment, order or award, provided that such judgment, order or award is not appealable or the time for taking an appeal has expired; or (iii) if CII is the Indemnified Party, forty-five (45) days have elapsed since the Stockholder's initial receipt of a Claim Notice and CII has not received, on or before that date, a written notice from the Stockholder disputing such claim in whole or in part; or (iv) if the Stockholder is the Indemnified Party, forty-five (45) days have elapsed since CII's initial receipt of a Claim Notice and the Stockholder has not received, on or before that date, a written notice from CII disputing such claim in whole or in part. (c) Payable Claims. Any indemnity claim that has been Definitively Resolved is referred to herein as a "Settled Claim." For purposes hereof, a "Payable Claim" shall mean any one of the following: (i) if the Settled Claim is a Zero Threshold Claim or a Stockholder Indemnity Claim, the full amount of such claim, after giving effect to Section 7.7, shall be treated as a Payable Claim; and (ii) if the Settled Claim is a non-Zero Threshold Claim, such claim shall be treated as a Payable Claim only in the event and to the extent that the amount of such claim, together with the accumulated amount of all previous Settled Claims which are non-Zero Threshold Claims, exceeds, after giving effect to Section 7.7, the Indemnity Basket. The Stockholder and CII shall maintain a ledger of all Settled Claims and all Payable Claims hereunder and shall endorse the CII Note to reflect all such claims as applicable. (d) Release of Deferred Amount. If on or prior to the second anniversary of the Closing Date, CII has submitted Claims Notices for any pending claims hereunder which have not yet been Definitively Resolved, CII shall pay the portion of the Deferred Amount described in such Claim Notices ("Pending Claims") to the Escrow Agent (as defined in that escrow agreement by and among CII, the Stockholder and First Union National Bank of even date herewith (the "Escrow Agreement")), and the balance shall be paid directly to the Stockholder. The amount so paid to the Escrow Agent shall thereafter be held by the Escrow Agent and shall be disbursed in accordance with the terms of the Escrow Agreement. (e) Except as hereinafter provided, all Payable Claims for which CII is the Indemnified Party shall be satisfied exclusively out of the Deferred Amount in accordance with this Agreement, the CII Note and the Escrow Agreement; provided, however, that if and to the extent 29 that Payable Claims for which CII is the Indemnified Party exceed an amount equal to the Deferred Amount less deductions made thereto pursuant to this Section 7.8, then CII may seek to collect such Payable Claims amounts from the Stockholder in any manner available in equity or at law. 7.9. Subrogation. The Indemnifying Party shall be subrogated to the rights of the Indemnified Party against third parties for any Settled Claims hereunder. 7.10. Treatment of Indemnity Payments. To the extent permitted by applicable law, any indemnity payments made pursuant to this Article 7 shall be treated as an adjustment to the Purchase Price. ARTICLE 8 MISCELLANEOUS 8.1. Expenses. The parties hereto shall pay all of their own expenses relating to the negotiation and consummation of the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel and financial advisers. Anything herein to the contrary notwithstanding, the Stockholder shall be directly responsible for the payment and satisfaction of the fees and expenses of its legal counsel and financial advisors in connection with this transaction and shall not charge such fees and expenses to the Company or cause the Company to be obligated to reimburse the Stockholder for such expenses or pay such service providers directly. 8.2. Governing Law; Consent to Jurisdiction. This Agreement, the rights and obligations of the parties, and any claims or disputes relating in any way thereto shall be governed by and construed in accordance with the laws of the State of North Carolina, without regard to its choice of law principles. The parties hereby agree that any dispute arising out of this Agreement shall be subject to the jurisdiction of both the state and federal courts of North Carolina. For that purpose, the parties hereto hereby irrevocably submit to the jurisdiction of the state and federal courts of North Carolina and waive any rights that any of them may have to claim that jurisdiction over any of them in North Carolina may not be had or that North Carolina is an improper venue for the enforcement of the obligations represented by this Agreement. The parties further agree to accept service of process out of any of the state and federal courts in North Carolina in any such dispute by registered and certified mail addressed to the parties as herein provided. 8.3. Captions. The Article and Section captions used herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 8.4. Publicity and Confidentiality. Except as otherwise required by law, none of the parties shall issue any press release or make any other public statement relating to, connected with or arising out of this Agreement or the transactions contemplated herein, including the existence and terms of this Agreement, without obtaining the prior approval of CII to the contents and the manner 30 of presentation and publication thereof. The parties shall keep all non-public information disclosed pursuant to this Agreement confidential and shall not disclose such information for any purpose or to any person or entity not related to the consummation and performance of this Agreement, except as may be required by applicable law. 8.5. Notices. Any notices, demands, consents, agreements, requests or other communications which may be or are required to be given, served or sent by any party to any other party or obtained from any party pursuant to this Agreement must be in writing and must be (a) mailed by first-class mail, registered or certified, return receipt requested, postage prepaid, (b) hand delivered personally by independent courier, or (c) transmitted by telecopier addressed as follows: (i) If to SOFIECE: SOFIECE 155-157, Rue Pelleport 75960, Paris Cedex 20 France Attn: Jean-Pierre Brillant Facsimile: 011-33-1-30-54-80-81 (ii) If to CII: COMMUNICATIONS INSTRUMENTS, INC. 1396 Charlotte Highway P.O. Box 520 Fairview, North Carolina 28730 Attn: Chief Executive Officer Facsimile: (704) 628-1439 Each party may designate by notice in writing a new address to which any notice, demand, consent, agreement, request or communication may thereafter be given, served or sent. Each notice, demand, consent, agreement, request or communication which is mailed, hand delivered or transmitted in the manner described above shall be deemed received for all purposes at such time as it is delivered to the addressee (with the return receipt, the courier delivery receipt or the telecopier answer back confirmation being deemed conclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 8.6. Counterparts. This Agreement may be executed in counterparts, and it shall not be necessary that the signatures on behalf of each party appear on each counterpart. All counterparts shall collectively constitute a single agreement. 8.7. Amendments. This Agreement may not be amended or modified or any provision or obligation waived or changed except by a writing executed by the party sought to be charged thereby. 31 8.8. Savings Clause. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the maximum extent permitted by applicable law, the parties to this Agreement waive any provision of law that renders any provision of this Agreement prohibited or unenforceable in any respect. 8.9. Entire Agreement. This Agreement (including the Schedules and Exhibits hereto) constitutes the entire agreement of the parties with respect to its subject matter and supersedes all prior written and oral agreements and understandings of any kind, except any separate confidentiality agreement entered into by the parties previously. 8.10. Delays. No failure or delay of any party in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. 8.11. No Third Party Beneficiaries. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns. The provisions of this Agreement are solely for the benefit of the parties hereto and are not intended to benefit any third party, and no third party shall be deemed to have any privity of contract by virtue of this Agreement. 8.12. No Partnership. Nothing in this Agreement shall be deemed to create a joint venture or partnership between or among the parties. 8.13. No Assignment. The rights and obligations of the parties under this Agreement may not be assigned or delegated to any other person or entity without the prior written consent of all the parties hereto; provided, that CII may assign its rights and delegate its obligations and may transfer the Stock to any other entity that it controls, is controlled by or is under common control with. 8.14. Attorneys' Fees. If any legal proceeding is brought to enforce or interpret this Agreement or any provision thereof, the prevailing party in any such proceeding shall be entitled to recover from the other party its reasonable attorneys' and paralegal fees and court costs. 8.15. Exhibits and Schedules. The Exhibits and Schedules attached to this Agreement are an integral part of this Agreement. 32 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMMUNICATIONS INSTRUMENTS, INC. By: ----------------------------- Title: President STOCKHOLDER: SOCIETE FINANCIERE D'INVESTISSEMENTS DANS L'EQUIPEMENT ET LA CONSTRUCTION ELECTRIQUE, S.A. By: /s/ William N. Furey, Jr. ----------------------------- William N. Furey, Jr. Title: Attorney-in-Fact 34 EX-10.28 6 ASSET PURCHASE AGREEMENT DATED 5/6/98 Exhibit 10.28 ASSET PURCHASE AGREEMENT between KILOVAC CORPORATION ("Buyer") and WILMAR ELECTRONICS, INC. ("Seller") Mr. Zerubavel ("Zev") Heifetz and Mr. Cesar E. Marestaing ("Shareholders") May 6, 1998 TABLE OF CONTENTS
Page ARTICLE 1 SALE AND PURCHASE OF ASSETS.................................................1 Section 1.1. Agreement to Sell Assets...........................................1 Section 1.2. Excluded Assets....................................................3 Section 1.3. Total Consideration................................................3 Section 1.4. Purchase Price, Purchase Price Adjustment and Escrow...............3 Section 1.5. Assumption of Certain Liabilities; Other Liabilities Not Assumed...4 Section 1.6. Allocation of Consideration........................................5 ARTICLE 2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AND SHAREHOLDERS...........................................................5 Section 2.1. Organization and Standing of Seller................................5 Section 2.2. Financial Statements...............................................5 Section 2.3. Absence of Undisclosed Liabilities, Accounts Payable...............6 Section 2.4. Taxes..............................................................6 Section 2.5. Absence of Certain Changes or Events...............................6 Section 2.6. Employee Relations.................................................7 Section 2.7. Employee Benefit Plans.............................................7 Section 2.8. Owned and Leased Personal Property; Real Property..................9 Section 2.9. Litigation.........................................................9 Section 2.10. No Conflict with Other Instruments or Proceedings.................10 Section 2.11. Authorization and Enforceability..................................10 Section 2.12. Ownership of Assets...............................................10 Section 2.13. Material Contracts................................................10 Section 2.14. Intellectual Property. ..........................................11 Section 2.15. Environmental Matters.............................................11 Section 2.16. Insurance.........................................................13 Section 2.17. Brokers' Fees.....................................................13 Section 2.18. Customers and Suppliers...........................................13 Section 2.19. Product Liabilities and Warranties................................13 Section 2.20. Permits and Licenses..............................................14 Section 2.21. Compliance with Law and Other Regulations.........................14 Section 2.22. Accuracy of Statements............................................14 Section 2.23. Bank and Investment Accounts......................................14
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ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER.........................15 Section 3.1. Organization and Standing of Buyer................................15 Section 3.2. Authorization and Enforceability..................................15 Section 3.3. Brokers' Fees.....................................................15 Section 3.4. No Conflict with Other Instruments or Proceedings.................15 Section 3.5. Accuracy of Statements............................................15 ARTICLE 4 CLOSING....................................................................15 Section 4.1. Closing...........................................................15 Section 4.2. Obligations of Seller and each of Shareholders....................16 Section 4.3. Obligations of Buyer..............................................16 Section 4.4. Further Documents or Necessary Action.............................17 ARTICLE 5 COVENANTS..................................................................17 Section 5.1. Conduct of Business Pending the Closing...........................17 Section 5.2. Access............................................................18 Section 5.3. Investigation by Buyer............................................18 Section 5.4. Notice of Breach or Failure of Condition..........................18 Section 5.5. Best Efforts......................................................18 Section 5.6. Employees and Employee Benefit Plans..............................18 Section 5.7. Delivery of Property Received After Closing.......................19 Section 5.8. Transfer Taxes....................................................19 Section 5.9. Competition.......................................................19 Section 5.10. Proration of Personal Property Taxes..............................20 Section 5.11. Preservation of Records; Cooperation..............................20 Section 5.12. Confidentiality...................................................20 ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER...............................21 Section 6.1. Representations, Warranties and Covenants True at Closing; Investigation.....................................................21 Section 6.2. Performance.......................................................21 Section 6.3. Seller's Certificate..............................................21 Section 6.4. No Adverse Changes................................................21 Section 6.5. Litigation........................................................22 Section 6.6. Opinion of Counsel for Seller and each of Shareholders............22 Section 6.7. Necessary Consents; Notices.......................................22 Section 6.8. Consulting Agreement..............................................22 Section 6.9. Lease.............................................................22 Section 6.10. Net Asset Value...................................................22 Section 6.11. Board Approval....................................................22 Section 6.12. Financing.........................................................22 Section 6.13 Proceedings Satisfactory..........................................22
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ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND EACH OF SHAREHOLDERS.....................................................23 Section 7.1. Representations, Warranties and Covenants True at Closing.........23 Section 7.2. Performance.......................................................23 Section 7.3. Certificate of Buyer..............................................23 Section 7.4. Litigation........................................................23 Section 7.5. Proceedings Satisfactory..........................................23 ARTICLE 8 INDEMNIFICATION............................................................24 Section 8.1. Indemnification by Seller.........................................24 Section 8.2. Indemnification by Buyer..........................................24 Section 8.3. Environmental Liabilities.........................................25 Section 8.4. Limitations on Indemnification....................................25 Section 8.5. Third Party Claims................................................26 Section 8.6. Claims by Indemnified Party.......................................27 ARTICLE 9 TERMINATION................................................................28 Section 9.1. Termination by Mutual Consent.....................................28 Section 9.2. Termination Upon Default or Breach................................28 Section 9.3. Termination Based Upon Failure of Conditions......................28 Section 9.4. Final Expiration..................................................28 ARTICLE 10 GENERAL....................................................................28 Section 10.1. Risk of Loss......................................................28 Section 10.2. Survival of Representations, Warranties and Covenants.............28 Section 10.3. Binding Effect; Benefits; Assignment..............................28 Section 10.4. Definition of "Ordinary and Usual Course".........................29 Section 10.5. Public Disclosure.................................................29 Section 10.6. Notices...........................................................29 Section 10.7. Counterparts......................................................30 Section 10.8. Expenses..........................................................30 Section 10.9. Entire Agreement..................................................31 Section 10.10. Amendment and Waiver................................................31 Section 10.11. Severability........................................................31 Section 10.12. Headings............................................................31 Section 10.13. Governing Law.......................................................31 Section 10.14. Bulk Sales Law......................................................31
iii EXHIBITS Exhibit A Machinery, Equipment and Leasehold Improvements Exhibit B Assigned Contracts Exhibit C Intellectual Property Exhibit D Permits and Licenses Exhibit E Escrow Agreement Exhibit F Allocation Exhibit G Seller's Certificate Exhibit H Opinion of Counsel for Seller Exhibit I Consulting Agreements Exhibit J Lease Exhibit K Buyers' Certificate DISCLOSURE SCHEDULES Schedule 2.1 Organization and Standing of Seller Schedule 2.2 Financial Statements Schedule 2.3 Absence of Undisclosed Liabilities, Accounts Payable Schedule 2.4 Taxes Schedule 2.5 Absence of Certain Changes or Events Schedule 2.6 Employee Relations Schedule 2.7 Employee Benefit Plans Schedule 2.8 Owned and Leased Personal Property; Real Property Schedule 2.9 Litigation Schedule 2.10 No Conflict with Other Instruments or Proceedings Schedule 2.13 Material Contracts Schedule 2.14 Intellectual Property Schedule 2.15 Environmental Matters Schedule 2.16 Insurance Schedule 2.18 Customers and Suppliers Schedule 2.19 Product Liabilities and Warranties Schedule 2.20 Permits and Licenses Schedule 2.21 Compliance with Law and Other Regulations Schedule 2.23 Bank and Investment Accounts iv ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of May 6, 1998, by and between KILOVAC CORPORATION, a California corporation ("Buyer"), and Zerubavel ("Zev") Heifetz, a resident of Beverly Hills, California and Cesar E. Marestaing, a resident of Santa Ana, California (the "Shareholders'), and WILMAR ELECTRONICS, INC., a California corporation ("Seller"). P R E A M B L E Seller has its corporate headquarters and its operating facility at 2430 Amsler Street, Torrance, California (the "Premises") and is engaged in the design, manufacturing, marketing and sale of protective relays, digital timers, event recorders and test equipment (the "Business"). Shareholders each own fifty percent (50%) of the stock of Seller and will benefit directly from this transaction. Buyer is an affiliate of Communications Instruments, Inc., a North Carolina corporation. Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, substantially all of the assets of Seller on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, the parties agree as follows: ARTICLE 1 SALE AND PURCHASE OF ASSETS Section 1.1. Agreement to Sell Assets. On the terms and subject to the conditions of this Agreement, Seller agrees to sell, convey, assign, transfer and deliver to Buyer (as specified below), and Buyer agrees to purchase and acquire from Seller (as specified below), all of Seller's right, title and interest in and to all of the assets and property owned by Seller (collectively, the "Purchased Assets"), including without limitation, the following: (a) all cash and cash equivalents, including marketable securities, on hand or in bank or investment accounts; (b) all machinery, equipment, tooling, dies, tools, furniture and fixtures, computer terminals, office equipment, patterns, showroom models and displays, vehicles, spare parts, leasehold improvements and all other personal property of Seller, wherever located, including without limitation those items listed on Exhibit A to this Agreement and those items tagged or otherwise identified on the Closing Date as part of the Purchased Assets, together with all express and implied warranties by the manufacturers or sellers thereof, and all maintenance records, brochures, catalogues and other documents relating thereto or to the installation or functioning thereof; (c) all inventories of raw materials, work-in-process, finished goods (including all inventories consigned to dealers, sales representatives, vendors and others, or in transit), materials and supplies, wherever located; (d) all accounts receivable of Seller and all security and other deposits, credits and other current assets of Seller; (e) all of Seller's right, title and interest in and to the contracts (including exclusive supply contracts), agreements, leases, licenses and commitments, as well as any notes or other instruments evidencing sums owed Seller and any related security instruments or agreements, including without limitation those identified on Exhibit B to this Agreement; (f) all of the trademarks and trademark applications, including without limitation those listed on Exhibit C, along with associated goodwill and all rights and interests of Seller therein, all patents and patent applications, including without limitation those listed on Exhibit C, along with associated goodwill and all rights and interests of Seller therein, all know-how and trade secrets used or owned by Seller and all drawings, prints, test reports, engineering designs, assembly instructions, operations, and other technical documentation, and all know-how, trade secrets and other intellectual property not otherwise set forth owned by Seller (the "Intellectual Property"); (g) all records, customer and supplier lists, pertinent payroll information and summary of relevant information of each employee, product information, product drawings, production documentation, material specifications, equipment lists, formulae, specifications, drawings, plans, reports, data, notes, correspondence, contracts, labels, catalogues, brochures, art work, photographs, advertising materials, marketing and production literature, files and other records and documents, including the books of account, ledgers and other financial records of Seller, but excluding Seller's corporate records, tax records and minute books; (h) to the extent transferrable, all permits, licenses, orders, franchises and approvals maintained by Seller, including without limitation those identified on Exhibit D to this Agreement; (i) all choses in action, claims, causes or rights of action and intangible property rights of Seller, including without limitation restrictive covenants, confidentiality obligations and similar obligations of present and former employees; (j) the goodwill of Seller. The Purchased Assets shall be transferred to Buyer free and clear of any and all claims, liens, security interests, encumbrances, charges, obligations and other restrictions, other than Permitted 2 Encumbrances. For purposes of this Agreement, "Permitted Encumbrances" shall mean liens for current taxes that are not yet due and payable. Section 1.2. Excluded Assets. Notwithstanding the provisions of Section 1.1 of this Agreement, the Purchased Assets shall not include (i) any lease by the Seller from the owners of the Premises, and (ii) the life insurance policies on Zev Heifetz and Cesar Marastaing, respectively (collectively, the "Excluded Assets"). Section 1.3. Total Consideration. The total consideration to be paid by Buyer to Seller for the Purchased Assets and the covenants of Seller in this Agreement shall be as follows (the "Purchase Price"): (a) Payment by Buyer of the Purchase Price (as defined in this Agreement); and (b) Assumption by Buyer of the Assumed Liabilities (as defined in this Agreement). Section 1.4. Purchase Price, Purchase Price Adjustment and Escrow. (a) Buyer agrees to pay an amount equal to Two Million Two Hundred Thousand Dollars ($2,200,000.00), subject to adjustment based on the terms set forth in Sections 1.4 (b) and (c) (the "Purchase Price"). The parties agrees that Fifty Thousand Dollars ($50,000.00) of the Purchase Price shall be allocated as consideration for the non-competition covenant set forth in Section 5.9 of this Agreement. (b) The Purchase Price shall be increased or decreased on a dollar-for-dollar basis by the amount by which Seller's Net Asset Value (defined below) shall exceed or be less than, as the case may be, $775,000.00 less the cash value of life insurance owned by the Seller on Mr. Zev Heifetz and on Mr. Cesar E. Marestaing. "Net Asset Value" shall mean the Seller's current assets plus fixed assets plus goodwill less current liabilities as of the Closing Date, all according to generally accepted accounting principles applied on a consistent basis with past periods. As of the Closing Date, Seller has provided Buyer its April 30, 1998 balance sheet, and the parties have established a tentative Net Asset Value which shall be used for disbursement of funds at Closing. Within thirty (30) days after Closing, Buyer shall either elect to accept the tentative Net Asset Value, which shall then be deemed to be the Net Asset Value as of the Closing Date, or Buyer shall have had Seller's financial records reviewed or audited, at Buyer's expense, in order to establish a Net Asset Value as of the Closing Date. If an audit or review is performed, the Net Asset Value determined in such audit or review shall be deemed the Net Asset Value as of the Closing for purposes of this Agreement. The amount by which the Net Asset Value as of the Closing Date exceeds the tentative Net Asset Value shall be paid within thirty (30) days to Seller by Buyer and if the amount is below the tentative Net Asset Value shall be paid within thirty (30) days to Buyer by Seller. (c) Buyer shall pay at the Closing the Purchase Price as follows: (i) Two Hundred Fifteen Thousand Dollars ($215,000.00) of the Purchase Price shall be paid to U. S. Bank Trust National Association ("Escrow Agent") to be held and disbursed according the 2 Escrow Agreement attached as Exhibit E to this Agreement; and (ii) the remainder shall be paid to Seller. All payments shall be by wire transfer of immediately available funds in accordance with wire transfer instructions provided by Seller and Escrow Agent, respectively. (d) The Escrow Amount (as defined in the Escrow Agreement) shall be applied toward any claims for indemnification made by Buyer pursuant to Article 8 during the Eighteen (18) months after the Closing Date. If Seller notifies Buyer pursuant to Section 8.6 that it will reimburse Buyer, both Buyer and Seller shall execute a Joint Instruction (as defined in the Escrow Agreement) to the Escrow Agent directing payment of such claim to Buyer. If any claims of Buyer are disputed during such eighteen (18) month period, the amount of the claim shall be held by the Escrow Agent (during and after the 18 month period) until the conditions for disbursement under Section 2(B) of the Escrow Agreement are satisfied. At the end of such eighteen (18) months if the remaining Escrow Amount exceeds the total of all disputed claims, the Buyer and Seller will execute a Joint Instruction to the Escrow Agent directing payment of such excess to Seller. Buyer hereby guarantees to Seller than all funds held by the Escrow Agent hereunder shall accrue interest at a minimum rate of eight percent (8%) per annum, and Buyer agrees to pay Seller for any deficiency resulting from the failure of the funds to accrue such interest. For example $215,000.00, compounded annually at 8%, would result in $241,488.00 after 18 months. Section 1.5. Assumption of Certain Liabilities; Other Liabilities Not Assumed. (a) At the Closing Buyer shall assume and agree to pay, perform and discharge, when due (i) the liabilities and obligations of Seller arising with respect to periods from and after the Closing Date under the contracts listed on Exhibit B to this Agreement and (ii) all accounts payable of Seller up to a maximum aggregate of $40,000.00 (for all payables) and (iii) and all product warranty (but not product liability) claims, up to a maximum aggregate of $20,000.00 (for all claims), relating to products shipped by Seller within the one (1) year period immediately preceding the Closing (collectively, subsections 1.5(a)(i), (ii) and (iii) are hereinafter referred to as the "Assumed Liabilities"). (b) Except for the Assumed Liabilities, Buyer shall not assume or be obligated to pay, perform or discharge any liability, obligation, debt, charge or expense of Seller of any kind, description or character, whether accrued, absolute, contingent or otherwise, and whether or not disclosed to Buyer in the Disclosure Schedule (defined below) or otherwise. Without limiting the generality of the foregoing, and notwithstanding anything to the contrary contained in this Agreement, except for the Assumed Liabilities, Buyer shall not assume or be obligated to pay, perform or discharge any liability, obligation, debt, charge or expense of Seller, even if imposed upon Buyer as a successor to Seller, with respect to any action, suit, proceeding or claim arising out of or relating to any event occurring, or with respect to any cause of action arising, before the Closing Date, whether or not asserted before or after the Closing Date, including without limitation any liability, obligation, debt, charge or expense related to: taxes; Employee Benefit Plans (as defined in Section 2.7 4 below) or other employee benefits, environmental matters; agreements with sales representatives; obligations or policies; termination and severance pay; judgments; product warranty claims; product liability claims; and contractual claims. Seller shall be liable for all product liability claims arising from products shipped by Seller on or before the Closing Date. Seller shall be liable for all costs and expenses relating to or arising from the presence of any Hazardous Material (defined below) present before or after the Closing Date at, in or under any real property now or previously owned, leased or used by Seller (including, without limitation, the Premises), and for any violations of Environmental Laws by Seller, and Buyer reserves all of its rights, including those under CERCLA (defined below), to seek reimbursement of any such costs or expenses. Section 1.6. Allocation of Consideration. The Purchase Price has been agreed upon by the parties and the values assigned to the various assets which constitute the Purchased Assets are listed on Exhibit F attached hereto. The parties agree that Fifty Thousand Dollars ($50,000.00) of the Purchase Price shall be allocated as consideration for the non-competition covenant set forth in Section 5.9 of this Agreement. The parties agree to furnish each other and the Internal Revenue Service with such applicable information as may be required by Section 1060 of the Internal Revenue Code or the Regulations thereunder and to cooperate in the completion and timely filing of IRS Form 8594 (Asset Acquisition Statement). ARTICLE 2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AND SHAREHOLDERS Seller and Shareholders, jointly and severally, represent, warrant and covenant to Buyer as follows: Section 2.1. Organization and Standing of Seller. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of California. Seller has all requisite corporate power and authority to own, lease and operate its properties now owned or leased by Seller and to carry on the Business as presently conducted. Neither the character of the Purchased Assets nor the nature of the business transacted by Seller make the licensing or qualification of Seller as a corporation necessary in any state or jurisdiction other than those states and jurisdictions identified on Schedule 2.1 of the Disclosure Schedule delivered to Buyer by Seller simultaneously with the execution of this Agreement (the "Disclosure Schedule"). Seller is duly qualified to do business as a corporation in each of the jurisdictions identified on Schedule 2.1 of the Disclosure Schedule and is in good standing in all of those states and jurisdictions. Section 2.2. Financial Statements. A copy of the financial statements, including a balance sheet and statement of income, of Seller as of and for the fiscal years ended September 30, 1995, September 30, 1996, and September 30, 1997 (the "Financial Statements") has been provided by Seller to Buyer. The Financial Statements are in accordance with the books and records of Seller, 5 have been prepared in conformity with generally accepted accounting principles applied on a basis consistent throughout such periods and consistent with prior periods, and, except as set forth in Schedule 2.2 of the Disclosure Schedule, present fairly the financial condition of the Seller as of the dates indicated and the results of operations and changes in financial position for the periods then ended. Seller has also provided to Buyer copies of the interim balance sheet and interim statement of income of the Seller as of and for each month-end during the current fiscal year to and including March 31, 1998 and April 30, 1998, in each case prepared internally by Seller (collectively, the "Interim Financial Statements"). The Interim Financial Statements are in accordance with the books and records of Seller, have been prepared in conformity with generally accepted accounting principles applied on a basis consistent with similar statements for prior periods, and, except as set forth in Schedule 2.2 of the Disclosure Schedule, present fairly the financial condition of the Seller as of the dates indicated and its results of operations and changes in financial position for the periods then ended. Section 2.3. Absence of Undisclosed Liabilities, Accounts Payable. Except as expressly disclosed or reserved against on the most recent balance sheet included in the Interim Financial Statements or as specifically set forth in Schedule 2.3 of the Disclosure Schedule, Seller does not have any debts, liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, whether due or to become due, including without limitation guarantees, liabilities or obligations on account of taxes, other governmental charges, duties, penalties, interest or fines, other than current liabilities for trade payables incurred in the ordinary and usual course of business since the date of the most recent balance sheet included in the Interim Financial Statements. As of the date of this Agreement, Seller's accounts payable do not, and as of the Closing Date Seller's accounts payable shall not, exceed $40,000.00. Section 2.4. Taxes. Except as disclosed in Schedule 2.4 of the Disclosure Schedule: (i) Seller has filed all federal, state, local and foreign tax returns when and as Seller has been or is required by law to file and such returns are true and correct in all material respects; (ii) Seller has paid, and will pay for all periods ending on or before the Closing Date, all taxes and assessments when and as the same shall be due and payable by Seller, including without limitation income, excise, unemployment, social security, occupation, franchise, property, sales and use taxes and all penalties and interest in respect thereof; (iii) Seller has withheld and paid over, and will withhold and pay over for all periods ending on or before the Closing Date, all federal, state, local and foreign withholdings required by law; and (iv) no tax incentive, abatement or other similar credit exists which in any way relates to the Purchased Assets, the Business, or the employees of Seller which contains provisions for the repayment of any tax benefit. Section 2.5. Absence of Certain Changes or Events. Except as disclosed in Schedule 2.5 of the Disclosure Schedule, since February 28, 1998, Seller has: (i) conducted Seller's business in the ordinary and usual course; and (ii) maintained Seller's records and books of account in a manner that fairly and accurately reflects Seller's transactions, assets and liabilities in accordance with generally accepted accounting practices consistently applied. Except as set forth in Schedule 2.5 of the Disclosure Schedule, since February 28, 1998, there has been no adverse change in Seller's 6 condition, financial or otherwise, the Purchased Assets or in Seller's business or properties which is not reflected in the Interim Financial Statements. Section 2.6. Employee Relations. Seller has identified on Schedule 2.6(a) all of the officers and employees of Seller ("Employees") which for each listed individual gives his or her salary or wage rate and fringe benefits and, for each Key Employee (defined below), his or her position. Except as disclosed in Schedule 2.6 (b) of the Disclosure Schedule: (i) to the knowledge of Seller, there is not now in existence or pending, nor has there been at any time, any strike, slowdown, work stoppage, organizational effort, grievance, arbitration, administrative hearing, claim of unfair labor practice, wrongful discharge, employment discrimination or sexual harassment, or other employment dispute of any nature, pending or threatened, against Seller; (ii) Seller is, and during all applicable limitation periods has been, in compliance with all applicable federal, state, local and foreign laws, executive orders and regulations respecting employment and employment practices, terms and conditions of employment, occupational health and safety, wages and hours; (iii) Seller is not a party to any written or oral, express or implied, collective bargaining agreement or other contract, agreement or arrangement with any labor union or any other similar arrangement that is not terminable at will by Seller without cost, liability or penalty and Seller has no knowledge of any current union organizing activity; (iv) Seller is not a party to any written or oral, express or implied, contract, agreement or arrangement with any of Seller's present or former officers, employees or consultants with respect to length, duration or conditions of employment (or the termination thereof), salaries, bonuses, percentage compensation, deferred compensation or any other form of remuneration which is not terminable at will by Seller without penalty; and (v) there is no pending or threatened claim against Seller for violation of any contract, agreement or arrangement described in (iii) or (iv) above, nor is there any factual basis upon which a claim could be sustained. A copy of each employee policy manual and handbook provided to or governing the Employees is attached as Schedule 2.6 (c). Except for Mr. Rahmeyer who has expressed his intent not to work with the Buyer after the end of six months after Closing, no Key Employee of Seller has notified Seller of an intention to terminate employment. In this Section, "Key Employee" means any Employee who is presently, or during Seller's last fiscal year was, compensated (including bonuses) at an annual rate of more than Forty Thousand Dollars ($40,000) per year. Section 2.7. Employee Benefit Plans. (a) Set forth in Schedule 2.7 is an accurate and complete list of all Employee Benefit Plans (as defined below) established, maintained or contributed to by Seller (including, for this purpose and for the purpose of all of the representations in this Section 2.7, all employers (whether or not incorporated) which by reason of common control are treated together with the Seller as a single employer within the meaning of Section 414 of the Internal Revenue Code (the "Code")). The term "Employee Benefit Plan" shall include all employee benefit plans within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not any such Employee Benefit Plans are otherwise exempt from the provisions of ERISA, and also shall include, without limitation, any nonqualified deferred compensation plans, employee benefit plans for former employees, any employment arrangement, and any other pension, stock, vacation, 7 disability or other benefit plan, policy or arrangement, whether or not covered by ERISA, whether written or oral, whether funded or unfunded, covering Employees or former employees of the Seller. (b) Seller does not maintained or contributed to any Employee Benefit Plan which is not in compliance with its terms, ERISA, the Code and any other applicable laws and regulations, and Seller is not liable for any material fine, excise tax or loss of income tax deduction with respect to the operation of any Employee Benefit Plan. Seller does not maintain or contribute to, and has never maintained or contributed to, an Employee Benefit Plan which is subject to Title IV or ERISA or which is a "multiemployer plan" as defined in ERISA Section 4001. Seller does not maintain or contribute to any Employee Benefit Plan which has incurred any accumulated funding deficiency within the meaning of Code Section 412 or 418B, or which has applied for or obtained a waiver from the IRS of any minimum funding requirement under Code Section 412. (c) Except as disclosed on Schedule 2.7, each Employee Benefit Plan established, maintained or contributed to by the Seller that is intended to be qualified under Section 401(a) of the Code has been determined to be so qualified by the Internal Revenue Service and nothing has occurred since the date of the last such determination which resulted or is likely to result in the revocation of such determination. (d) No promise has been made nor any liability incurred by Seller for post-retirement health or life insurance or other post-retirement benefits. (e) Seller has been and is now in compliance with the "COBRA" health care continuation requirements of ERISA Sections 601-608 and Code Section 4980B and any applicable state continuation coverage laws. (f) Seller has delivered or caused to be delivered or made available to Buyer or its counsel true and complete copies of (i) all Employee Benefit Plans established, maintained or contributed to by the Seller, together with all amendments thereto including those which will become effective at a later date, as well as the latest Internal Revenue Service determination letter obtained with respect to any such Employee Benefit Plan qualified under Section 401 or 501 of the Code and (ii) Form 5500 or Form 5500-C/R, as applicable, for the three most recently completed fiscal years for each such Employee Benefit Plan required to file such form, and (iii) the most recent Summary Plan Description (plus all subsequent Summaries of Material Modification) for each such Employee Benefit Plan subject to the Summary Plan Description requirements of ERISA Section 104(b). (g) Seller has not engaged in any transaction with respect to the Employee Benefit Plan which could subject it to a tax, penalty or liability for prohibited transactions under ERISA or the Code, nor has Seller or any of its officers or employees, to the extent it or any of them are fiduciaries with respect to such plans, breached any responsibilities or obligations imposed upon fiduciaries under Title I of ERISA which may result in any claim 8 being made under or by or on behalf of any such plans by any party with standing to make such claim. (h) All amounts which Seller is required to have paid as contributions to any Employee Benefit Plan have been paid within the time prescribed by applicable law or under the Employee Benefit Plan or any agreement relating to any Employee Benefit Plan to which Seller is a party. Seller has made adequate provision for reserves to meet any such contributions that have not been made and such reserves are shown on Seller's financial statements. Benefits under all Employee Benefit Plans are as represented and have not been increased or decreased subsequent to the date as of which documents have been provided to Buyer. (i) There are no pending or threatened claims (other than routine claims for benefits) or lawsuits, and no facts or events exist that reasonably could be expected to give rise to any claims (other than routine claims for benefits) or lawsuits with respect to any Employee Benefit Plan. Section 2.8. Owned and Leased Personal Property; Real Property. Schedule 2.8 of the Disclosure Schedule identifies all tangible personal property that Seller owns or leases other than immaterial items of tangible personal property (the "Personal Property"). Except for Permitted Encumbrances and as set forth in Schedule 2.8 of the Disclosure Schedule, Seller owns all of the Personal Property (other than leased Personal Property) free and clear of all claims, liens, security interests, encumbrances, charges, obligations and other restrictions. Except as disclosed on Schedule 2.8 of the Disclosure Schedule, neither Seller nor any other party is in default under the terms of any lease with respect to Personal Property, and all such leases are in full force and effect. Schedule 2.8 of the Disclosure Schedule includes an attached copy of each such written lease or a description of each such oral lease. Schedule 2.8 of the Disclosure Schedule describes all tangible personal property that Seller uses or possesses but does not own or lease, and all tangible personal property that Seller owns or leases but does not possess and, in the latter case, gives the location of the property. All personal property that Seller owns or leases will be in the possession of Seller on the Closing Date or at the location specified on Schedule 2.8. Except as disclosed on Schedule 2.8 of the Disclosure Schedule, all of the Purchased Assets which are tangible property are in good-operating condition and, in the case of inventory, in good, salable condition. No tangible personal property other than the Personal Property will be needed by Buyer to operate the Business after the Closing in the manner in which the Business was operated immediately prior to the Closing. Except as identified on Schedule 2.8 of the Disclosure Schedule, Seller does not now and has never in the past owned or leased any real property or premises and does not know and has never in the past operated from any real property or premises, other than Seller's current lease of the Premises. As of the Closing, the Seller's lease of the Premises has been terminated. Section 2.9. Litigation. Except as set forth in Schedule 2.9 of the Disclosure Schedule, there is no suit, action, proceeding (legal, administrative or otherwise), claim, investigation or inquiry (by an administrative agency, governmental body or otherwise) pending or, to the knowledge of Seller, threatened against Seller or any of the properties, assets, or business prospects of Seller, 9 or to which Seller is or, to the knowledge of Seller, is reasonably likely to become, a party, and Seller knows of no factual basis upon which any such suit, action, proceeding, claim, investigation or inquiry could reasonably likely be sustained. There is no outstanding judgment, order, writ, injunction or decree of any court, administrative agency, governmental body or arbitration tribunal against or affecting Seller or any of the properties, assets or business prospects of Seller, except as disclosed in Schedule 2.9 of the Disclosure Schedule. Section 2.10. No Conflict with Other Instruments or Proceedings. Except as disclosed in Schedule 2.10 of the Disclosure Schedule, the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not: (i) result in the breach of any of the terms or conditions of, or constitute a default under, the Articles of Incorporation or the Bylaws of Seller or any contract, agreement, lease, commitment, indenture, mortgage, pledge, note, bond, license or other instrument or obligation of Seller and to which Seller is now a party or by which Seller or any of Seller's properties or assets may be bound or affected; or (ii) violate any law, rule or regulation of any administrative agency or governmental body or any order, writ, injunction or decree of any court, administrative agency or governmental body. All consents, approvals or authorizations of, or declarations, filings or registrations with, any third parties or governmental or regulatory authorities required of Seller in connection with the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated by this Agreement are set forth in Schedule 2.10 of the Disclosure Schedule. Seller shall obtain or make, as applicable, all such consents, approvals, authorizations, declaration, filings and registrations before the Closing Date. Section 2.11. Authorization and Enforceability. Seller has full capacity, power and authority to enter into this Agreement and all ancillary agreements and to carry out the transactions contemplated by this Agreement, and this Agreement and all ancillary agreements are binding upon Seller and are enforceable against Seller in accordance with their respective terms. Section 2.12. Ownership of Assets. Seller owns the Purchased Assets free and clear of all liens, charges, pledges, security interests, encumbrances or other claims whatsoever, save and except Permitted Encumbrances and those liens, charges, pledges, security interests and encumbrances existing on the date hereof as set forth in Schedule 2.8 of the Disclosure Schedule, all of which (other than Permitted Encumbrances) shall be discharged by Seller at or before the Closing. Section 2.13. Material Contracts. Schedule 2.13 of the Disclosure Schedule contains a list of (i) the ten (10) largest customers, by dollar volume of sales, of Seller for the twelve (12) months ended September 30, 1998 and September 30, 1997 and the approximate total sales to each customer for each of those periods; (ii) the ten (10) largest suppliers, by dollar volume of purchases, of Seller for each of the twelve (12) month periods ended September 30, 1998 and September 30, 1997; (iii) a list of all other contracts (including without limitation product sales or service documentation), leases and other obligations of Seller which involve amounts greater than $10,000.00 or with a term of greater than two (2) years; and (iv) any contract out of the ordinary and usual course of business (collectively, the "Material Contracts"). Except as disclosed in Schedule 2.13 of the Disclosure Schedule, Seller has not given any power of attorney to any person, firm or corporation for any 10 purpose whatsoever. All of the Material Contracts are valid and enforceable in accordance with their terms, and Seller and all other parties to each of the Material Contracts have performed in all respects all obligations required to be performed in connection therewith. Neither Seller nor any other party is in default or in arrears under the terms of any of the Material Contracts, and no condition exists or event has occurred that, with the giving of notice or the lapse of time or both, would constitute a default under any of them. No person, firm or corporation has any written or oral agreement, option, understanding or commitment, or any right or privilege capable of becoming an agreement, for the purchase from Seller of any of the Purchased Assets. Schedule 2.13 of the Disclosure Schedule also contains a complete and current list of all purchase orders of Seller. Section 2.14. Intellectual Property. Schedule 2.14 of the Disclosure Schedule describes all patents, patent applications, inventions upon which patent applications have not yet been filed, service marks, trade names, trademarks, trademark registrations and applications, copyrighted works and copyright registrations and applications that Seller owns, possesses or uses, and, unless otherwise indicated in Schedule 2.14, Seller will own the entire right, title and interest in and to the same on the Closing Date, free and clear of all claims, liens, licenses, sublicenses, charges or encumbrances. To the knowledge of Seller, there is no infringement or unlawful use by any person or entity of any such patents, service marks, trade names, trademarks or copyrights. Except as set forth in Schedule 2.14 of the Disclosure Schedule, Seller has not infringed or unlawfully used the patents, service marks, trade names, trademarks, copyrights or other proprietary rights of any other person or entity. Schedule 2.14 of the Disclosure Schedule also sets forth a list of all licenses that were granted to Seller by others or to others by Seller. Schedule 2.14 of the Disclosure Schedule also sets forth all agreements relating to technology, know-how or procedures that Seller is licensed or authorized to use by others. No patents, patent applications, service marks, trade names, trademarks, trademark registrations or applications, copyrighted works, copyright registrations or applications or grants of licenses set forth in Schedule 2.14 of the Disclosure Schedule are subject to any pending or, to the knowledge of Seller, threatened, claim or challenge, and, to the knowledge of Seller, there is no valid basis for sustaining any claim or challenge, except as set forth in Schedule 2.14 of the Disclosure Schedule. The manufacturing and engineering drawings, process sheets, specifications, bills of material, trade secrets, "know how," and other like data of Seller are in such form and of such quality that Buyer can, following the Closing, design, produce, manufacture, assemble and sell the products and provide the services heretofore provided by Seller in a manner that meets the applicable specifications and conforms with the quality standards heretofore met by Seller. Except for the licenses and rights listed in Schedule 2.14 of the Disclosure Schedule, Seller does not require a license or other proprietary right to operate the Business or to manufacture or sell the products or perform any services associated with the Purchased Assets or the Business. Section 2.15. Environmental Matters. For purposes of this Section 2.15: (i) "Seller" shall mean Seller and each prior or subsequent owner or operator of the Premises; (ii) "Environmental Law" shall mean any federal, state or local law (including common law), statute, regulation, ordinance, published guideline or standard, or order, or agreement or consent order to which Seller is or has been party, including a permit issued pursuant to any of the foregoing, related to air quality, water quality, solid waste management, hazardous or toxic substances or the protection of public health, natural resources or the environment, including without limitation the Comprehensive 11 Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"); and (iii) the term "Hazardous Material" shall mean any hazardous substances as defined by CERCLA, petroleum or any petroleum derivative or by-product, and any pollutant, contaminant, solid waste or hazardous or toxic waste or substance which is defined or regulated as such by any Environmental Law. (a) Except as set forth in Schedule 2.15 of the Disclosure Schedule, Seller is presently and at all times has been in compliance with all applicable Environmental Laws; (b) Except as set forth in Schedule 2.15 of the Disclosure Schedule, Seller has not treated, stored or disposed of, or knowingly permitted the treatment, storage or disposal of, Hazardous Materials on real property owned, leased or used by Seller at any time; (c) Except as set forth on Schedule 2.15 of the Disclosure Schedule, there are no writs, injunctions, decrees, orders or judgments outstanding, and no lawsuits, claims, or other proceedings pending or threatened, relating to Seller or its ownership, use, maintenance or operation of the Purchased Assets under any Environmental Law, nor is there any agreement or consent order to which Seller is a party in relation to any environmental matter, nor is any such agreement or order necessary for the continued compliance by Seller with any Environmental Law. In addition, except as set forth in Schedule 2.15 of the Disclosure Schedule, there are no investigations or inquiries pending or threatened relating to Seller or Seller's ownership, use, maintenance or operation of the Purchased Assets under any Environmental Law; (d) Except as set forth on Schedule 2.15 of the Disclosure Schedule, the real and personal property owned or leased at any time by Seller does not contain any underground storage tanks ("USTs"), receptacles or other similar underground containers or depositories; (e) Except as described on Schedule 2.15 of the Disclosure Schedule, the operations of Seller or its employees, agents or contractors have not caused and will not cause: (i) environmental contamination of any real or personal property currently or previously owned, leased, or used by Seller; or (ii) any other condition that could give rise to a claim against Seller or Buyer under any Environmental Law. Except as described on Schedule 2.15 of the Disclosure Schedule, to the knowledge of Seller, all such real or personal property is free of environmental contamination. For purposes of this Agreement, "environmental contamination" shall mean the release or presence of Hazardous Materials to, on, or in the air, soil, groundwater or surface waters at times or in concentrations or quantities sufficient to result in the assertion of any reporting requirements, cleanup liabilities, claims, obligations, fines or penalties under any Environmental Laws. Schedule 2.15 of the Disclosure Schedule contains a complete list of all of Seller's environmental emission or discharge, waste transportation, storage and disposal licenses, permits, regulatory plans, identification numbers and compliance schedules that are required for the operation of the Business under any Environmental Law, together with the durations and renewal dates 12 thereof, complete copies of each of which are located at Seller's facilities. Schedule 2.15 of the Disclosure Schedule also contains a complete list of all on-site treatment, storage and disposal facilities presently, or at any time in the past, used by Seller. Except as disclosed on Schedule 2.15 of the Disclosure Schedule: (i) none of the sites listed on Schedule 2.15 of the Disclosure Schedule is a priority site or proposed priority site (or a site under consideration for proposal) on the United States National Priorities List under CERCLA, or has been designated as a Superfund site thereunder or a site to which moneys authorized under CERCLA are being spent or applied, or is listed on, or is being considered for listing on, any priority list maintained under any state or foreign law similar to CERCLA or is subject to, or being considered for, any enforcement action under any other Environmental Law, and none of the real property that Seller owns, leases or uses has been designated as such a site. Section 2.16. Insurance. Schedule 2.16 of the Disclosure Schedule contains a list of all policies of liability, crime, fidelity, life, fire, product liability, workers' compensation, health, director and officer liability, and all other forms of insurance that Seller owns or holds, including without limitation those that relate to the Purchased Assets, the Business, or the Employees, including for each policy the name of the insurer, the amount of coverage, the type of insurance, the policy number, the renewal or expiration date, and all pending claims thereunder. All of the insurance policies listed in Schedule 2.16 of the Disclosure Schedule are outstanding and in full force, all premiums with respect to those policies are currently paid and all duties of the insured under those policies have been fully discharged. The present insurance coverage of Seller, as set forth in Schedule 2.16 of the Disclosure Schedule, currently is and will remain in full force and effect through the Closing Date. Seller's complete workers' compensation and general liability claim experience for the past three (3) years is accurately summarized in Schedule 2.16 of the Disclosure Schedule. Section 2.17. Brokers' Fees. Except for compensation which Seller must pay to Gardiner & Rauen, Inc., Seller has not incurred any liability for brokers' fees, finders' fees, agents' commissions, financial advisory fees or other similar forms of compensation in connection with this Agreement or any transaction contemplated by this Agreement. Section 2.18. Customers and Suppliers. Except as set forth on Schedule 2.18 of the Disclosure Schedule, there has not been any adverse change in the business relationship of Seller with any customer or supplier listed on Schedule 2.13 of the Disclosure Schedule, nor, to the knowledge of Seller, could an adverse change be anticipated as a result of the consummation of the transactions contemplated by this Agreement. Except as disclosed in Schedule 2.18 of the Disclosure Schedule, all orders and commitments were made in the ordinary and usual course of business. Except as disclosed on Schedule 2.18 of the Disclosure Schedule, there are no pending or, to the knowledge of Seller, threatened claims against Seller to return products or to require repairs or replacement to products sold or services rendered, by reason of alleged overshipments, defective products or services or otherwise. Section 2.19. Product Liabilities and Warranties. There are no express or implied warranties applicable to products sold or services provided by Seller, except as disclosed on 13 Schedule 2.19 of the Disclosure Schedule. Except as disclosed on Schedule 2.19 of the Disclosure Schedule, there is no action, suit, proceeding or claim pending or, to the knowledge of Seller, threatened against Seller with respect to products sold or services provided by Seller under any warranty, express or implied, and, to the knowledge of Seller, there is no basis upon which any claim could be sustained. Schedule 2.19 of the Disclosure Schedule also summarizes all product liability claims that have been asserted against Seller with respect to products sold or services provided during the five (5) years preceding the date of this Agreement. For each of the products sold by Seller, the last Product Date Code (identifying the last product sold by Seller) as of the Closing Date is set forth on Schedule 2.19. Section 2.20. Permits and Licenses. All permits, licenses, orders and approvals necessary for Seller to operate the Purchased Assets and carry on the Business as presently conducted are identified on Schedule 2.20 of the Disclosure Schedule, are in full force and effect, and have been complied with by Seller in all material respects. All fees and charges incident to those permits, licenses, orders and approvals have been fully paid and are current, and, to the knowledge of Seller, no suspension or cancellation of any such permit, license, order, or approval has been threatened or is reasonably likely to result by reason of the transactions contemplated by this Agreement. Section 2.21. Compliance with Law and Other Regulations. Except as set forth on Schedule 2.21 of the Disclosure Schedule, Seller is in material compliance with all foreign, federal, state and local laws, statutes, regulations, ordinances, policy, guideline and standard. Except as set forth on Schedule 2.21 of the Disclosure Schedule, Seller is not subject to nor, to Seller's knowledge, has Seller been threatened with, any fine, penalty, liability or disability as the result of a failure to comply with any requirement of foreign, federal, state and local law, statute, regulation, ordinance, policy, guideline or standard or any requirement of any governmental body or agency having jurisdiction over Seller, the conduct of the Business, the use of the Purchased Assets or any premises occupied by Seller. There are no outstanding work orders relating to the Purchased Assets or the Business from or required by any police or fire department, sanitation, health or factory authorities or from any foreign, federal, state or local department or authority or any matters under discussion with any such departments or authorities relating to work orders. Section 2.22. Accuracy of Statements. The Confidential Report of Wilmar Electronics, Inc., dated December 1997 (the "Report"), has been provided to Buyer and is incorporated herein by reference. No representation or warranty made by Seller in this Agreement, the Report, the Disclosure Schedule, or any statement, certificate or schedule furnished, or to be furnished, to Buyer pursuant to this Agreement, or in connection with the transactions contemplated by this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained therein not misleading. The foregoing representations, warranties and covenants shall be deemed to be made as of the date of this Agreement and again as of the Closing Date. Section 2.23. Bank and Investment Accounts. Schedule 2.23 sets forth a list of all bank and investment accounts and safe deposit boxes in the name of or controlled by the Seller and details about the persons having access thereto. 14 ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER Buyer represents, warrants and covenants to Seller and Shareholders as follows: Section 3.1. Organization and Standing of Buyer. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina. Section 3.2. Authorization and Enforceability. Buyer has full capacity, power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, and this Agreement and all ancillary agreements are binding upon Buyer and are enforceable against Buyer in accordance with their terms. Section 3.3. Brokers' Fees. Buyer has not incurred any liability for brokers' fees, finders' fees, agents' commissions, financial advisory fees or other similar forms of compensation in connection with this Agreement or any transaction contemplated by this Agreement. Section 3.4. No Conflict with Other Instruments or Proceedings. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not : (i) result in the breach of any of the terms or conditions of, or constitute a default under, the Articles of Incorporation or the Bylaws of Buyer; or (ii) violate any law, rule or regulation of any administrative agency or governmental body or any order, writ, injunction or decree of any court, administrative agency or governmental body. No consents, approvals, or authorizations of, or declarations, filings or registrations with, any third parties or governmental or regulatory authorities are required of Buyer in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement. Section 3.5. Accuracy of Statements. No representation or warranty made by Buyer in this Agreement, or any statement, certificate or schedule furnished, or to be furnished, to Seller pursuant to this Agreement, or in connection with the transactions contemplated by this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained therein not misleading. The foregoing representations, warranties and covenants shall be deemed to be made as of the date of this Agreement and again as of the Closing Date. ARTICLE 4 CLOSING Section 4.1. Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place in the offices of Seller in Torrance, California, at 10:00 a.m., local time, 15 on May 6, 1998, or at such other place, time and date as the parties may agree (the "Closing Date"), and the closing shall be effective as of 12:01 a.m. May 6, 1998. Section 4.2. Obligations of Seller and each of Shareholders. At the Closing, Seller and each of Shareholders shall deliver to Buyer: (a) Bills of sale, endorsements, assignments and such other instruments of transfer as are sufficient, in the judgment of Buyer and its counsel, to vest in Buyer ownership of the Purchased Assets (as contemplated by this Agreement), free and clear of any and all claims, liens, security interests, encumbrances, charges, obligations and other restrictions, other than Permitted Encumbrances; (b) All records and other documents to be acquired by Buyer pursuant to this Agreement; (c) The certificate of Seller and Shareholders described in Section 6.3 of this Agreement; (d) The opinion of Doran M. Tisser, Esq., counsel to Seller and Shareholders, as described in Section 6.6 of this Agreement; and (e) A certified copy of resolutions of Seller's Shareholders and Board of Directors authorizing the consummation of the transactions contemplated by this Agreement. In addition to the documents and other items specifically described above, Seller and Shareholders shall execute and deliver other instruments at the Closing as described in Articles 6 and 7 of this Agreement. Section 4.3. Obligations of Buyer. At the Closing, Buyer shall deliver to Seller and Shareholders: (a) Such assumption documents and agreements as are sufficient, in the reasonable judgment of Seller and its counsel, for the assumption by Buyer of the Assumed Liabilities; (b) The certificate of Buyer described in Section 7.3 of this Agreement; (c) The Purchase Price, by wire transfer of immediately available funds in accordance with wire transfer instructions provided by Seller to Buyer; and (d) A certified copy of resolutions of Buyer's Board of Directors authorizing the consummation of the transactions contemplated by this Agreement. 16 In addition to the documents and other items specifically described above, Buyer shall also execute and deliver other instruments at the Closing as described in Articles 6 and 7 of this Agreement. Section 4.4. Further Documents or Necessary Action. Buyer, Seller and each of Shareholders agree to take all such further actions on or after the Closing Date as Buyer or Seller may deem to be reasonably necessary, desirable or appropriate to effectuate the transactions contemplated in this Agreement. ARTICLE 5 COVENANTS Seller and Shareholders agree with Buyer, and Buyer agrees with Seller and each of Shareholders to the following covenants, each of which shall survive the Closing pursuant to their terms: Section 5.1. Conduct of Business Pending the Closing. During the period from the date of this Agreement to the Closing Date, Seller shall act, and shall conduct the Business, in the ordinary and usual course and maintain Seller's records and books of account in a manner that fairly and accurately reflects Seller's transactions, assets, liabilities, income and expense, in accordance with generally accepted accounting principles applied on a basis consistent with prior periods. Seller shall preserve intact the present business organization and personnel of Seller, preserve the present goodwill of Seller with all persons having business dealings with Seller and comply with all laws applicable to Seller and to the Purchased Assets and the conduct of the Business. Without limiting the foregoing, Seller agrees that from the date of this Agreement to the Closing Date, Seller shall not without the written consent of Buyer: (a) entertain, enter into or continue any negotiations, discussions or agreements with anyone other than Buyer contemplating or respecting the acquisition by such other person or entity of all or part of the Seller, the Purchased Assets or the Business, whatever the form such purchase transaction may contemplate; (b) take any action that would interfere with or prevent performance of this Agreement; (c) do or suffer to be done any act or event described in Section 2.5 of this Agreement or otherwise engage in any activity or enter into any transaction that would be inconsistent in any respect with any of the representations, warranties or covenants of Seller set forth in this Agreement, as if those representations, warranties and covenants were made after the activity or transaction and all references to the date of this Agreement were deemed to be the later date; and 17 (d) make or allow to be made any dividend or distribution to the shareholders of Seller. Section 5.2. Access. During the period from the date of this Agreement to the Closing Date, Seller shall cause Buyer and its designated representatives and agents to be given reasonable access to the buildings, offices, records, files, insurance policies, and any and all other records of the Seller, for the purpose of conducting an investigation of the Purchased Assets, litigation and all other matters relating to the Business; provided, however, that the investigation shall be conducted in a manner that does not unreasonably interfere with the normal operations and employee relationships of Seller. Subject to the foregoing, Seller shall cause its officers and other employees to assist Buyer in making the investigation and shall cause the accountants (both internal and independent), officers and other employees and representatives of Seller to be available to, cooperate with, and assist Buyer. During the investigation, Buyer shall have the right to make copies of such records, files, tax returns and other materials as Buyer may deem advisable at Buyer's expense. Seller shall respond fully to all inquiries. Section 5.3. Investigation by Buyer. Notwithstanding any other provision of this Agreement, no investigation by Buyer or its employees, attorneys, independent accountants, business consultants or other representatives or agents shall affect in any manner the representations, warranties or covenants of Seller and each of Shareholders set forth in this Agreement (or in any document to be delivered in connection with the consummation of the transactions contemplated by this Agreement) or Buyer's right to rely thereon, and those representations, warranties and covenants shall survive the investigation. Section 5.4. Notice of Breach or Failure of Condition. Buyer and Seller shall give prompt notice to the other party of the occurrence of any event or the failure of any event to occur that might preclude or interfere with the satisfaction of any condition precedent to the obligations of such other party under this Agreement. Section 5.5. Best Efforts. Seller and each of Shareholders shall use its best efforts to obtain all consents and approvals necessary to transfer the Purchased Assets to Buyer in accordance with the terms of this Agreement, and to bring about the satisfaction of the conditions required to be performed, fulfilled and complied with by Seller and each of Shareholders pursuant to this Agreement and to take or cause to be taken all action, and to do or cause to be done all things, necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as expeditiously as practicable. Without limiting the generality of the foregoing, Seller and each of Shareholders shall, to the extent requested, cooperate with and assist Buyer in obtaining all licenses, permits and the authorizations required to be obtained by Buyer in connection with the ownership of the Purchased Assets and operation of the Business, which licenses, permits and authorizations are not included in the Purchased Assets. Section 5.6. Employees and Employee Benefit Plans. Seller will continue to maintain responsibility for and comply with any applicable state continuation coverage laws following the 18 Closing Date with respect to its Employees and former employees. Buyer shall not assume nor in any way be liable for any Employee Benefit Plan or for any other obligations of Seller to Employees or former employees of Seller. Seller shall retain all liability and responsibility for its Employees Benefit Plans. Seller will treat its termination of Employees as a "termination" of its Employees Benefit Plans under Code Section 411(d)(3), thereby resulting in the 100% vesting of Employees who have become participants under those plans. Section 5.7. Delivery of Property Received After Closing. From and after the Closing, Seller and each of Shareholders shall promptly transfer to Buyer, from time to time, any cash or other property received by Seller and each of Shareholders (including without limitation any payments on accounts receivables) that is associated with or relates to the Purchased Assets. Section 5.8. Transfer Taxes. Buyer shall pay all federal and local sales/transfer taxes incurred in connection with the transfer to Buyer of the Purchased Assets under this Agreement. Buyer shall also pay all transfer taxes, recording fees and title transfer fees incurred in connection with the transfer of the Intellectual Property under this Agreement. Section 5.9. Competition. The parties are entering into this Section 5.9 to protect and preserve the goodwill acquired by Buyer pursuant to this Agreement. For a period of five (5) years after the Closing Date, Seller and each of the Shareholders separately shall not, in any manner, directly or indirectly, on its behalf or as an agent of, on behalf of, or in conjunction with any other person, firm or corporation, or as a partner of any partnership, or as a shareholder of any corporation, own, manage, acquire, operate, control or participate in the ownership, management, operation or control of, or have any financial interest in, any person, firm, business, corporation, or other organization that competes with Buyer in the protective relay business (a "Competitor") within the Territory. "Territory" means the United States, Canada and Mexico; the United States; and the state of California. Notwithstanding the foregoing, nothing contained in this Agreement shall prohibit Seller or each Shareholder from acquiring not more than five percent (5%) of the outstanding shares of any equity security of a Competitor or an affiliate of a Competitor listed for trading on the New York Stock Exchange or the American Stock Exchange or quoted on the National Association of Securities Dealers Automated Quotation System. In addition, for a five (5) year period after the Closing Date, Seller and each of the Shareholders separately agree not to induce any person who is then an employee of Buyer to leave Buyer's (or any successor's or assign's) employment or directly or indirectly assist any other person or entity in requesting or inducing any such employee to leave Buyer, and Seller and each of the Shareholders separately agree not to offer to employ or employ any person who is then an employee of Buyer. Buyer shall be entitled (without limitation of any other remedy and without posting bond) to specific performance and/or injunctive relief with respect to any breach or threatened breach of the foregoing covenants. If any court of competent jurisdiction shall at any time deem the foregoing time periods too lengthy, the Territory to broad or the scope of the covenants too broad, the restrictive time period shall be deemed to be the longest period permissible by law, the Territory shall be the broadest permissible by law and the scope shall be deemed to comprise the largest scope permissible by law under the circumstances. It is the intent of the parties to protect and preserve the business and goodwill acquired by Buyer and therefore the 19 parties agree and direct that the time period, Territory and scope of the foregoing covenants shall be the maximum permissible duration and size. Section 5.10. Proration of Personal Property Taxes. Seller shall provide to Buyer a list of personal property that is being transferred to Buyer pursuant to this Agreement (the "Business Property Listing for 1998") upon which the local taxing authority based its assessment of personal property taxes that became a lien against such personal property on or after January 1, 1998. Personal property taxes that have become a lien against the personal property but which are not yet due and payable shall be prorated between Buyer and Seller on the basis of a 365-day calendar year using as an estimated tax rate the tax rate applied to such property in 1997. Such taxes shall be deemed to accrue proportionately throughout the calendar year in which such taxes first become due and payable. Seller shall be responsible for that portion of such taxes that has become a lien against the personal property and accrued on or before the Closing Date. Buyer shall be responsible for that portion of such taxes that has become a lien against the personal property but will accrue after the Closing Date. Buyer shall pay all such taxes when the same become due and shall receive credit at the Closing for the amount for which Seller assumes responsibility pursuant to this Section, which credit shall reduce the Purchase Price. Following the issuance of the 1998 bills for personal property taxes, the parties shall reconcile the estimated and actual tax rates and the party who underpaid its share shall promptly reimburse the amount underpaid to the other party. Section 5.11. Preservation of Records; Cooperation. From and after the Closing Date, all books, records and documents acquired pursuant to this Agreement by Buyer shall be available during regular business hours for review and/or copying to the officers, attorneys, accountants and other authorized representatives of Seller as may be necessary in connection with its year-end accounting requirements, the preparation of tax returns and reports or documents to be filed with any regulatory agency or for any other reasonable purpose, provided that access to such books, records and documents shall not unreasonably interfere with the business operation of Buyer. Buyer will for a period of seven (7) years from and after the Closing Date maintain and preserve all such books, records and documents. After the end of such seven (7) year period, Buyer may destroy and/or dispose of any such books, records and documents unless Seller shall give to Buyer written notice not more than ninety (90) and not less than thirty (30) days before the end of such seven (7) year period of Seller's desire to preserve such books, records or documents. If Seller gives such notice to Buyer, Seller shall have reasonable access during Buyer's normal business hours to inspect such books, records or documents and may remove any such books, records or documents that it wishes to retain. Seller shall remove any such books, records or documents within ninety (90) days of the date that such notice is mailed to Buyer. Buyer may dispose of any such books, records or documents not removed by Seller within such ninety (90) day period. Section 5.12. Confidentiality. Seller and each of the Shareholders separately agree, that prior to and after the closing Date, with respect to information of Buyer and any of its affiliates which is not generally known to the public or which would constitute a trade secret under the Uniform Trade Secrets Act (the "Confidential Information"), as follows: (i) that the Confidential Information is an integral and key part of the assets of Buyer and that the unauthorized use or disclosure of the Confidential Information would seriously damage Buyer and its business, (ii) all 20 Confidential Information shall remain the exclusive property of Buyer, (iii) Seller and each of the Shareholders separately shall not use, disseminate, copy or otherwise disclose any Confidential Information and Seller shall restrict access to such Confidential Information to those of its employees who have a need to know and are bound by obligations of confidentiality and non-use equivalent to those set forth herein. The term "Confidential Information" as used in this Agreement shall not include information which: (i) is or becomes a matter of public knowledge through no fault of Seller, either Shareholder or Seller's employees or (ii) is disclosed to Seller by a person who is not subject to any confidentiality obligation. This Section 5.12 shall survive the Closing Date and any termination of this Agreement. ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER All obligations of Buyer under this Agreement are, except to the extent expressly waived in writing by Buyer, subject to the satisfaction by Seller and each of Shareholders at or before the Closing of all of the following conditions: Section 6.1. Representations, Warranties and Covenants True at Closing; Investigation. The representations, warranties and covenants of Seller and each of Shareholders contained in this Agreement and in any document to be delivered in connection with the consummation of the transactions contemplated by this Agreement, specifically including without limitation the Disclosure Schedule, shall be true and correct when made and shall be true and correct on the Closing Date as though those representations, warranties and covenants were made again on the Closing Date. Section 6.2. Performance. Seller and each of Shareholders shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by Seller and each of Shareholders before or at the Closing. Section 6.3. Seller's Certificate. Buyer shall have received a certificate substantially in the form of attached Exhibit G, signed by Seller and each of Shareholders and dated as of the Closing Date, to the effect that all representations, warranties and covenants made in this Agreement by Seller and each of Shareholders are on the Closing Date true and correct in all respects and that Seller and each of Shareholders have performed in all respects the obligations, agreements and covenants undertaken by Seller and each of Shareholders in this Agreement to be performed on or before the Closing Date. Section 6.4. No Adverse Changes. Except as contemplated by this Agreement, there shall have been no material adverse change in the condition, business or operations, financial or otherwise, of the Seller, the Purchased Assets or the Business, in each case taken as a whole, from the date of this Agreement to the Closing Date. 21 Section 6.5. Litigation. On the Closing Date, there shall not be any pending or threatened litigation in any court or any proceedings by or before any governmental commission, board, agency or other instrumentality with a view to seeking, or in which it is sought, to restrain or prohibit the consummation of the transactions contemplated by this Agreement or in which it is sought to obtain divestiture, rescission or damages in connection with the transactions contemplated by this Agreement, and no investigation by any governmental or other agency shall be pending or threatened that might result in any such litigation or other proceeding. Section 6.6. Opinion of Counsel for Seller and each of Shareholders. Buyer shall have received from counsel for Seller and each of Shareholders a written opinion dated as of the Closing Date, substantially in the form of attached Exhibit H. Section 6.7. Necessary Consents; Notices. All authorizations, consents and approvals shall have been received and shall be in full force and effect from (i) federal, state, local and foreign regulatory bodies and officials that are necessary in the opinion of Buyer for the consummation of the transactions contemplated by this Agreement and (ii) any third parties that are necessary in the opinion of Buyer for the transfer and assignment of any Purchased Assets or Assumed liabilities. Section 6.8. Consulting Agreement. Buyer shall have entered into a Consulting Agreement, substantially in the form attached hereto as Exhibit I with Mr. Zerubavel ("Zev") Heifetz and with Mr. Cesar E. Marestaing (each the "Consulting Agreement"). Section 6.9. Lease. Buyer shall have entered into a Lease substantially in the form attached hereto as Exhibit J (the "Lease"). Section 6.10. Net Asset Value. Seller shall have a Net Asset Value (as defined in Section 1.4) as of the Closing Date of $775,000.00 less the cash value of life insurance owned by the Seller on Mr. Zerubavel ("Zev") Heifetz and on Mr. Cesar E. Marestaing. Section 6.11. Board Approval. Approval of this Agreement and the ancillary documents by the Board of Directors of Buyer. Section 6.12. Financing. Buyer's securing financing for the transaction acceptable to Buyer, and Seller's making available financial statements required by the financial institution. Section 6.13 Proceedings Satisfactory. All proceedings taken in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be satisfactory in form and substance to Buyer and its counsel, and Buyer and its counsel shall have received copies of all such documents (executed or certified, as may be appropriate) as Buyer and its counsel may reasonably request in connection with such transactions. 22 ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND EACH OF SHAREHOLDERS All obligations of Seller and each of Shareholders under this Agreement are, except to the extent expressly waived in writing by Seller and each of Shareholders, subject to the satisfaction by Buyer at or before the Closing of all of the following conditions: Section 7.1. Representations, Warranties and Covenants True at Closing. The representations, warranties and covenants of Buyer contained in this Agreement shall be true and correct when made and shall be true and correct on the Closing Date as though the representations, warranties and covenants were made again on the Closing Date. Section 7.2. Performance. Buyer shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by Buyer before or at the Closing. Section 7.3. Certificate of Buyer. Seller shall have received a certificate substantially in the form of attached Exhibit K, signed by Buyer and dated as of the Closing Date, to the effect that all representations, warranties and covenants made in this Agreement by Buyer are on the Closing Date true and correct in all respects and that Buyer has performed in all respects the obligations, agreements and covenants undertaken by Buyer in this Agreement to be performed on or prior to the Closing Date. Section 7.4. Litigation. On the Closing Date, there shall not be any pending or threatened litigation in any court or any proceedings by or before any governmental commission, board, agency or other instrumentality with a view to seeking, or in which it is sought, to restrain or prohibit the consummation of the transactions contemplated by this Agreement or in which it is sought to obtain divestiture, rescission or damages in connection with the transactions contemplated by this Agreement, and no investigation by any governmental or other agency shall be pending or threatened that might result in any such litigation or other proceeding. Section 7.5. Proceedings Satisfactory. All proceedings taken in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be satisfactory in form and substance to Seller and its counsel, and Seller and its counsel shall have received copies of all such documents (executed or certified, as may be appropriate) as Seller and its counsel may reasonably request in connection with such transactions. 23 ARTICLE 8 INDEMNIFICATION Section 8.1. Indemnification by Seller and each of Shareholders. Subject to the limitations contained in this Article 8, Seller and each of Shareholders shall, jointly and severally, defend, indemnify and hold harmless Buyer (which for purposes of this Article 8 shall mean Buyer and its affiliates, and their respective employees, representatives, officers, shareholders, directors and agents) against and in respect of: (a) Any and all liabilities or obligations of Seller of any nature, whether accrued, absolute, contingent or otherwise, resulting from, arising out of or in any way related to Seller's activities, ownership of the Purchased Assets or conduct of the Business on or before the Closing Date, even if imposed upon Buyer as a successor to Seller, (i) other than the Assumed Liabilities and (ii) excluding any liabilities or obligations for which Seller is entitled to seek indemnification from Buyer under this Article 8; (b) Any and all loss, cost, damage, liability, obligation, expense and deficiency suffered by Buyer resulting from, arising out of or in any way related to facts, circumstances, or events constituting a misrepresentation, breach of warranty or nonfulfillment of any warranty, covenant, representation, undertaking, condition or agreement by Seller contained in this Agreement, the Disclosure Schedule, or any other document delivered to Buyer in connection with the consummation of the transactions contemplated by this Agreement, regardless of whether the misrepresentation, breach or omission was deliberate, reckless, negligent, innocent or unintentional; (c) Any and all loss, cost, damage, liability, obligation and expense resulting from, arising out of or in any way relating to Seller's noncompliance with any applicable bulk sales laws and provisions and from the assertion of claims (excluding Assumed Liabilities) against Buyer by creditors of Seller with respect to liabilities and obligations of Seller; (d) Any and all loss, cost, damage, liability, obligation and expense resulting from, arising out of or in any way relating to the Lessor's (as defined in the Lease) breach of any warranties, representations, covenants or other obligations of Lessor contained in the Lease or to Lessor's activities at the Premises after the Closing Date; and (e) Any and all loss, cost, damage, liability, obligation and expense incurred with respect to any claims, actions, suits, proceedings or assessments arising out of matters described in subsections (a) through (e) above, or the settlement thereof, including without limitation legal fees and expenses. Section 8.2. Indemnification by Buyer. Subject to the limitations contained in this Article 8, Buyer shall defend, indemnify and hold harmless Seller (which for purposes of this Article shall 24 mean Seller and its affiliates, and their respective employees, representatives, officers, shareholders, (including each of Shareholders) directors and agents) against and in respect of: (a) Any and all liabilities or obligations of Buyer of any nature, whether accrued, absolute, contingent or otherwise, resulting from, arising out of or in any way relating to Buyer's ownership of the Purchase Assets or assumption of the Assumed Liabilities or conduct of the Business after the Closing Date, but excluding any liabilities for which Buyer is entitled to seek indemnification from Seller or each of Shareholders under this Article 8; (b) Any and all loss, cost, damage, liability, obligation, expense or deficiency suffered by Seller or each of Shareholders resulting from, arising out of or relating to facts, circumstances or events constituting a misrepresentation, breach of warranty or nonfulfillment of any warranty, covenant, representation, undertaking, condition or agreement by Buyer contained in this Agreement, or any other document delivered to Seller or each of Shareholders in connection with the consummation of the transactions contemplated by this Agreement, regardless of whether the misrepresentation, breach or omission was deliberate, reckless, negligent, innocent or unintentional; and (c) Any and all loss, cost, damage, liability, obligation or expense incurred with respect to any claims, actions, suits, proceedings or assessments resulting from, arising out of or relating to matters described in subsections (a) and (b) above, or the settlement thereof, including without limitation legal fees and expenses. Section 8.3. Environmental Liabilities. For purposes hereof, an "Environmental Liability" shall mean any liability arising under or by reason of any applicable federal, state or local laws or regulations or common law relating to the protection of the environment or public health (collectively, "Environmental Law"). Seller and each of Shareholders shall be, jointly and severally, liable to Buyer for any Environmental Liability (a "Seller Environmental Liability") (a) related to conditions (whether known or unknown) existing at, in or under any real property now or previously owned, leased or used by Seller (including without limitation the Premises) prior to or after the Closing Date, and (b) related to the transportation or offsite disposal prior to or after the Closing Date of Hazardous Materials generated by Seller. Seller and each of Shareholders shall, jointly and severally, defend Buyer against, indemnify Buyer for, and hold Buyer harmless from all loss, cost, damage, liability, obligation and expense resulting from, arising out of or relating to any Seller Environmental Liability. Section 8.4. Limitations on Indemnification. (a) Notwithstanding any other provision of this Agreement or any applicable law, no Indemnified Party will be entitled to make a claim against an Indemnifying Party under Section 8.1 or 8.2 of this Agreement unless and until the aggregate amount of indemnifiable losses incurred under such Section, as the case may be, exceeds $10,000.00 (the "Deductible"), in which event the Indemnified Party will be entitled to make a claim against 25 the Indemnifying Party only to the extent the amount of such indemnifiable losses exceeds such Deductible. (b) Except with respect to a Seller Environmental Liability and the indemnity obligations under Section 8.1(a), the representations and warranties of Seller and each of Shareholders and of Buyer contained in this Agreement shall survive the Closing until the expiration of eighteen (18) months from the Closing Date. Any claim for indemnification with respect to breach of a representation or warranty which is not asserted by notice given as herein provided within such specified period of survival may not be pursued and is hereby irrevocably waived after such time. Section 8.5. Third Party Claims. The obligation of each party to indemnify the other party under the provisions of this Article with respect to claims resulting from the assertion of liability by those not parties to this Agreement (Including without limitation governmental claims for penalties, fines and assessments) shall be subject to the following terms and conditions: (a) The party seeking indemnification hereunder (the "Indemnified Party") shall give written notice to the other party (the "Indemnifying Party") within 30 days following any assertion of liability by a third party which might give rise to a claim for indemnification, which notice shall state the nature and basis of the assertion and the amount thereof, in each case to the extent known; provided, however, that no delay on the part of the Indemnified Party in giving notice shall relieve the Indemnifying Party of any obligation to indemnify unless (and then solely to the extent that) the Indemnifying Party is prejudiced by such delay. (b) If any action, suit or proceeding (a "Legal Action") is brought against the Indemnified Party with respect to which the Indemnifying Party may have an obligation to indemnify the Indemnified Party, the Legal Action shall be defended by the Indemnifying Party, and such defense shall include all proceedings for appeal or review which counsel for the Indemnified Party shall reasonably deem appropriate. (c) Notwithstanding the provisions of the previous subsection of this Section 8.5, until the Indemnifying Party shall have assumed the defense of any such Legal Action, the defense shall be handled by the Indemnified Party. Furthermore, (A) if the Indemnified Party shall have reasonably concluded that there are likely to be defenses available to it that are different from or in addition to those available to the Indemnifying Party; (B) if the Indemnifying Party fails to provide the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party has sufficient financial resources to defend and fulfill its indemnification obligation with respect to the Legal Action; (C) if the Legal Action involves other than money damages and seeks injunctive or other equitable relief; or (D) if a judgment against the Indemnified Party will, in the good faith opinion of the Indemnified Party, establish a custom or precedent which will be materially adverse to the best interests of its continuing business, the Indemnifying Party shall not be entitled to assume the defense of the Legal Action and the defense shall be 26 handled by the Indemnified Party. If the defense of the Legal Action is handled by the Indemnified Party under the provisions of this subsection, the Indemnifying Party shall pay all legal and other expenses reasonably incurred by the Indemnified Party in conducting such defense. (d) In any Legal Action initiated by a third party and defended by the Indemnifying Party (A) the Indemnified Party shall have the right to be represented by advisory counsel and accountants, at its own expense, (B) the Indemnifying Party shall keep the Indemnified Party fully informed as to the status of such Legal Action at all stages thereof, whether or not the Indemnified Party is represented by its own counsel, (C) the Indemnifying Party shall make available to the Indemnified Party and its attorneys, accountants and other representatives, all books and records of the Indemnifying Party relating to such Legal Action, and (D) the parties shall render to each other such assistance as may be reasonably required in order to ensure the proper and adequate defense of the Legal Action. (e) In any Legal Action initiated by a third party and defended by the Indemnifying Party, the Indemnifying Party shall not make settlement of any claim without the written consent of the Indemnified Party, which consent shall not be unreasonably withheld. Without limiting the generality of the foregoing, it shall not be deemed unreasonable to withhold consent to a settlement involving injunctive or other equitable relief against the Indemnified Party or its assets, employees or business, or relief which the Indemnified Party reasonably believes could establish a custom or precedent which will be materially adverse to the best interests of its continuing business. Section 8.6. Claims by Indemnified Party. The Indemnified Party shall notify the Indemnifying Party with reasonable promptness after the discovery of any claim upon which the Indemnified Party will demand indemnification from the Indemnifying Party under this Agreement (other than with respect to third party claims which are addressed in Section 8.5 above). To the extent possible, the notice shall include an itemized accounting of the claim from the Indemnified Party. Within fifteen (15) after receipt of the notice, the Indemnifying Party shall either reimburse the Indemnified Party for the amount of the claim or notify the Indemnified Party of the Indemnifying Party's intent to dispute the claim. If the Indemnifying Party does not notify the Indemnified Party within such fifteen (15) days of its intent to dispute the claim, the Indemnifying Party shall be deemed to have agreed to reimburse the Indemnified Party for the claim. All claims by Buyer for indemnification may be paid out of the Escrow Amount (as defined in the Escrow Agreement) held under the Escrow Agreement, but Buyer's claims, and Seller's or each of Shareholders' obligation to pay, shall not be limited to the Escrow Amount. 27 ARTICLE 9 TERMINATION Section 9.1. Termination by Mutual Consent. At any time on or before the Closing Date, this Agreement may be terminated by the mutual written consent of Seller, each of Shareholders and Buyer without liability on the part of Seller or either of Shareholders or Buyer or their respective directors, officers or shareholders. If the Agreement is terminated pursuant to this Section, the Agreement shall become null and void and shall be without effect. Section 9.2. Termination Upon Default or Breach. If Seller or either of Shareholders or Buyer shall default in the observance or in the due and timely performance of any of the covenants contained in this Agreement, or if there shall have been a breach by Seller or either of Sharheolders or Buyer of any of the representations, warranties or covenants set forth in this Agreement, the other party may terminate this Agreement without prejudice to its rights and remedies available under law. Section 9.3. Termination Based Upon Failure of Conditions. If any of the conditions of this Agreement to be complied with or performed by Seller or either of Sharheolders or Buyer on or before the Closing Date shall not have been complied with or performed by that date and that noncompliance or nonperformance shall not have been waived in writing by the other party, the party to whom the benefit of that condition runs may terminate this Agreement without prejudice to its rights and remedies available under law, including that party's right to recover expenses and costs. Section 9.4. Final Expiration. This Agreement shall automatically expire if the Closing does not occur on or before May 8, 1998. ARTICLE 10 GENERAL Section 10.1. Risk of Loss. The risk of loss or destruction of, or damage to, the Purchased Assets shall be on Seller at all times before the Closing Date. Section 10.2. Survival of Representations, Warranties and Covenants. All representations, warranties and covenants made by any party to this Agreement in Articles 2 and 3 above shall survive the Closing (and any investigation at any time made by or on behalf of any party before or after the Closing) and each of the covenants in Article 5 shall survive the Closing according to their terms. Section 10.3. Binding Effect; Benefits; Assignment. All of the terms of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the successors and permitted assigns of Seller, each of Shareholders and Buyer. Nothing in this Agreement, express 28 or implied, is intended to confer upon any other person any rights or remedies under or by reason of this Agreement except as expressly indicated in this Agreement. Neither Seller nor either of Shareholders shall assign this Agreement, or any of its rights or obligations under this Agreement, to any other person, firm or corporation without the prior written consent of Buyer. Section 10.4. Definition of "Ordinary and Usual Course". For purposes of this Agreement, an activity will be deemed to be in the "ordinary and usual course of business" or "ordinary and usual course" if the activity is performed: (i) in accordance with the customary business practices and usages of trade prevailing in the industry or industries in which Seller operates the Business; or (ii) in accordance with Seller's historical and customary practices with respect to the activity. Section 10.5. Public Disclosure. Unless otherwise required by law, neither Seller nor either of Shareholders nor Buyer shall make any public disclosure of the existence or terms of this Agreement or the transactions contemplated by this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, each party may disclose the transactions contemplated by this Agreement to its attorneys, accountants and other professional advisers, to its institutional lenders, and to its management employees or to third parties, to the extent that any of those persons or entities needs to know of the transactions in connection with his, her or its relationship with the disclosing party. Section 10.6. Notices. All notices, requests, demands and other communications to be given pursuant to the terms of this Agreement shall be in writing and shall be deemed to have been duly given if delivered, mailed by certified or registered mail (postage prepaid), shipped and receipted by express courier service (charges prepaid), mailed first class (postage prepaid), or transmitted by telecopier or similar facsimile transmitter: (a) If to Buyer: Kilovac Corporation P.O. Box 4422 Santa Barbara, CA 93140 (facsimile: (805) 684-9679) 29 with a copy to: Communications Instruments, Inc. 1396 Charlotte Highway Fairview, North Carolina 28730 (facsimile: (704) 628-1439 Attention: Ramzi Dabbagh, President Parker, Poe, Adams & Bernstein L.L.P. First Union Capitol Center 150 Fayetteville Street Mall, Suite 1400 Raleigh, North Carolina 27602 (facsimile: (919) 834-4564) Attention: John J. Butler, Esq. (b) If to Seller: Zev Heifetz 608 North Rexford Drive Beverly Hills, California 90210 (facsimile: (310) 271-8934) (c) If to Shareholders: Zev Heifetz 608 North Rexford Drive Beverly Hills, CA 90210 310-271-8934 (PH & FX) Cesar E. Marestaing 12901 Panorama Place Santa Ana, CA 92705 714-731-0581 (PH) Any party may change its address or telecopier number by prior written notice to the other party. Section 10.7. Counterparts. This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original and the counterparts shall together constitute one and the same instrument. Section 10.8. Expenses. Buyer, Seller and each of Shareholders shall pay their own respective expenses, costs and fees (including without limitation attorneys' and accountants' fees) 30 incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement. Seller shall pay all expenses, costs and fees of Gardiner & Rauen, Inc. Section 10.9. Entire Agreement. All exhibits and schedules referenced herein are incorporated herein by reference. This Agreement, the exhibits and schedules to this Agreement (including the Disclosure Schedule), and the agreements referred to in this Agreement set forth the entire agreement and understanding of Seller, each of Shareholders and Buyer in respect of the transactions contemplated by this Agreement and supersede all prior agreements, arrangements and understandings relating to the subject matter of this Agreement. Section 10.10. Amendment and Waiver. This Agreement may be amended, modified, superseded or canceled and any of the terms, covenants, representations, warranties or conditions of this Agreement may be waived only by a written instrument executed by Seller, each of Shareholders and Buyer or, in the case of a waiver, by or on behalf of the party waiving compliance. The failure of any party at any time to require performance of any provision of this Agreement shall not affect the right of that party at a later time to enforce the same. No waiver by any party of any condition or of any breach of any term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of the condition or of any breach of the term, covenant, representation or warranty or any other term, covenant, representation or warranty set forth in this Agreement. Section 10.11. Severability. Any provision, or clause thereof, of this Agreement that shall be found to be contrary to applicable law or otherwise unenforceable shall not affect the remaining terms of this Agreement, which shall be construed as if the unenforceable provision, or clause thereof, were absent from this Agreement. Section 10.12. Headings. The headings of the sections and subsections of this Agreement have been inserted for convenience of reference only and shall not restrict or otherwise modify any of the terms or provisions of this Agreement. Section 10.13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, excluding its conflict of law principles. Section 10.14. Bulk Sales Law. Subject to the provisions of Section 8.1(c), Buyer waives compliance by Seller with any Bulk Sales laws which may be applicable to the transactions contemplated by this Agreement. 31 Signed as of the day and year first written above. KILOVAC CORPORATION, a California corporation By: --------------------------- Its: Chairman & CEO "Buyer" WILMAR ELECTRONICS, INC., a California corporation By: --------------------------- Its: President "Seller" By: /s/ Zev Heifetz --------------------------- Zerubavel ("Zev") Heifetz, Shareholder of Seller By: /s/ Cesar E. Marestaing --------------------------- Cesar E. Marestaing, Shareholder of Seller EX-10.29 7 ASSET PURCHASE AGREEMENT DATED 7/24/98 ASSET PURCHASE AGREEMENT between COMMUNICATIONS INSTRUMENTS, INC. ("Buyer") and CORNELL-DUBILIER ELECTRONICS, INC. ("Seller") July 24, 1998 TABLE OF CONTENTS Page ARTICLE 1 - SALE AND PURCHASE OF ASSETS.....................................1 Section 1.1. Agreement to Sell Assets.........................1 Section 1.2. Excluded Assets..................................3 Section 1.3. Total Consideration..............................3 Section 1.4. Purchase Price, Purchase Price Adjustment........3 Section 1.5. Assumption of Certain Liabilities; Other Liabilities Not Assumed..........................4 Section 1.6. Transfer of Title................................6 Section 1.7. Allocation of Consideration......................6 ARTICLE 2 - REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.............6 Section 2.1. Organization and Standing........................7 Section 2.2. Financial Statements.............................7 Section 2.3. Absence of Undisclosed Liabilities, Accounts Payable..........................................7 Section 2.4. Taxes............................................7 Section 2.5. Absence of Certain Changes or Events.............8 Section 2.6. Employee Relations...............................8 Section 2.7. Employee Benefit Plans...........................9 Section 2.8. Owned and Leased Personal Property; Real Property....................................9 Section 2.9. Litigation......................................10 Section 2.10. No Conflict with Other Instruments or Proceedings.....................................10 Section 2.11. Authorization and Enforceability; Power of Attorney........................................10 Section 2.12. Ownership of Assets.............................11 Section 2.13. Material Contracts; Terms of Sale...............11 Section 2.14. Intellectual Property. ........................11 Section 2.15. Environmental Matters...........................12 Section 2.16. Brokers' Fees...................................13 Section 2.17. Customers and Suppliers.........................13 Section 2.18. Product Liabilities and Warranties..............13 Section 2.19. Permits and Licenses............................13 Section 2.20. Compliance with Law and Other Regulations.......14 Section 2.21. Seller Relationships, Intercompany Agreements and Transactions................................14 Section 2.22. Customs or Port-of-Entry Registrations..........14 Section 2.23. Accuracy of Statements..........................15 Section 2.24. Representatives, Distributors and Sales Agents..15 ARTICLE 3 - REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER.............15 Section 3.1. Organization and Standing of Buyer..............15 Section 3.2. Authorization and Enforceability................15 Section 3.3. Brokers' Fees...................................16 Section 3.4. No Conflict with Other Instruments or Proceedings.....................................16 Section 3.5. Accuracy of Statements..........................16 ARTICLE 4 - CLOSING........................................................16 Section 4.1. Closing.........................................16 Section 4.2. Closing Obligations of Seller...................16 Section 4.3. Closing Obligations of Buyer....................17 Section 4.4. Obligations of Final Delivery Date..............17 Section 4.5. Further Documents or Necessary Action...........17 ARTICLE 5 - COVENANTS......................................................18 Section 5.1. Conduct of Business.............................18 Section 5.2. Access..........................................18 Section 5.3. Sales and Miscellaneous Taxes...................19 Section 5.4. Investigation by Buyer..........................19 Section 5.5. Seller Assistance...............................19 Section 5.6. Employees and Employee Benefit Plans............19 Section 5.7. Notice to Vendors and Customers.................20 Section 5.8. Post-Closing Operations.........................20 Section 5.9. Delivery of Property Received After Closing.....22 Section 5.10. Competition.....................................22 Section 5.11. Confidentiality.................................23 Section 5.12. Sales Representatives...........................24 Section 5.13. Slow Moving Inventory...........................24 Section 5.14. License of "Cornell-Dubilier" Name and Logo.....24 Section 5.15. Sales Representative Commissions................25 ARTICLE 6 - CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER...................25 Section 6.1. Representations and Warranties True at Closing; Investigation...................................25 Section 6.2. Performance.....................................25 Section 6.3. Seller's Certificate............................25 Section 6.4. No Adverse Changes..............................25 Section 6.5. Litigation......................................25 Section 6.6. Opinion of Counsel for Seller...................26 Section 6.7. Necessary Consents; Notices.....................26 Section 6.8. Board Approval..................................26 Section 6.9. Financing.......................................26 Section 6.10. Employment Agreements...........................26 Section 6.11. Proceedings Satisfactory........................26 Section 6.12. Failure of Conditions...........................26 ARTICLE 7 - CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER..................27 Section 7.1. Representations and Warranties True at Closing..27 Section 7.2. Performance.....................................27 Section 7.3. Certificate of Buyer............................27 Section 7.4. Litigation......................................27 Section 7.5. Proceedings Satisfactory........................27 Section 7.6. Board Approval..................................27 Section 7.7. Opinion of Counsel for Buyer....................28 Section 7.8 Failure of Conditions...........................28 ARTICLE 8 - INDEMNIFICATION................................................28 Section 8.1. Indemnification by Seller.......................28 Section 8.2. Indemnification by Buyer........................29 Section 8.3. Environmental Liabilities.......................30 Section 8.4. Limitations on Indemnification..................30 Section 8.5. Third Party Claims..............................30 Section 8.6. Claims by Indemnified Party.....................32 ARTICLE 9 - TERMINATION....................................................32 Section 9.1. Termination by Mutual Consent...................32 Section 9.2. Termination Based Upon Failure of Conditions....32 ARTICLE 10 - GENERAL.......................................................32 Section 10.1. Risk of Loss....................................32 Section 10.2. Application/Survival of Representations, Warranties and Covenants........................32 Section 10.3. Binding Effect; Benefits; Assignment............32 Section 10.4. Knowledge; Definition of "Ordinary and Usual Course".........................................33 Section 10.5. Notices.........................................33 Section 10.6. Counterparts....................................34 Section 10.7. Expenses........................................34 Section 10.8. Entire Agreement................................34 Section 10.9. Amendment and Waiver............................34 Section 10.10. Severability....................................35 Section 10.11. Headings........................................35 Section 10.12. Governing Law...................................35 Section 10.13. Choice of Forum, Venue, and Consent to Jurisdiction....................................35 EXHIBITS Exhibit A Equipment and Other Tangible Personal Property Exhibit B Contracts, Agreements, Leases and Commitments Exhibit C Trademarks, Trade Names, Service Marks, Logos and Patents Exhibit D Transferable Permits and Licenses Exhibit E Allocation of Purchase Price to Particular Assets Exhibit F Deposit Agreement Exhibit G Seller's Certificate Exhibit H Opinion of Counsel for Seller Exhibit I Buyers' Certificate Exhibit J Opinion of Counsel for Buyer DISCLOSURE SCHEDULES - -------------------- Schedule 1.5-1 Order Backlog Schedule 1.5-2 Other Obligations Being Assumed by Buyer Schedule 1.5-3 Express Product Warranties Schedule 1.5-4 Purchase Orders to be Assumed by Buyer Schedule 2.1 Foreign Qualifications Schedule 2.2 Financial Statements Schedule 2.3 Undisclosed Liabilities Schedule 2.4 Unfiled Tax Returns Schedule 2.5 Absence of Certain Changes Schedule 2.6-1 Employee Relations Schedule 2.6-2 Labor Actions Schedule 2.6-3 Employee Manuals Schedule 2.7 Employee Benefit Plans Schedule 2.8 Leased Property Schedule 2.8-1 Property Owned or Leased But Not in the Possession of the Seller or CD Mexico Schedule 2.8-2 Assets Which Do Not Relate Exclusively to the Business Schedule 2.9 Litigation, Claims and Governmental Action Schedule 2.10 Conflicts with Other Instruments Schedule 2.12 Liens and Encumbrances Schedule 2.13 Material Contracts (Including List of Customers and Suppliers) Schedule 2.13-1 Terms and Conditions of Sale Schedule 2.14 Intellectual Property Schedule 2.15 Environmental Matters Schedule 2.17 Customers and Supplies Schedule 2.18 Product Liabilities and Warranties Schedule 2.19 Permits and Licenses Schedule 2.20 Compliance with Laws Schedule 2.21 Seller Relationships Schedule 2.22 Customs and Port of Entry Registrations Schedule 2.24 Sales Representatives Schedule 5.8 Description of Standard Man Hours for Completion of Work in Process ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of July 24, 1998, by and between COMMUNICATIONS INSTRUMENTS, INC., a North Carolina corporation ("Buyer"), and CORNELL-DUBILIER ELECTRONICS, INC. ("Seller"), a Delaware corporation. P R E A M B L E A. Seller currently manufactures, directly or through its controlled subsidiary C. D. Electronics De Mexico, S.A. De C.V., a Mexican corporation ("CD Mexico"), and sells relays (hereinafter "the Relays"). Seller owns certain raw materials, equipment, fixtures, inventories and other assets used in the manufacture of the Relays, substantially all of which are located at CD Mexico in Mexicali, Mexico and sells same throughout the United States and elsewhere (the design, manufacturing, marketing, sale and distribution of Relays hereinafter referred to as the "Business" or the "Seller Business"). B. Seller is also engaged in other business activities, including through manufacturing and sales activities at CD Mexico, and the Business is a small part of the overall business activities of Seller and CD Mexico. C. Buyer is willing to purchase, and Seller is willing to sell to Buyer, the assets of the Business, and Buyer is willing to assume certain specific liabilities of the Business described below, all upon the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, the parties agree as follows: ARTICLE 1 SALE AND PURCHASE OF ASSETS Section 1.1. Agreement to Sell Assets. On the terms and subject to the conditions of this Agreement, Seller shall sell, convey, assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire from Seller, all of Seller's right, title and interest in and to all of the assets and property of the Business (collectively, the "Purchased Assets") as follows: (a) all machinery, equipment, tooling, dies, tools, jigs, moldings, presses, benches, furniture and fixtures, computer terminals, office equipment, vehicles, spare parts for the foregoing, and all other tangible personal property of Seller, wherever located, which relate exclusively to the Business, including without limitation those items listed on Exhibit A to this Agreement together with all express and implied warranties by the manufacturers or sellers thereof, and all maintenance records, brochures, catalogues and other documents relating thereto or to the installation or functioning thereof; 1 (b) all inventories (except Slow Moving Inventory as defined in Section 1.2(b)) of raw materials, parts, sub-assemblies, work-in-process, finished goods (including all inventories consigned to dealers, sales representatives, vendors and others, or in transit), materials and supplies, wherever located, which relate exclusively to the Business; (c) all security and other deposits made by Seller, all credits due and owing to Seller, and all prepayments made to Seller by customers for orders which are not shipped before Closing (i.e.: back orders) which relate exclusively to the Business; (d) all of Seller's right, title and interest in and to all contracts (including exclusive supply contracts), agreements, leases, licenses and commitments and any related security instruments or agreements, including without limitation those identified on Exhibit B to this Agreement, relating exclusively to the Business; (e) all of the trademarks, trade names, service marks, and logos and applications therefore, relating exclusively to the Business and listed on Exhibit C, along with associated goodwill and all rights and interests of Seller therein, relating exclusively to the Business, all patents and patent applications listed on Exhibit C, along with associated goodwill and all rights and interests of Seller therein, relating exclusively to the Business, all know-how and trade secrets used or owned by Seller and relating exclusively to the Business, and all drawings, patterns, prints, test reports, engineering designs, assembly instructions, operations, and other technical data and documentation, and all know-how, trade secrets and other intellectual property not otherwise set forth owned by Seller and relating exclusively to the Business; provided, Seller is not selling and Buyer is not purchasing the name "Cornell-Dubilier" (the "Intellectual Property"); (f) all of the following, in tangible form or as computer data, relating exclusively to the Business: records, customer and supplier lists, pertinent payroll information and summary of relevant information of each employee, product information, product drawings, production documentation, material specifications, equipment lists, formulae, patterns, specifications, drawings, plans, reports, data, notes, correspondence, contracts, labels, catalogues, brochures, art work, photographs, advertising materials, showroom models and displays, marketing and production literature, files and other records and documents, including the books of account, ledgers and other financial records of Seller, but excluding Seller's corporate records and tax records; (g) to the extent transferrable, all permits, licenses, orders, franchises and approvals maintained by Seller, relating exclusively to the Business, including without limitation those identified on Exhibit D to this Agreement; (h) all choses in action, claims, causes or rights of action and intangible property rights of Seller relating exclusively to the Business, including without limitation restrictive covenants, confidentiality obligations and similar obligations of present and former employees; 2 (i) the goodwill of Seller relating exclusively to the Business. The Purchased Assets shall be transferred to Buyer free and clear of any and all claims, liens, security interests, encumbrances, charges, obligations and other restrictions, other than Permitted Encumbrances. For purposes of this Agreement, "Permitted Encumbrances" shall mean liens for current taxes that are not yet due and payable. Section 1.2. Excluded Assets. Seller shall not sell and convey to Buyer, and Buyer shall not acquire any right or title to any of the following assets: (a) All of Seller's cash, tax refunds, insurance claims, real estate leases, employee benefit plans, and accounts receivable of Seller's Business for goods actually shipped before the Closing Date. (b) All Slow Moving Inventory (which will be sold to Buyer pursuant to Section 5.13). "Slow Moving Inventory" means all inventory described in Section 1.1(b) which is not projected for use within two (2) years after the date of this Agreement. (c) All of the Seller's right, title and interest in, to and under this Agreement. Section 1.3. Total Consideration. The total consideration to be paid by Buyer to Seller for the Purchased Assets and the covenants of Seller in this Agreement shall be as follows (the "Purchase Price"): (a) Payment by Buyer of the "Purchase Price" (as defined in this Agreement); (b) Assumption by Buyer of the Assumed Liabilities (as defined in this Agreement). Section 1.4. Purchase Price, Purchase Price Adjustment. (a) The Purchase Price for all of the Purchased Assets shall equal the sum of (i) the original cost less all accumulated depreciation for those Purchased Assets under Section 1.1(a) (except for certain assets described in Exhibit A for which Buyer will pay the fair market value set forth thereon) plus (ii) the lesser of cost or fair market value for those Purchased Assets under Section 1.1 (b) (adjusted in the case of work in process to exclude all costs except raw materials), all according to United States generally accepted accounting principles, applied on a consistent basis with prior periods ("GAAP"), as of the Closing Date and established pursuant to Section 1.4 (b) (the "Purchase Price"). (b) Buyer shall pay at the Closing Eight Hundred Ninety-One Thousand Six Hundred Sixty Dollars ($891,660.00), which is based on Exhibits A and E (the "Pre-Closing Value"). The difference between the Purchase Price and the Pre-Closing Value shall be paid 3 by Seller or Buyer, as the case may be, within fifteen (15) days after the Purchase Price is established. Within fifteen (15) days after the Closing, Seller shall deliver to Buyer a balance sheet in accordance with GAAP setting forth its statement of the Purchase Price. Buyer may elect within fifteen (15) days thereafter to accept such Purchase Price provided by Seller, which shall then be deemed to be the Purchase Price, or to have Seller's financial records reviewed or audited, (as selected by Buyer). Such review or audit shall be performed within ninety (90) days after the Closing Date. If the Purchase Price established pursuant to such review or audit is more than five percent (5%) above or below the Purchase Price delivered by Seller, the Purchase Price for purposes of this Agreement shall be that established pursuant to such review or audit. Such review or audit shall be performed by Deloitte & Touche or another accounting firm acceptable to Seller and Buyer and shall be performed in accordance with GAAP. If the Purchase Price established pursuant to such review or audit is more than five percent (5%) below the Purchase Price delivered by Seller, Seller shall pay the costs and fees of the accounting firm (otherwise Buyer will pay those costs and fees). Seller and CD Mexico shall provide reasonable information to Buyer in connection with its review of the balance sheet delivered by Seller and its analysis of the Purchase Price delivered by Seller, and shall also provide reasonable assistance to the accounting firm in such time frame to enable the completion of the audit or review within such ninety (90) day period. All payments shall be by wire transfer of immediately available funds in accordance with wire transfer instructions. Section 1.5. Assumption of Certain Liabilities; Other Liabilities Not Assumed. (a) Buyer assumes no liabilities or obligations of Seller, except as set forth in this Section 1.5. (b) Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, Seller shall assign and Buyer shall assume the following rights, liabilities and obligations of Seller ("the Assumed Liabilities"): (i) Buyer will assume all rights and obligations of Seller to deliver the order backlog of the Business at prices agreed to by Seller and its customers before Closing, said backlog to be specifically determined at Closing and to be identified in Schedule 1.5-1. It is understood by the parties that any invoices relating to the Business issued after the Closing Date shall be the property of Buyer to the extent they relate to the Business. (ii) Buyer will assume all rights and liabilities and obligations of Seller arising with respect to periods from and after the Closing Date under the contracts, agreements or understandings of Seller to the extent relating to the Business which Buyer has identified in Schedule 1.5-2. 4 (iii) Buyer will assume for a period of twenty (24) months after the Closing Date all rights and obligations of Seller to honor all express product warranties given by Seller (except no product liability or tort claims are being assumed) on the Relays shipped by Seller prior to the Closing Date. The last Relays shipped before the Closing Date shall be identified by the last sequential date code or other identifying number for each product series and agreed to in writing thirty (30) days after the Closing Date. In addition, all of the Seller's express warranties given by Seller on the Relays are set forth in Schedule 1.5-3. Buyer does not, however, assume any liabilities or obligations for any incidental, consequential, special or punitive damages to anyone (including without limitation customers of Seller) arising out of or relating to such Relays. For each item returned to Buyer pursuant to Buyer's undertaking under this subparagraph 1.5(b)(iii), Buyer shall: (1) reasonably determine that the claimed defect is one covered by a warranty; (2) maintain a log of repairs and replacements; and (3) notify Seller of said repairs and replacements. Without limiting Buyer's rights, Seller shall reimburse Buyer within thirty (30) days for the repairs and replacements performed by Buyer pursuant to this section at Buyer's then standard costs for said repairs or replacement of the item(s); provided, no reimbursement shall be required until the total costs for said repairs and replacements exceeds Ten Thousand Dollars ($10,000.00) in the aggregate (and then reimbursement shall apply for the full amount of all repairs and replacements starting from $0); and provided, further, that reimbursable repair costs will not exceed the list price (plus all reasonable shipping, insurance, duties and related actual out of pocket costs) at which an applicable replacement Relay is then sold by Buyer to its customers. To the extent repairs and replacements under this section exceed $50,000 in the aggregate, Seller may request that the parties shall discuss alternative methods for resolving the defects; provided, Buyer and its business must be protected from its obligations and liabilities and any resolution must not adversely effect Buyer's business activities or prospects. (c) Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, Buyer shall assume to the extent assignable, those vendor contracts and such other contractual obligations of Seller set forth on Schedule 1.5-4, excluding the payables for goods received by Seller pursuant to said vendor contracts as of and before the Closing Date; provided, Seller will pay according to the terms of such contracts for all such contracts existing at Closing and Buyer will reimburse Seller within ten (10) days after written notice from Seller (with information on the contract paid, to whom paid, and the amount paid). (d) Notwithstanding anything in this subparagraph 1.5 to the contrary, Buyer does not assume any service contracts for the maintenance of Seller's equipment; agreements for the storage of any of Seller's assets; agreements to use any representatives, distributors, or other sales agents of Seller; or any other of Seller's obligations unless expressly identified in this Agreement and shown in a schedule attached hereto. 5 (e) Except for the liabilities expressly assumed in this Section 1.5, Buyer shall not assume or be obligated to pay, perform or discharge any liability, obligation, debt, charge or expense of Seller of any kind, description or character, whether accrued, absolute, contingent or otherwise, and whether or not disclosed to Buyer or otherwise. Without limiting the generality of the foregoing, and notwithstanding anything to the contrary contained in this Agreement, Buyer shall not assume or be obligated to pay, perform or discharge (except as expressly set forth in this Section 1.5) any liability, obligation, debt, charge or expense of Seller, even if imposed upon Buyer as a successor to Seller, with respect to any action, suit, proceeding or claim arising out of or relating to any event occurring, or with respect to any cause of action arising, before the Closing Date, whether or not asserted before or after the Closing Date, including without limitation any such liability, obligation, debt, charge or expense related to: taxes; the hiring, employment or termination of employees of Seller (including without limitation termination and severance pay, and accrued benefits and compensation); Employee Benefit Plans (as defined in Section 2.7 below) or other employee benefits, environmental matters; agreements with sales representatives; obligations or policies; judgments; product warranty claims; product liability claims; and contractual claims. Seller shall be liable for all claims (except for warranty claims less than $10,000 in the aggregate, pursuant to Section 1.5(b) (iii)) arising from Relays shipped by Seller on or before the Closing Date and Seller shall be entitled to receive payment from its customers for such shipped Relays. Seller shall be liable for all costs and expenses relating to or arising from the presence of any Hazardous Material (defined below) present before or after the Closing Date at, in or under any real property now or previously owned, leased or used by Seller (including, without limitation, the Premises), and for any violations of Environmental Laws by Seller, and Buyer reserves all of its rights, including those under CERCLA (defined below), to seek reimbursement of any such costs or expenses; provided, however, that Buyer shall not be reimbursed (and Seller shall have no liability) for damages, costs and liabilities directly caused by and applicable to the Buyer's negligence or the negligence of any employee or agent of the Buyer. Section 1.6. Transfer of Title. All right, title and interest of all Purchased Assets shall transfer to and vest in Buyer as of the Closing Date. Section 1.7. Allocation of Consideration. The Purchase Price has been agreed upon by the parties and the values assigned to the various assets which constitute the Purchased Assets and to the covenant not to compete are listed on Exhibit E attached hereto. The parties agree to furnish each other and the Internal Revenue Service with such applicable information as may be required by Section 1060 of the Internal Revenue Code or the Regulations thereunder and to cooperate in the completion and timely filing of IRS Form 8594 (Asset Acquisition Statement). ARTICLE 2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER Seller represents, warrants and covenants to Buyer as follows: 6 Section 2.1. Organization and Standing. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware with its principal place of business at Wayne, New Jersey, and CD Mexico is a corporation duly organized, validly existing, and in good standing under the laws of Mexico. Seller and CD Mexico each have all requisite corporate power and authority to own, lease and operate their respective properties now owned or leased by them and to carry on the Business as presently conducted. Neither the character of the Purchased Assets nor the nature of the Business transacted by the Seller make the licensing or qualification of Seller as a corporation necessary in any state or jurisdiction other than those states and jurisdictions identified on Schedule 2.1 and Seller is duly qualified to do business and in good standing as a corporation in each of the jurisdictions identified on Schedule 2.1. Section 2.2. Financial Statements. A copy of the statement of income, of the Business as of and for the fiscal years ended August 31, 1996, and August 31,1997 (the "Financial Statements") has been provided by Seller to Buyer. The Financial Statements are in accordance with the books and records of Seller, have been prepared in conformity with GAAP applied on a basis consistent throughout such periods and consistent with prior periods, and, except as set forth in Schedule 2.2, present fairly the financial condition of the Business as of the dates indicated and the results of operations and changes in financial position for the periods then ended. Seller has also provided to Buyer copies of the interim statement of income of the Business as of and for each month-end during the current fiscal year to and including June 30, 1998, in each case prepared internally by Seller (collectively, the "Interim Financial Statements"). The Interim Financial Statements are in accordance with the books and records of Seller, have been prepared in conformity with GAAP applied on a basis consistent with similar statements for prior periods, and, except as set forth in Schedule 2.2, present fairly the financial condition of the Business as of the dates indicated and its results of operations and changes in financial position for the periods then ended. The Financial Statements and Interim Financial Statements accurately reflect all transactions and obligations between Seller and CD Mexico relating to the Business. Section 2.3. Absence of Undisclosed Liabilities, Accounts Payable. Except as expressly disclosed or reserved against on the most recent balance sheet included in the Interim Financial Statements or as specifically set forth in Schedule 2.3, neither Seller nor CD Mexico have any debts, liabilities or obligations of any material nature relating to or arising out of the Business, whether accrued, absolute, contingent or otherwise, whether due or to become due, including without limitation guarantees, liabilities or obligations on account of taxes, other governmental charges, duties, penalties, interest or fines, other than current liabilities for trade payables incurred in the ordinary and usual course of business since the date of the most recent balance sheet included in the Interim Financial Statements. Section 2.4. Taxes. Except as disclosed in Schedule 2.4: (i) Seller and CD Mexico have filed all federal, state, local and foreign tax returns when and as Seller or CD Mexico has been or is required by law to file and such returns are true and correct in all material respects; (ii) Seller and CD Mexico have paid, and will pay for all periods ending on or before the Closing Date and the Final Delivery Date, respectively, all taxes and assessments when and as the same shall be due and 7 payable, including without limitation income, excise, value added, unemployment, social security, occupation, franchise, property, sales and use taxes and all penalties and interest in respect thereof; (iii) Seller and CD Mexico have withheld and paid over, and will withhold and pay over for all periods ending on or before the Closing Date and the Final Delivery Date, respectively, all federal, state, local and foreign withholdings required by law; and (iv) no tax incentive, abatement or other similar credit exists which in any way relates to the Purchased Assets, the Business, or the employees of Seller or CD Mexico which contains provisions for the repayment of any tax benefit. Section 2.5. Absence of Certain Changes or Events. Except as disclosed in Schedule 2.5, since August 31, 1997: (i) the Business has been conducted in the ordinary and usual course; and (ii) Seller has maintained complete records and books of account for the Business in a manner that fairly and accurately reflects Seller's transactions, assets and liabilities in accordance with GAAP. Except as set forth in Schedule 2.5, since August 31, 1997, there has been no adverse change in Seller's condition, financial or otherwise, the Purchased Assets or in the Business which is not reflected in the Interim Financial Statements. Section 2.6. Employee Relations. Seller has identified on Schedule 2.6-1 all of the employees of CD Mexico engaged exclusively in the Business ("Employees") which for each listed individual gives his or her salary or wage rate and fringe benefits and, for each Employee, his or her position. All Employees are employed by CD Mexico. Except as disclosed in Schedule 2.6-2: (i) there is not now in existence or threatened, nor has there been at any time, since January 1, 1995, any strike, slowdown, work stoppage, or organizational effort at CD Mexico, its premises at Blvd. Benito Juarez KM 5.5, Mexicali, Baja CFA, Mexico (the "Premises") or relating to the Business; (ii) there is not now in existence or threatened, nor has there been at any time in the prior four years any grievance, arbitration, administrative hearing, claim of unfair labor practice, wrongful discharge, employment discrimination or sexual harassment, or other employment dispute of any nature, pending or threatened, against Seller or CD Mexico by any Employees; (iii) CD Mexico is, and during all applicable limitation periods has been, in compliance with all applicable federal, state, local and foreign laws, executive orders and regulations respecting employment and employment practices, terms and conditions of employment, occupational health and safety, wages and hours; (iv) CD Mexico is not a party to any written or oral, express or implied, collective bargaining agreement, union agreement or other contract, agreement or arrangement with respect to the Business with any labor union or any other similar arrangement that is not terminable at will by CD Mexico without cost, liability or penalty and Seller has no knowledge of any current union organizing activity; (v) CD Mexico is not a party to any written or oral, express or implied, contract, agreement or arrangement with any of CD Mexico's present or former officers, employees or consultants engaged in the Business with respect to length, duration or conditions of employment (or the termination thereof), salaries, bonuses, percentage compensation, deferred compensation or any other form of remuneration which is not terminable at will by CD Mexico without cost, liability or penalty; and (vi) there is no pending or threatened claim against CD Mexico for violation of any contract, agreement or arrangement described in (iv) or (v) above, nor is there any factual basis upon which a claim could be sustained. A copy of each employee policy manual and handbook provided to or governing the Employees is attached as Schedule 2.6-3. No Employee of the Business has 8 notified CD Mexico or Seller of an intention to terminate employment (including, without limitation, as a result of the transaction contemplated in this Agreement) with CD Mexico. Section 2.7. Employee Benefit Plans. (a) Set forth in Schedule 2.7 is an accurate and complete list of all Employee Benefit Plans (as defined below) established, maintained or contributed to by Seller or CD Mexico applicable to any Employees and former employees of the Business. The term "Employee Benefit Plan" shall include all employee benefit plans within the meaning of Section 3 (3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and any Mexican law or regulation (including, without limitation, the Mexican Social Security law and the Mexican Retirement Fund System (SAR)), whether or not any such Employee Benefit Plans are otherwise exempt from the provisions of ERISA or any Mexican law, and also shall include, without limitation, any nonqualified deferred compensation plans, employee benefit plans for former employees, any employment arrangement, and any other pension, stock, vacation, disability or other benefit plan, policy or arrangement, whether or not covered by ERISA or any Mexican law, whether written or oral, whether funded or unfunded, covering Employees or former employees of the Seller. (b) Seller has delivered or caused to be delivered or made available to Buyer or its counsel true and complete copies of (i) all Employee Benefit Plans established, maintained or contributed to by the Seller or CD Mexico relating to the Business, together with all amendments thereto including those which will become effective at a later date, and (ii) the most recent Summary Plan Description (plus all subsequent Summaries of Material Modification) for each such Employee Benefit Plan. Section 2.8. Owned and Leased Personal Property; Real Property. Schedule 2.8 identifies all assets relating exclusively to the Business which are leased by Seller or CD Mexico (collectively the "Leased Property"). Except as disclosed on Schedule 2.8, neither Seller nor any other party is in default under the terms of any lease with respect to Leased Property, and all such leases are in full force and effect. Schedule 2.8 includes an attached copy of each such written lease or a description of each such oral lease. Schedule 2.8-1 describes all tangible personal property that Seller or CD Mexico uses or possesses with respect to the Business but does not own or lease, and all personal property that Seller owns or leases but does not possess and, in the latter case, gives the location of the property. All assets relating exclusively to the Business which Seller owns or which Seller or CD Mexico lease is, and will be on the Closing Date, in possession of CD Mexico at the Premises or at the location specified on Schedule 2.8-1. Except as disclosed on Schedule 2.8 or Schedule 2.8-1, all of the Purchased Assets and all Leased Property are in good-operating condition and repair and, in the case of inventory, in good, salable condition. Except as discussed in the Side Agreement between the parties, dated July 24, 1998, which is incorporated herein by reference, all inventory, work in process and raw materials meet, and have been tested in accordance with, the specifications and procedures used by CD Mexico immediately prior to the date of this Agreement. 9 Except as set forth on Schedule 2.8-2, no tangible or intangible property other than the Purchased Assets and the Leased Property will be needed by Buyer to manufacture and sell the Relays after the Closing in the manner in which the Business was operated immediately prior to the Closing. Schedule 2.8-2, attached hereto, describes assets which do not relate exclusively to the Business, but are used in connection with and material to the Business. Except as identified on Schedule 2.8 the Business is not operated from any real property or premises and does not now and has not during the preceding twelve (12) months operated from any real property or premises, other than the Premises and the locations specified on Schedule 2.8. Section 2.9. Litigation. Except as set forth in Schedule 2.9, there is no suit, action, proceeding (legal, administrative, arbitration or otherwise), claim, investigation or inquiry (by an administrative agency, governmental body or otherwise) pending or, to the knowledge of Seller, threatened against Seller or CD Mexico which (i) relates directly to the Business or the Purchased Assets (excluding those which relate generally to Seller or CD Mexico and their assets, but do not or will not materially adversely effect the Purchased Assets or the Business) or (ii) prevents or might impair the transaction contemplated by this Agreement. Except for the claim referenced in Schedule 2.9, Seller knows of no factual basis upon which any such suit, action, proceeding, claim, investigation or inquiry could reasonably likely be sustained. There is no outstanding judgment, order, writ, injunction or decree of any court, administrative agency, governmental body or arbitration tribunal against Seller or its Affiliates and affecting the Purchased Assets or business prospects of the Business, except as disclosed in Schedule 2.9. Section 2.10. No Conflict with Other Instruments or Proceedings. Except as disclosed in Schedule 2.10, the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not: (i) result in the breach of any of the terms or conditions of, or constitute a default under, the respective Articles of Incorporation or the Bylaws of Seller or CD Mexico or any contract, agreement, lease, commitment, indenture, mortgage, pledge, note, bond, license or other instrument or obligation of Seller or CD Mexico respectively and to which Seller or CD Mexico is now a party or by which Seller or CD Mexico or any of Seller's or CD Mexico's properties or assets may be bound or affected; or (ii) violate any law, rule or regulation of any administrative agency or governmental body or any order, writ, injunction or decree of any court, administrative agency or governmental body. All consents, approvals or authorizations of, or declarations, filings or registrations with, any third parties or governmental or regulatory authorities required of Seller or CD Mexico in connection with the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated by this Agreement are set forth in Schedule 2.10. Seller or CD Mexico shall obtain or make, as applicable, all such consents, approvals, authorizations, declaration, filings and registrations before the Closing Date. Section 2.11. Authorization and Enforceability; Power of Attorney. Seller has full capacity, power and authority to enter into this Agreement and all ancillary agreements and to carry out the 10 transactions contemplated by this Agreement, and this Agreement and all ancillary agreements are binding upon Seller and are enforceable against Seller in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights and remedies of creditors as well as general principles of equity (regardless of whether such enforceability in considered in an action at law or in a suit in equity). Neither Seller nor CD Mexico has given any power of attorney or equivalent authority which relate to or encompass the Business or Purchased Assets to any person (except officers of CDE and CD Mexico or attorneys representing CD Mexico), firm or corporation for any purpose whatsoever. Section 2.12. Ownership of Assets. Seller owns the Purchased Assets free and clear of all liens, charges, pledges, security interests, encumbrances or other claims whatsoever, save and except Permitted Encumbrances and those liens, charges, pledges, security interests and encumbrances existing on the date hereof as set forth in Schedule 2.12, all of which (other than Permitted Encumbrances) shall be discharged by Seller at or before the Closing. Section 2.13. Material Contracts; Terms of Sale. Schedule 2.13 contains a list of (i) all customers of the Business; (ii) the ten (10) largest suppliers of the Business, by dollar volume of purchases; (iii) a list of all other contracts (including without limitation product sales or service documentation), leases and other obligations of Seller relating exclusively to the Business which involve amounts greater than $10,000 or with a term of greater than two (2) years; and (iv) any contract relating to the Business out of the ordinary and usual course of business (collectively, the "Material Contracts"). Except as disclosed in Schedule 2.13, all of the Material Contracts are valid and enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization and other similar laws affecting the rights and remedies of creditors as well as general principles of equity, and Seller and CD Mexico and all other parties to each of the Material Contracts have performed in all respects all obligations required to be performed prior to the date hereof in connection therewith. Except as disclosed in Schedule 2.13, neither Seller nor any other party is in default or in arrears (except payment obligations of any such party which are not more than thirty (30) days past due) under the terms of any of the Material Contracts, and no condition exists or event has occurred that, with the giving of notice or the lapse of time or both, would constitute a default under any of them. Except for Buyer, no person, firm or corporation has any written or oral agreement, option, understanding or commitment, or any right or privilege capable of becoming such, for the purchase from Seller or CD Mexico of any of the Purchased Assets (except the sale of inventory in the ordinary course of business). Schedule 2.13-1, attached hereto, includes Seller's standard terms of sale for the sale and servicing of all Relays. All contracts, agreements, and understandings with suppliers to the Business of raw materials, parts, sub-assemblies or finished Relays are on a purchase order by purchase order basis and, except for existing purchase orders, are terminable at will by Seller. Section 2.14. Intellectual Property. Schedule 2.14 describes all patents, patent applications, inventions upon which patent applications have not yet been filed, service marks, trade names, trademarks, logos and registrations and applications relating thereto, copyrighted works and copyright registrations and applications that Seller or any Affiliate of Seller owns, possesses or uses relating to the Business, and, unless otherwise indicated in Schedule 2.14, Buyer will own the entire 11 right, title and interest in and to the same on the Closing Date, free and clear of all claims, liens, licenses, sublicenses, charges or encumbrances. There is no infringement or unlawful use by any person or entity of any such patents, service marks, trade names, trademarks, logos or copyrights. Except as set forth in Schedule 2.14, neither Seller nor any of Seller's Affiliates have infringed or unlawfully used the patents, service marks, trade names, trademarks, logos, copyrights or other proprietary rights of any other person or entity. Schedule 2.14 also sets forth a list of all licenses (including without limitation relating to technology, know-how or procedures) that were granted to Seller or its Affiliates by others or to others by Seller or its Affiliates relating to the Business. No patents, patent applications, service marks, trade names, trademarks, logos, trademark registrations or applications, copyrighted works, copyright registrations or applications or grants of licenses set forth in Schedule 2.14 are subject to any pending or, to the knowledge of Seller, threatened, claim or challenge, and, to the knowledge of Seller, there is no valid basis for sustaining any claim or challenge. The manufacturing and engineering drawings, process sheets, specifications, bills of material, trade secrets, "know how," and other like data of Seller or its Affiliates relating to the Business are in such form and of such quality that Buyer can (assuming Buyer is as capable as Seller), following the Closing, design, produce, manufacture, assemble and sell the Relays and provide the services heretofore provided by the Business in a manner that meets the applicable specifications and conforms with the quality standards heretofore met by Seller and CD Mexico. Except for the licenses and rights listed in Schedule 2.14, neither Seller nor its Affiliates of Seller require a license or other proprietary right to operate the Business or to manufacture or sell the Relays or perform any services associated with the Purchased Assets or the Business. Section 2.15. Environmental Matters. For purposes of this Section 2.15: (i) "Seller" shall mean Seller, CD Mexico and each current, prior or subsequent owner or operator of the Premises or any other location at which the Business has been operated prior to the Closing Date; (ii) "Environmental Law" shall mean any foreign, federal, state or local law (including common law), statute, regulation, ordinance, published guideline or standard, or order, or agreement or consent order to which Seller is or has been party, including a permit issued pursuant to any of the foregoing, related to air quality, water quality, solid waste management, hazardous or toxic substances or the protection of public health, natural resources or the environment, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended and comparable foreign laws and regulations (collectively, "CERCLA"); and (iii) the term "Hazardous Material" shall mean any hazardous substances as defined by CERCLA, petroleum or any petroleum derivative or by-product, and any pollutant, contaminant, solid waste or hazardous or toxic waste or substance which is defined or regulated as such by any Environmental Law. (a) Except as set forth in Schedule 2.15, the Business and the Purchased Assets are presently and at all times has been in compliance with all applicable Environmental Laws; (b) Except as set forth on Schedule 2.15, there are no writs, injunctions, decrees, orders or judgments outstanding, and no lawsuits, claims, or other proceedings pending or to the knowledge of Seller threatened, relating to the ownership, use, maintenance or operation of the Purchased Assets under any Environmental Law, nor is there any agreement 12 or consent order to which the Business is a party in relation to any environmental matter, nor is any such agreement or order necessary for the continued compliance by the Business with any Environmental Law. In addition, except as set forth in Schedule 2.15, there are no investigations or inquiries pending or to the knowledge of Seller threatened relating to the Business or the ownership, use, maintenance or operation of the Purchased Assets under any Environmental Law; and (c) Except as described on Schedule 2.15, the operations of the Business or any employees, agents or contractors of Seller or any Affiliate of Seller have not caused and will not cause: (i) environmental contamination of any of the Purchased Assets; or (ii) any other condition that could give rise to a claim against Buyer under any Environmental Law. Except as described on Schedule 2.15, to the knowledge of Seller, all such personal property is free of environmental contamination. Section 2.16. Brokers' Fees. Seller has not incurred any liability for brokers' fees, finders' fees, agents' commissions, financial advisory fees or other similar forms of compensation in connection with this Agreement or any transaction contemplated by this Agreement. Section 2.17. Customers and Suppliers. Except as set forth on Schedule 2.17, there has not been any material adverse change in the business relationship of Seller or CD Mexico with any customer or supplier listed on Schedule 2.13, nor, to the knowledge of Seller, could an adverse change be reasonably anticipated as a result of the consummation of the transactions contemplated by this Agreement. Except as disclosed in Schedule 2.17, all orders and commitments relating to the Business and to be assumed by Buyer hereunder were made in the ordinary and usual course of business. Except as disclosed on Schedule 2.17, there are no pending or, to the knowledge of Seller threatened claims against Seller or CD Mexico in excess of $2000 individually and $10,000 in the aggregate, to return Relays or to require repairs or replacement to Relays sold or services rendered, by reason of alleged over shipments, defective Relays or services or otherwise. Section 2.18. Product Liabilities and Warranties. There are no express or implied warranties or guaranties applicable to Relays sold by Seller or CD Mexico, except as disclosed on Schedule 2.18. Except as disclosed on Schedule 2.18, there is no action, suit, proceeding or claim pending or, to the knowledge of Seller, threatened against Seller or CD Mexico with respect to Relays sold or services provided by Seller or CD Mexico under any warranty or guaranty, express or implied, and, to the knowledge of Seller, there is no basis upon which any claim is reasonably likely to be sustained. Schedule 2.18 also summarizes all product liability and tort claims within the last five (5) years and all warranty claims during the last three (3) years that have been asserted against Seller or its Affiliates with respect to the Business or Relays sold or services provided. All Relays being purchased by Buyer, pursuant to Section 1.1(b) or hereafter as Slow Moving Inventory satisfy all express or implied warranties or guaranties applicable to Relays sold by Seller or CD Mexico as of the date of this Agreement. Section 2.19. Permits and Licenses. All permits, licenses, registrations, orders and other authority necessary or appropriate for Seller or CD Mexico to operate the Purchased Assets and 13 Leased Property, to remove the Purchased Assets and Leased Property from Mexico to the United States without restriction, duty, fee or tax to Buyer at the Closing or anytime within twelve (12) months thereafter and to carry on the Business as presently conducted are identified on Schedule 2.19, and are in full force and effect (except as disclosed in Schedule 2.19), and have been complied with by Seller and CD Mexico in all material respects. All fees and charges incident to those permits, licenses, orders and approvals have been fully paid and are current, and, to the knowledge of Seller, no suspension or cancellation of any such permit, license, order, or approval has been threatened or is reasonably likely to result by reason of the transactions contemplated by this Agreement. Section 2.20. Compliance with Law and Other Regulations. Except as set forth on Schedule 2.20, Seller and CD Mexico are in material compliance with all foreign, federal, state and local laws, statutes, regulations, ordinances, policy, guideline and standard relating directly to the Business, the Relays, the Purchased Assets and the Leased Property. Except as set forth on Schedule 2.20, neither Seller nor CD Mexico is subject to and, to Seller's knowledge, neither Seller nor CD Mexico has been threatened with, any fine, penalty, liability or disability as the result of a failure to comply with any requirement of foreign, federal, state and local law, statute, regulation, ordinance, policy, guideline or standard relating directly to the Business, the Relays, the Purchased Assets, the Leased Property or any requirement of any governmental body or agency having jurisdiction over Seller or CD Mexico and which relates to the Business, the Relays, the Purchased Assets or the Leased Property. There are no outstanding work orders relating to the Purchased Assets, the Leased Property or the Business from or required by any police or fire department, sanitation, health or factory authorities or from any foreign, federal, state or local department or authority or any matters under discussion with any such departments or authorities relating to work orders. Section 2.21. Seller Relationships, Intercompany Agreements and Transactions. Seller and CD Mexico are the only entities of Seller and its Affiliates which are involved in the Business. Except as disclosed on Schedule 2.21, all Relays are manufactured by CD Mexico at the Premises and are all sold to Seller. Seller sells all Relays to non-Affiliates. Schedule 2.21 also sets forth a description of (i) all income and expenses allocated or charged to the Business by the Seller or any Affiliate (defined below) of the Seller and (ii) each agreement, contract and understanding between the Seller and Seller's Affiliates which is material to the Business or which has resulted in or may result in the payment of $25,000 thereunder. "Affiliate" means any person or entity which now or hereafter directly or indirectly controls, or is under common control with, or is controlled by, any party to this Agreement. Section 2.22. Customs or Port-of-Entry Registrations. Each of the specific Purchased Assets and each of the units of Leased Property which Buyer is assuming which have been registered or duly reported to appropriate Mexican customs officials or which have been listed with port-of-entry officials are so designated on Schedule 2.22 with concomitant dates and numbers. All of the Purchased Assets and each of the units of Leased Property which Buyer is assuming which are required to have been registered, reported or listed with Mexican government officials have been so registered, reported or listed. All valuations of the Purchased Assets and each of the units of Leased Property which Buyer is assuming were at all times, are now and will be in compliance with 14 Mexican and U.S. laws and regulations. Seller and CD Mexico each have all registrations, permits, licenses, orders and other authority necessary or appropriate for the exportation of the Purchased Assets and each of the units of Leased Property which Buyer is assuming to the United States, and such registrations, permits, licenses, orders and authorizations are valid for at least twelve (12) months after the Closing Date and are transferrable to Buyer without governmental approval or consent. Section 2.23. Accuracy of Statements. No representation or warranty made by Seller in this Agreement, the disclosure schedules, or any statement, certificate or schedule furnished, or to be furnished, to Buyer pursuant to this Agreement, or in connection with the transactions contemplated by this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained therein not materially misleading. The foregoing representations, warranties and covenants shall be deemed to be made by Seller and CD Mexico as of the date of this Agreement, again as of the Closing Date and again as of the Final Delivery Date. Section 2.24. Representatives, Distributors and Sales Agents. Schedule 2.24 contains a complete list of representatives, distributors and sales agents for the Business, together with commissions to become due to each for the order backlog being transferred to the Buyer. All of those listed on Schedule 2.24 are representatives, distributors or sales agents for Seller. Except for the commissions set forth on Schedule 2.24, all commissions relating to the Business and payable by Seller as of the date hereof are, and all commissions payable by Seller as of the Closing Date shall have been paid by Seller. A form of agreement with such representatives and sales agents of the Business has been provided to Buyer, and represents in all material respects the terms of agreement between Seller and the representatives and sales agents for the Business. ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER Buyer represents, warrants and covenants to Seller as follows: Section 3.1. Organization and Standing of Buyer. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina. Section 3.2. Authorization and Enforceability. Buyer has full capacity, power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, and this Agreement and all ancillary agreements are binding upon Buyer and are enforceable against Buyer in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights and remedies of creditors as well as general principles of equity (regardless of whether such enforceability in considered in an action at law or in a suit in equity). 15 Section 3.3. Brokers' Fees. Buyer has not incurred any liability for brokers' fees, finders' fees, agents' commissions, financial advisory fees or other similar forms of compensation in connection with this Agreement or any transaction contemplated by this Agreement, except for a finder's fee to Donald Dangott which the Buyer will pay. Section 3.4. No Conflict with Other Instruments or Proceedings. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not : (i) result in the breach of any of the terms or conditions of, or constitute a default under, the Articles of Incorporation or the Bylaws of Buyer; or (ii) violate any law, rule or regulation of any administrative agency or governmental body or any order, writ, injunction or decree of any court, administrative agency or governmental body. No consents, approvals, or authorizations of, or declarations, filings or registrations with, any third parties or governmental or regulatory authorities are required of Buyer in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement. Section 3.5. Accuracy of Statements. No representation or warranty made by Buyer in this Agreement, or any statement, certificate or schedule furnished, or to be furnished, to Seller pursuant to this Agreement, or in connection with the transactions contemplated by this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained therein not misleading. The foregoing representations, warranties and covenants shall be deemed to be made as of the date of this Agreement, again as of the Closing Date. ARTICLE 4 CLOSING Section 4.1. Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place in the offices of Parker, Poe, Adams & Bernstein L.L.P., at 10:00 a.m., local time, on July 24, 1998, or at such other place, time and date as the parties may agree (the "Closing Date"). Section 4.2. Closing Obligations of Seller. At the Closing, Seller shall deliver to Buyer: (a) Executed bills of sale, endorsements, assignments and such other instruments of transfer as are sufficient, in the judgment of Buyer and its counsel, to vest in Buyer ownership of the Purchased Assets (as contemplated by this Agreement), free and clear of any and all claims, liens, security interests, encumbrances, charges, obligations and other restrictions, other than Permitted Encumbrances; (b) All records and other documents to be acquired by Buyer pursuant to this Agreement; 16 (c) The Seller's certificate described in Section 6.3 of this Agreement; (d) The opinion of Schoenberg, Fisher, Newman & Rosenberg, counsel to Seller, as described in Section 6.6 of this Agreement; (e) A certified copy of resolutions of Seller's Board of Directors authorizing the consummation of the transactions contemplated by this Agreement; and (f) Physical possession of the tangible Purchased Assets (except finished inventory) at the locations and as set forth on Schedule 2.8. Physical possession of finished inventory shall be transferred from Seller to Buyer at a location in the United States agreed to by the parties. In addition to the documents and other items specifically described above, Seller shall execute and deliver other instruments at the Closing as described in Articles 6 and 7 of this Agreement. Section 4.3. Closing Obligations of Buyer. At the Closing, Buyer shall deliver to Seller: (a) The Pre-Closing Value, by wire transfer of immediately available funds in accordance with wire transfer instructions provided by Seller to Buyer; and (b) The certificate of Buyer described in Section 7.3 of this Agreement; (c) A certified copy of resolutions of Buyer's Board of Directors authorizing the consummation of the transactions contemplated by this Agreement. (d) The opinion of Parker, Poe, Adams & Bernstein LLP, counsel to Buyer, as described in Section 7.7 of this Agreement; In addition to the documents and other items specifically described above, Buyer shall also execute and deliver other instruments at the Closing as described in Articles 6 and 7 of this Agreement. Section 4.4. Obligations of Final Delivery Date. On the Final Delivery Date, the following transfers shall be made: (a) Seller shall deliver physical possession in the United States of any Remaining Assets and other assets of the Buyer. Section 4.5. Further Documents or Necessary Action. Seller agree to take all such further reasonable actions on or after the Closing Date and on or after the Final Delivery Date as Buyer may deem to be reasonably necessary, desirable or appropriate to effectuate the transactions contemplated in this Agreement. 17 ARTICLE 5 COVENANTS Seller agrees with Buyer, and Buyer agrees with Seller to the following covenants, each of which shall survive the Closing Date pursuant to their terms: Section 5.1. Conduct of Business. During the period from the date of this Agreement to the Closing Date, Seller and CD Mexico shall act, and shall conduct the Business, in the ordinary and usual course and maintain Seller's and CD Mexico's records and books of account for the Business in a manner that fairly and accurately reflects the transactions, assets, liabilities, income and expense, in accordance with GAAP. Seller and CD Mexico shall maintain and preserve intact the Business in accordance with past practices and sound business practices, preserve the present goodwill of the Business with all persons having business dealings with the Business, comply with all laws applicable to Seller or CD Mexico, the Purchased Assets and the Business, and continue to meet its obligations and liabilities. Without limiting the foregoing, Seller agrees that from the date of this Agreement to the Closing Date, Seller and CD Mexico shall not without the written consent of Buyer: (a) entertain, enter into or continue any negotiations, discussions or agreements with anyone other than Buyer contemplating or respecting the acquisition by such other person or entity of all or part of the Seller, CD Mexico, the Purchased Assets or the Business, whatever the form such purchase transaction may contemplate; (b) take any action that would interfere with or prevent performance of this Agreement; and (c) do or suffer to be done any act or event described in Section 2.5 of this Agreement or otherwise engage in any activity or enter into any transaction that would be inconsistent in any respect with any of the representations, warranties or covenants of Seller set forth in this Agreement, as if those representations, warranties and covenants were made after the activity or transaction and all references to the date of this Agreement were deemed to be the later date. Section 5.2. Access. During the period from the date of this Agreement to the Closing Date, Seller shall give Buyer and its designated representatives access, after reasonable prior notice from Buyer, to the buildings, offices, records and any and all other records of the Seller or CD Mexico, for the purpose of conducting an investigation of the Purchased Assets, the Leased Property, litigation and all other matters relating to the Business; provided, however, that the investigation shall be conducted in a manner that does not unreasonably interfere with the normal operations and employee relationships of the Business. Subject to the foregoing, Seller and CD Mexico shall cause their officers and other employees to assist Buyer in making such investigation and shall cause the accountants (both internal and independent), officers and other employees and representatives of Seller or CD Mexico to be available to, cooperate with, and assist Buyer. During 18 such investigation, Buyer shall have the right to make copies, at Buyer's expense, of such records, files, tax returns and other materials relating to the Business as Buyer may reasonably deem advisable at Buyer's expense. Seller shall respond fully to all reasonable inquiries. Section 5.3. Sales and Miscellaneous Taxes. Seller shall pay (whether prior to or after the Final Delivery Date) all sales, value added, use or transfer taxes, tariffs or duties imposed by any governmental entity from either Mexico or the United States arising out of, or incurred in connection with, the purchase and sale of the Purchased Assets, the assignment to Buyer of any Leased Property or other Assumed Liabilities, the transportation and exportation of the Purchased Assets or any Leased Property being assigned to Buyer from time to time to the United States, and this transaction generally. Seller represents that no bulk sales or similar notice or notices are required by virtue of the transaction contemplated by this Agreement. Seller shall reimburse, indemnify and hold harmless Buyer from and against any and all loss, cost, damage, claim or expense (including reasonable attorneys' fees) which Buyer may sustain by reason of either party's or any other entity's failure to comply with any bulk transfer or bulk sales laws or similar laws of any governmental jurisdiction within the United States or Mexico. Section 5.4. Investigation by Buyer. Notwithstanding any other provision of this Agreement, no investigation by Buyer or its employees, attorneys, independent accountants, business consultants or other representatives or agents shall affect in any manner the representations, warranties or covenants of Seller set forth in this Agreement (or in any document to be delivered in connection with the consummation of the transactions contemplated by this Agreement) or Buyer's right to rely thereon, and those representations, warranties and covenants shall survive the investigation; provided, if Buyer has actual knowledge, through documentary evidence of Seller or CD Mexico, that a representation or warranty of Seller is untrue as of the date such representation or warranty is made, Buyer's right to rely on such representation or warranty shall be limited by the information in such documentary evidence. Section 5.5. Seller Assistance. Seller and its Affiliates shall obtain all consents and approvals necessary to sell and transfer the Purchased Assets and assign the Assumed Liabilities to Buyer in accordance with the terms of this Agreement, and bring about the satisfaction of the conditions required to be performed, fulfilled and complied with by Seller and its Affiliates pursuant to this Agreement and take or cause to be taken all action, and to do or cause to be done all things, necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Seller and its Affiliates shall, to the extent requested, cooperate with and assist Buyer in obtaining all licenses, permits and the authorizations required to be obtained by Buyer in connection with the ownership of the Purchased Assets and operation of the Business, which licenses, permits and authorizations are not included in the Purchased Assets. Section 5.6. Employees and Employee Benefit Plans. Buyer shall not be required to employ or pay any compensation to any employee of Seller who is engaged in the Business. To the extent Buyer, in its discretion, offers employment to any employees of Seller engaged in the Business, (i) Seller shall nevertheless unilaterally terminate such employee from Seller's employ, 19 prior to Buyer employing such person and shall pay such employee all amounts due to him/her in accordance with applicable law and (ii) Buyer shall be responsible thereafter for its employment of such individual from the date Buyer employs the individual. Seller and CD Mexico shall protect and perform any obligation (contractual, governmental or otherwise) in connection with any of Seller's or CD Mexico's employees who are or may become adversely affected by virtue of the transactions to be performed under this Agreement (including, without limitation, termination from Seller's or CD Mexico's employment). Seller and CD Mexico will continue to maintain responsibility for and comply with any applicable Mexican and United States laws and regulations following the Closing Date and the Final Delivery Date with respect to its Employees and former employees (including, without limitation, any Employee Benefit Plans, requirements for continuation of coverage, termination, compensation and otherwise). Buyer shall not assume nor in any way be liable for any aspect relating to Seller's or CD Mexico's employment matters including, without limitation, Employee Benefit Plans or for any other obligations of Seller or CD Mexico to Employees or former employees of Seller and CD Mexico. Seller and CD Mexico shall retain all liability and responsibility for its employment matters including, without limitation, Employees Benefit Plans and all other obligations of Seller or CD Mexico to Employees and former employees of Seller or CD Mexico. Without limiting Seller's indemnity obligations otherwise contained in this Agreement, Seller shall indemnify Buyer, pursuant to Section 8.1 (d), for the matters contained in this Section 5.6. Section 5.7. Notice to Vendors and Customers. Seller will provide reasonable cooperation with Buyer in notifying in writing, after the Closing, all vendors and customers of Seller or CD Mexico relating to the Business as may be reasonably requested by Buyer. This obligation includes the issuance of a press release to be made in the discretion of Buyer. Section 5.8. Post-Closing Operations. Buyer and Seller agree as follows with respect to certain activities after the Closing Date: (i) Although all Purchased Assets, shall be sold and title shall vest in Buyer on the Closing Date, Buyer shall deposit with Seller certain items of the Purchased Assets and certain Leased Property assigned to Buyer (the "Remaining Assets"), pursuant to a Deposit Agreement, to be dated, executed and delivered as of the Closing Date, the form of which is attached hereto as Exhibit F (the "Deposit Agreement"). Buyer may also, from time to time, deliver to Seller certain other materials, parts and sub-assemblies which Buyer will own. Buyer and Seller acknowledge that Seller will provide the Remaining Assets and other materials, parts and sub-assemblies to CD Mexico at the Premises. Neither Seller nor CD Mexico shall remove the Remaining Assets and other assets of Buyer from the Premises without the prior written instruction of Buyer. Buyer shall instruct Seller to remove all of the Remaining Assets and other assets of Buyer from the Premises by the end of twelve (12) months after the Closing Date unless Buyer and Seller shall otherwise hereafter agree in writing on a different date, and in the event Buyer fails to instruct Seller to remove same, Buyer shall pay Seller $100 per day for each day such failure continues. "Final Delivery Date" means the date of possession of the Remaining Assets and other assets of Buyer are delivered to Buyer in the United States in accordance with this Agreement. 20 (ii) From the Closing Date until the Final Delivery Date, or earlier if Buyer so instructs Seller, Seller agrees to manufacture Relays for Buyer and ship Relays to customers of Buyer. Buyer will pay Seller an amount equal to CD Mexico's Standard Hours (defined below) as follows: (i) each week for Relays shipped and accepted during the previous week, and (ii) for work in process remaining at the Final Delivery Date within fifteen (15) days after the Final Delivery date for the Relays and all services under this Section 5.8. In no event will Seller have any obligation to manufacture or ship Relays after the twelve (12) month period set forth above unless Buyer and Seller shall otherwise hereafter agree in writing. "Standard Hours" means $9.00 per standard man-hour for work performed in manufacturing the Relays, as set forth in more detail in Schedule 5.8, attached hereto. For example, if the standard man-hours for manufacturing a Relay is .025, the cost of a finished Relay shall be $.225. Also, the parties recognize that some of the Purchased Assets will be work in process and Schedule 5.8 sets forth a description of the standard man hours for manufacturing Relays from various stages of production. (iii) After the Closing, Seller shall provide Buyer copies of packing lists on a daily basis. In addition, Seller shall provide Buyer a written report at least every two (2) weeks informing Buyer of all Relays manufactured and shipped, inventory levels of finished Relays, the status of work in process, and the amount of materials, parts and sub-assemblies in inventory in order to permit Buyer to monitor activities of Seller and invoice for Relays shipped. Seller will provide, upon the request of Buyer from time to time, information available to Seller or its Affiliates relating to the activities under this Article V. Buyer will order, purchase and supply all materials, parts and sub-assemblies for Seller's use in producing Relays for Buyer during this period, and Seller shall reasonably cooperate with Seller in this regard (including without limitation, keeping Buyer effectively informed of Seller's need for such materials, parts and sub-assemblies so Seller can timely produce and deliver the quantity of Relays ordered by Buyer). (iv) Buyer shall notify Seller from time to time of the type and quantity of Relay ordered and the shipment date and Seller also agrees to manufacture and ship such Relays based on standard lead times, but Seller also agrees to use reasonable efforts to meet shorter delivery dates. Seller shall manufacture and test all Relays in accordance with the specifications and procedures used by CD Mexico immediately prior to the date of this Agreement and with good workmanship and materials. CII can request modifications to those specifications and procedures in accordance with specific customer requests. CDE shall have the right to reject the specifications and procedures that CII requests for good cause (including that requested performance is at or beyond the product design capability) or to request that the parties negotiate different specification. (v) Seller agrees to disconnect and tag the Remaining Assets and other assets of Buyer, at the request of Buyer in preparation for the Final Delivery Date. Seller shall have primary responsibility for disconnecting, packaging and moving the Remaining Assets, and all other assets of Buyer at the Premises. Seller will load the Remaining Assets and other assets of Buyer onto trucks and/or trailers provided by or on behalf of Buyer. Seller will 21 not be responsible for the costs of shipping or insurance. Seller shall, nevertheless, be responsible for the exportation of the Remaining Assets and other assets of Buyer to the United States and Seller shall be responsible for all sales, value added, use or transfer taxes, tariffs or duties as set forth under Section 5.3. Seller shall deliver to Buyer all manuals and instructions that Seller or its Affiliates have for the Remaining Assets and other assets of Buyer. (vi) Buyer shall have the right from time to time to inspect the Premises, the Remaining Assets and other assets of Buyer, the Relays and the materials, parts and sub-assemblies upon reasonable prior notice from time to time. Buyer shall also have the right to oversee and inspect, to the extent reasonable, any disconnecting, packaging and loading of the Remaining Assets, the Relays, parts and sub-assemblies, and any other assets of Buyer at the Premises. (vii) After the Closing Date and through the Final Delivery Date, Seller agrees to perform customary day-to-day maintenance and ordinary repair of the Remaining Assets, in accordance with industry standards, at Seller's expense, ordinary wear and tear excepted. Seller shall also be responsible for any damage to the Remaining Assets and other assets of Buyer at the Premises due to the willful misconduct or negligence of Seller or its Affiliates. Seller shall have no obligation to perform maintenance or repairs after the Final Delivery Date, but shall continue to be bound by its representations and warranties made in this Agreement. (viii) Seller shall not sell to Buyer as part of the Purchased Assets and shall not ship to Buyer or its customers as part of this Section 5.8 any Relays which do not meet the product warranty provided by Seller to Buyer in Section 5.8(iv). Seller shall be responsible for any Relays which do not meet the product warranty provided by Seller to Buyer in Section 5.8(iv) (including, without limitation, the disposal of such Relays) and shall indemnify Buyer, its Affiliates and their respective employees, representatives, officers, shareholders directors and agents pursuant to this Agreement. Section 5.9. Delivery of Property Received After Closing. From and after the Closing, Seller or Buyer, as the case may be, shall within fifteen (15) days after receipt transfer to the other party, any cash or other property received by such party or its Affiliates which are properly for the account of the other party. Section 5.10. Competition. For a period of five (5) years after the Closing Date, Seller, CD Mexico and Seller's Affiliates shall not, in any manner, directly or indirectly, on its behalf or as an agent of, on behalf of, or in conjunction with any other person, firm or corporation, or as a partner of any partnership, or as a shareholder of any corporation, own, manage, acquire, operate, control or participate in the ownership, management, operation or control of, or have any financial interest in, any person, firm, business, corporation, or other organization that designs, manufactures, services sells or represents for sale any relays (a "Competitor") within the Territory. "Territory" means the United States, Canada and Mexico; the United States and Canada; and the United States. 22 Notwithstanding the foregoing, nothing contained in this Agreement shall prohibit Seller from acquiring not more than five percent (5%) of the outstanding shares of any equity security of a Competitor or an affiliate of a Competitor listed for trading on the New York Stock Exchange, the American Stock Exchange or any other established market or quoted on the National Association of Securities Dealers Automated Quotation System or on the Mexican stock market. In addition, for a five (5) year period after the Closing Date, Seller, CD Mexico and Seller's Affiliates shall not induce any person who is then an employee of Buyer or Electro-Mech, S.A. De C.V., Buyer's Mexican subsidiary to leave employment or directly or indirectly assist any other person or entity in requesting or inducing any such employee to leave Buyer or Electro-Mech, S.A. De C.V., Buyer's Mexican subsidiary, and Seller shall not offer to employ or employ any person who is then an employee of Buyer or Electro-Mech, S.A. De C.V., Buyer's Mexican subsidiary. Buyer shall be entitled (without limitation of any other remedy and without posting bond) to specific performance and/or injunctive relief with respect to any breach or threatened breach of the foregoing covenants. If any court of competent jurisdiction shall at any time deem the foregoing time periods too lengthy, the Territory to broad or the scope of the covenants too broad, the restrictive time period shall be deemed to be the longest period permissible by law, the Territory shall be the broadest permissible by law and the scope shall be deemed to comprise the largest scope permissible by law under the circumstances. It is the intent of the parties to protect and preserve the business and goodwill acquired by Buyer and therefore the parties agree and direct that the time period, Territory and scope of the foregoing covenants shall be the maximum permissible duration and size. The foregoing provisions of this Section 5.10 shall not prohibit Seller or its Affiliates from acquiring the stock or assets of a company or entity which is engaged, as a part of its business, in the relay business so long as (i) the relay business (including, without limitation, assets and goodwill) does not account for more than 5% of the value of the overall transaction, (ii) Seller or its Affiliates give Buyer written notice within five (5) business days following such acquisition, and (iii) Buyer shall have the right, exercisable anytime within 120 days after Buyer's receipt of such notice, to acquire all or some of the assets relating to the relay business at a price equal to the purchase price allocated to such relay business assets by Seller (or its Affiliate) and the third party in good faith and in accordance with GAAP. Seller and its Affiliates shall immediately provide Buyer complete information and documentation, and access to books and records, facilities and personnel, as requested by Buyer, to enable Buyer to investigate and evaluate such relay business and Buyer's rights under this Agreement. Section 5.11. Confidentiality. Neither Seller nor Buyer shall use or disclose any information obtained from the other for any purpose unrelated to the transactions contemplated by this Agreement, except that neither party shall incur any liability to the other for disclosure of information which: (a) was already know to the recipient party or its Affiliates at the time of its receipt from the other party; (b) had been published or was otherwise within the public domain or was generally known to the public at the time of its disclosure to the recipient party; 23 (c) comes into the public domain without any breach of this Agreement; or (d) becomes known or available to the recipient party or its Affiliates other than from the other party. Section 5.12. Sales Representatives. Seller will cooperate, as Buyer may reasonably request, with providing such additional information and communications with all representatives, distributors and sales agents of the Business. Section 5.13. Slow Moving Inventory. On the Closing Date, Seller shall consign to Buyer all Slow Moving Inventory. The Slow Moving Inventory shall remain at CD Mexico until Buyer instructs Seller to ship it into the United States. Buyer will pay the cost of shipping and insurance during shipping, but Seller shall be responsible for the exportation of the Slow Moving Inventory. Buyer will be responsible for all sales, value added, use or transfer taxes, tariffs or duties imposed by any governmental entity from either Mexico or the United States arising out of, or incurred in connection with the purchase and sale of the Slow Moving Inventory or the transportation or exportation of the Slow Moving Inventory. Upon Buyer's receipt of the Slow Moving Inventory in the United States, Buyer shall name Seller as an additional insured with respect to such Slow Moving Inventory on Buyer's insurance and provide Seller a certificate of insurance. For a period of eighteen (18) months after the Closing Date, Buyer agrees to pay Seller, according to the formula set forth below, within thirty (30) days after each quarter for each item of Slow Moving Inventory sold by Buyer to its customers or used by Buyer during such quarter. Buyer will pay Seller for all finished Slow Moving Inventory an amount equal to eighty percent (80%) of the price received from Buyer's customers or Seller's Standard Cost, whichever is less. Within thirty (30) days after each quarter, Buyer will pay Seller for all materials, parts and sub-assemblies which are Slow Moving Inventory and which are used by Buyer an amount equal to the Standard Cost. At the end of the eighteen (18) months after the Closing Date all Slow Moving Inventory which has not been sold or used by Buyer shall be owned by Buyer without charge or cost. Buyer may use the samples and shall not pay for any samples unless it sells them. Buyer will provide Seller quarterly status reports on Slow Moving Inventory. Buyer agrees to act in good-faith with respect to the timing or the sale or use of the Slow Moving Inventory, taking into account market and customer requirements. Section 5.14. License of "Cornell-Dubilier" Name and Logo. As of the Closing Date, Seller grants Buyer a non-exclusive, royalty free, world-wide licence to use the name "Cornell-Dubilier" or "Cornell-Dubilier Electronics" and logos and marks (the "Marks"), as now used by Seller in connection with the Relays (or otherwise permitted by CDE in writing), throughout the world in connection with the manufacture, marketing, distribution and sale of Relays. For all Relays or other materials containing a Mark, as of the Closing Date (including without limitation inventory, work in process and Slow Moving Inventory), or hereafter manufactured by Seller or CD Mexico pursuant to Section 5.8, this license shall continue for twenty-four (24) months after the Closing Date in connection with Buyer's resale or use. Buyer agrees to stop having CD Mexico manufacture Relays with any Marks within thirty (30) days after the Closing Date. 24 Section 5.15. Sales Representative Commissions. Buyer agrees to pay the five percent (5%) commission on all sales of Relays on order backlog, as specified on Schedule 1.5-1 according to the following procedures. After the Closing Date, Seller shall pay the commissions for Relays on such orders backlog shipped after Closing and notify Buyer in writing of each such payment (and to whom paid and for which shipment). Buyer shall reimburse Seller within ten (10) days the amount of such commission. To the extent Relays covered by such order backlog are delivered after Closing by Seller's supplier in China directly to Buyer, Buyer will provide Seller information on such shipments so Seller may pay the commissions to the sales representatives. Notwithstanding the foregoing, Buyer is not assuming any agreements or obligations with such sales representatives and Buyer is under no obligation to use such sales representatives in Buyer's operation of the Business. ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER All obligations of Buyer under this Agreement are, except to the extent expressly waived in writing by Buyer, subject to the satisfaction by Seller at or before the Closing of all of the following conditions: Section 6.1. Representations and Warranties True at Closing; Investigation. The representations and warranties of Seller contained in this Agreement and in any document to be delivered in connection with the consummation of the transactions contemplated by this Agreement, specifically including without limitation the disclosure schedules, shall be true and correct when made and shall be true and correct on the Closing Date as though those representations and warranties were made again on the Closing Date. Section 6.2. Performance. Seller and its Affiliates shall have performed and complied with all agreements, conditions and covenants required by this Agreement to be performed or complied with by Seller and its Affiliates before or at the Closing. Section 6.3. Seller's Certificate. Buyer shall have received a certificate substantially in the form of attached Exhibit G, signed by Seller and dated as of the Closing Date, to the effect that all representations and warranties made in this Agreement by Seller are on the Closing Date true and correct in all respects and that Seller and its Affiliates have performed in all respects the agreements, conditions and covenants undertaken by Seller in this Agreement to be performed on or before the Closing Date. Section 6.4. No Adverse Changes. Except as contemplated by this Agreement, there shall have been no material adverse change in the condition, business or operations, financial or otherwise, of the Seller, CD Mexico, the Purchased Assets or the Business, in each case taken as a whole, from the date of this Agreement to the Closing Date. Section 6.5. Litigation. On the Closing Date, there shall not be any pending or threatened litigation in any court or any proceedings by or before any governmental commission, board, agency 25 or other instrumentality with a view to seeking, or in which it is sought, to restrain or prohibit the consummation of the transactions contemplated by this Agreement or in which it is sought to obtain divestiture, rescission or damages in connection with the transactions contemplated by this Agreement, and no investigation by any governmental or other agency shall be pending or threatened that might result in any such litigation or other proceeding. Section 6.6. Opinion of Counsel for Seller. Buyer shall have received from Schoenberg, Fisher, Newman & Rosenberg, counsel for Seller, a written opinion dated as of the Closing Date, substantially in the form of attached Exhibit H. Section 6.7. Necessary Consents; Notices. All authorizations, consents and approvals shall have been received and shall be in full force and effect from (i) federal, state, local and foreign regulatory bodies and officials that are necessary in the opinion of Buyer for the consummation of the transactions contemplated by this Agreement and (ii) any third parties that are necessary in the opinion of Buyer for the transfer and assignment of any Purchased Assets or Assumed liabilities. Section 6.8. Board Approval. Approval of this Agreement and the ancillary documents by the Board of Directors of Buyer. Section 6.9. Financing. Buyer's securing financing for the transaction acceptable to Buyer, and Seller providing financial statements relating to the Business which are available to or reasonably obtainable by Seller, as required by the financial institution. Section 6.10. Employment Agreements. Execution by Buyer of employment agreements, or other arrangements satisfactory to Buyer, with certain employees of Seller or CD Mexico active in the Business. Section 6.11. Proceedings Satisfactory. All proceedings taken in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be satisfactory in form and substance to Buyer and its counsel, and Buyer and its counsel shall have received copies of all such documents (executed or certified, as may be appropriate) as Buyer and its counsel may reasonably request in connection with such transactions. Section 6.12. Failure of Conditions. In the event any one of the conditions set forth in this Article 6 shall not have been satisfied on or before the Closing Date, or on or before any date to which closing may be postponed by subclause (c) hereof, Buyer may in its sole discretion: (a) waive such condition; (b) postpone the Closing to a date specified by Buyer but not later than thirty (30) days after the originally selected Closing Date, during which period Seller and Buyer shall use their best efforts to remove any impediments to consummation of the transactions by this Agreement; or 26 (c) if the Closing is postponed pursuant to clause (b) and not completed by the date specified pursuant to clause (b), terminate this Agreement without prejudice to the rights and remedies of the parties hereunder. ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER All obligations of Seller under this Agreement are, except to the extent expressly waived in writing by Seller, subject to the satisfaction by Buyer at or before the Closing of all of the following conditions: Section 7.1. Representations and Warranties True at Closing. The representations and warranties of Buyer contained in this Agreement shall be true and correct when made and shall be true and correct on the Closing Date as though the representations and warranties were made again on the Closing Date. Section 7.2. Performance. Buyer shall have performed and complied with all agreements, conditions and covenants required by this Agreement to be performed or complied with by Buyer before or at the Closing. Section 7.3. Certificate of Buyer. Seller shall have received a certificate substantially in the form of attached Exhibit I, signed by Buyer and dated as of the Closing Date, to the effect that all representations and warranties made in this Agreement by Buyer are on the Closing Date true and correct in all respects and that Buyer has performed in all respects the agreements, conditions and covenants undertaken by Buyer in this Agreement to be performed on or prior to the Closing Date. Section 7.4. Litigation. On the Closing Date, there shall not be any pending or threatened litigation in any court or any proceedings by or before any governmental commission, board, agency or other instrumentality with a view to seeking, or in which it is sought, to restrain or prohibit the consummation of the transactions contemplated by this Agreement or in which it is sought to obtain divestiture, rescission or damages in connection with the transactions contemplated by this Agreement, and no investigation by any governmental or other agency shall be pending or threatened that might result in any such litigation or other proceeding. Section 7.5. Proceedings Satisfactory. All proceedings taken in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be satisfactory in form and substance to Seller and its counsel, and Seller and its counsel shall have received copies of all such documents (executed or certified, as may be appropriate) as Seller and its counsel may reasonably request in connection with such transactions. Section 7.6. Board Approval. Approval of this Agreement and the ancillary documents by the Board of Directors of Seller. 27 Section 7.7. Opinion of Counsel for Buyer. Seller shall have received from counsel for Buyer a written opinion dated as of the Closing Date, substantially in the form of attached Exhibit J. Section 7.8. Failure of Conditions. In the event any one or more of the conditions set forth in Article 7 shall not have been satisfied on or before the Closing Date or on or before any date to which the Closing is postponed pursuant to clause (c) hereof, Seller may in its sole discretion: (a) waive such condition; (b) postpone the Closing Date to a date specified by Seller but not later than thirty (30) days after the originally selected Closing Date, during which period Seller and Buyer shall use their best efforts to remove any impediments to consummation of the transactions contemplated by this Agreement; or (c) if the Closing is postponed pursuant to clause (b) and is not completed by the date specified pursuant to clause (b), terminate this Agreement without prejudice to the rights and remedies of the parties hereunder. ARTICLE 8 INDEMNIFICATION Section 8.1. Indemnification by Seller. Subject to the limitations contained in this Article 8, Seller shall defend, indemnify and hold harmless Buyer (which for purposes of this Article 8 shall mean Buyer and its Affiliates, and their respective employees, representatives, officers, shareholders, directors and agents) against and in respect of: (a) Any and all liabilities or obligations of Seller of any nature, whether accrued, absolute, contingent or otherwise, resulting from, arising out of or in any way related to (i) Seller's or CD Mexico's activities, ownership of the Purchased Assets or conduct of the Business on or before the Closing Date, even if imposed upon Buyer as a successor to Seller or any other entity, other than the Assumed Liabilities or (ii) Seller's or CD Mexico's possession of any Remaining Assets or other assets of Buyer after the Closing Date; (b) Any and all loss, cost, damage, liability, obligation, expense and deficiency suffered by Buyer resulting from, arising out of or in any way related to facts, circumstances, or events constituting a misrepresentation, breach of warranty or nonfulfillment of any warranty, representation, covenant, undertaking, condition or agreement by Seller contained in this Agreement or any other document delivered to Buyer in connection with the consummation of the transactions contemplated by this Agreement, regardless of whether the misrepresentation, breach or omission was deliberate, reckless, negligent, innocent or unintentional; 28 (c) Any and all loss, cost, damage, liability, obligation and expense resulting from, arising out of or in any way relating to Seller's or its Affiliates' noncompliance with any applicable bulk sales laws or the foreign equivalent and provisions and from the assertion of claims (excluding Assumed Liabilities) against Buyer by creditors of Seller or its Affiliates with respect to liabilities and obligations of Seller; (d) Any and all loss, cost, damage, liability, obligation and expense resulting from, arising out of or in any way relating to (i) the covenants and obligations of Seller in Section 5.6 or (ii) the operations and activities of CD Mexico after the Closing Date; and (e) Any and all loss, cost, damage, liability, obligation and expense resulting from, arising out of or in any way relating to any finished Relays Purchased by Buyer under this Agreement (whether at the Closing Date or pursuant to Section 5.8), including without limitation claims for breach of warranty, product liability, tort or otherwise. (f) Any and all loss, cost, damage, liability, obligation and expense incurred with respect to any claims, actions, suits, proceedings or assessments arising out of matters described in subsections (a) through (e) above, or the settlement thereof, including without limitation, reasonable legal fees and expenses. Section 8.2. Indemnification by Buyer. Subject to the limitations contained in this Article 8, Buyer shall defend, indemnify and hold harmless Seller (which for purposes of this Article shall mean Seller and its affiliates, and their respective employees, representatives, officers, shareholders, directors and agents) against and in respect of: (a) Any and all liabilities or obligations of Buyer of any nature, whether accrued, absolute, contingent or otherwise, resulting from, arising out of or in any way relating to Buyer's ownership of the Purchase Assets or assumption of the Assumed Liabilities or conduct of the Business after the Closing Date, except for the indemnity of Seller in Section 8.1 (e) above; (b) Any and all loss, cost, damage, liability, obligation, expense or deficiency suffered by Seller resulting from, arising out of or relating to facts, circumstances or events constituting a misrepresentation, breach of warranty or nonfulfillment of any warranty, representation, covenant, undertaking, condition or agreement by Buyer contained in this Agreement, or any other document delivered to Seller in connection with the consummation of the transactions contemplated by this Agreement, regardless of whether the misrepresentation, breach or omission was deliberate, reckless, negligent, innocent or unintentional; and (c) Any and all loss, cost, damage, liability, obligation or expense incurred with respect to any claims, actions, suits, proceedings or assessments resulting from, arising out of or relating to matters described in subsections (a) and (b) above, or the settlement thereof, including without limitation, reasonable legal fees and expenses. 29 Section 8.3. Environmental Liabilities. For purposes hereof, an "Environmental Liability" shall mean any liability arising under or by reason of any applicable foreign, federal, state or local laws or regulations or common law relating to the protection of the environment or public health (collectively, "Environmental Law"). As between Seller and Buyer, Seller shall be liable for any Environmental Liability (a "Seller Environmental Liability") (a) related to conditions (whether known or unknown) existing at, in or under any real property now or previously owned, leased or used by Seller or its Affiliates (including without limitation the Premises) prior to or after the Closing Date, and (b) related to the transportation or offsite disposal prior to or after the Closing Date of Hazardous Materials generated by Seller or its Affiliates. Seller shall defend Buyer against, indemnify Buyer for, and hold Buyer harmless from all loss, cost, damage, liability, obligation and expense resulting from, arising out of or relating to any Seller Environmental Liability. Section 8.4. Limitations on Indemnification. Except for claims relating to Section 1.5(b)(iii), notwithstanding any other provision of this Agreement or any applicable law, no Indemnified Party will be entitled to make a claim against an Indemnifying Party under Section 8.1 or 8.2 of this Agreement unless and until the aggregate amount of indemnifiable losses incurred under such Section, as the case may be, exceeds $25,000.00 (the "Deductible"), in which event the Indemnified Party will be entitled to make a claim against the Indemnifying Party only to the extent the amount of such aggregate indemnifiable losses exceeds $10,000.00 (the "Threshold"). (For example, if an Indemnified Party has an initial claim of $15,000.00, such Indemnified Party will not be entitled to make a claim because $15,000.00 does not exceed the Deductible ($25,000.00). However, if the same Indemnified Party has a subsequent claim of $30,000.00, such Indemnified Party will be entitled to make a claim because the aggregate amount of indemnifiable losses ($15,000.00 + $30,000.00 = $45,000.00) exceeds the Deductible ($25,000.00), and the extent to which such claim could be made would be $35,000.00 since the aggregate amount of indemnifiable losses ($45,000.00) exceeds the Threshold ($10,000.00) by $35,000.00.) Except with respect to a Seller Environmental Liability and Seller's indemnity obligations under Sections 8.1 (d) through (f) the parties agree as follows: (i) any claim by either party for indemnification which is not asserted by notice given as herein provided within two (2) years after the Final Delivery Date may not be pursued and is hereby irrevocably waived after such time and (ii) neither party shall be liable for indemnity in excess of the Purchase Price. Section 8.5. Third Party Claims. The obligation of each party to indemnify the other party under the provisions of this Article with respect to claims resulting from the assertion of liability by those not parties to this Agreement (Including without limitation governmental claims for penalties, fines and assessments) shall be subject to the following terms and conditions: (a) The party seeking indemnification hereunder (the "Indemnified Party") shall give written notice to the other party (the "Indemnifying Party") within 30 days following any assertion of liability by a third party which might give rise to a claim for indemnification, which notice shall state the nature and basis of the assertion and the amount thereof, in each case to the extent known; provided, however, that no delay on the part of the Indemnified Party in giving notice shall relieve the Indemnifying Party of any obligation to indemnify unless (and then solely to the extent that) the Indemnifying Party is prejudiced by 30 such delay. (b) If any action, suit or proceeding (a "Legal Action") is brought against the Indemnified Party with respect to which the Indemnifying Party may have an obligation to indemnify the Indemnified Party, the Legal Action shall be defended by the Indemnifying Party, and such defense shall include all proceedings for appeal or review which counsel for the Indemnified Party shall reasonably deem appropriate. (c) Notwithstanding the provisions of the previous subsection of this Section 8.5, until the Indemnifying Party shall have assumed the defense of any such Legal Action, the defense shall be handled by the Indemnified Party. Furthermore, (A) if the Indemnified Party shall have reasonably concluded that there are likely to be defenses available to it that are different from or in addition to those available to the Indemnifying Party; (B) if the Indemnifying Party fails to provide the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party has sufficient financial resources to defend and fulfill its indemnification obligation with respect to the Legal Action; (C) if the Legal Action involves other than money damages and seeks injunctive or other equitable relief; or (D) if a judgment against the Indemnified Party will, in the good faith opinion of the Indemnified Party, establish a custom or precedent which will be materially adverse to the best interests of its continuing business, the Indemnifying Party shall not be entitled to assume the defense of the Legal Action and the defense shall be handled by the Indemnified Party. If the defense of the Legal Action is handled by the Indemnified Party under the provisions of this subsection, the Indemnifying Party shall pay all legal and other expenses reasonably incurred by the Indemnified Party in conducting such defense. (d) In any Legal Action initiated by a third party and defended by the Indemnifying Party (A) the Indemnified Party shall have the right to be represented by advisory counsel and accountants, at its own expense, (B) the Indemnifying Party shall keep the Indemnified Party fully informed as to the status of such Legal Action at all stages thereof, whether or not the Indemnified Party is represented by its own counsel, (C) the Indemnifying Party shall make available to the Indemnified Party and its attorneys, accountants and other representatives, all books and records of the Indemnifying Party relating to such Legal Action, and (D) the parties shall render to each other such assistance as may be reasonably required in order to ensure the proper and adequate defense of the Legal Action. (e) In any Legal Action initiated by a third party and defended by the Indemnifying Party, the Indemnifying Party shall not make settlement of any claim without the written consent of the Indemnified Party, which consent shall not be unreasonably withheld. Without limiting the generality of the foregoing, it shall not be deemed unreasonable to withhold consent to a settlement involving injunctive or other equitable relief against the Indemnified Party or its assets, employees or business, or relief which the Indemnified Party reasonably believes could establish a custom or precedent which will be 31 materially adverse to the best interests of its continuing business. Section 8.6. Claims by Indemnified Party. The Indemnified Party shall notify the Indemnifying Party with reasonable promptness after the discovery of any claim upon which the Indemnified Party will demand indemnification from the Indemnifying Party under this Agreement (other than with respect to third party claims which are addressed in Section 8.5 above). To the extent possible, the notice shall include an itemized accounting of the claim from the Indemnified Party. Within fifteen (15) after receipt of the notice, the Indemnifying Party shall either reimburse the Indemnified Party for the amount of the claim or notify the Indemnified Party of the Indemnifying Party's intent to dispute the claim. If the Indemnifying Party does not notify the Indemnified Party within such fifteen (15) days of its intent to dispute the claim, the Indemnifying Party shall be deemed to have agreed to reimburse the Indemnified Party for the claim. ARTICLE 9 TERMINATION Section 9.1. Termination by Mutual Consent. At any time on or before the Closing Date, this Agreement may be terminated by the mutual written consent of Seller and Buyer without liability on the part of Seller or Buyer or their respective directors, officers or shareholders. If the Agreement is terminated pursuant to this Section, the Agreement shall become null and void and shall be without effect. Section 9.2. Termination Based Upon Failure of Conditions. This Agreement may be terminated pursuant to Sections 6.12 or 7.8. ARTICLE 10 GENERAL Section 10.1. Risk of Loss. The risk of loss or destruction of, or damage to, the Purchased Assets shall be on Seller at all times before the Closing Date. Section 10.2. Application of and Survival of Representations, Warranties and Covenants. All representations, warranties and covenants made by any party to this Agreement in Articles 2 and 3 above shall survive the Closing Date (and any investigation at any time made by or on behalf of any party before or after the Closing) and each of the covenants in this Agreement shall survive the Closing Date according to their terms. Any and all representations, warranties and covenants relating to CD Mexico or an Affiliate of Seller shall be deemed representations, warranties and covenants of Seller, and any breach or failure to perform by CD Mexico or any Affiliate of Seller shall, for purposes of this Agreement, be deemed a breach and failure to perform by Seller. Section 10.3. Binding Effect; Benefits; Assignment. All of the terms of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the successors and 32 permitted assigns of Seller and Buyer. Nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies under or by reason of this Agreement except as expressly indicated in this Agreement. Seller shall not assign this Agreement, or any of its rights or obligations under this Agreement, to any other person, firm or corporation without the prior written consent of Buyer. Section 10.4. Knowledge; Definition of "Ordinary and Usual Course". For purposes of this Agreement, an activity will be deemed to be in the "ordinary and usual course of business" or "ordinary and usual course" if the activity is performed: (i) in accordance with the customary business practices and usages of trade prevailing in the industry or industries in which Seller operates the Business; or (ii) in accordance with Seller's historical and customary practices with respect to the activity. Any representation, warranty or statement referring to the "knowledge of" or "known" by Seller shall include any information contained or known by Seller's Affiliates (including without limitation CD Mexico). Section 10.5. Notices. All notices, requests, demands and other communications to be given pursuant to the terms of this Agreement shall be in writing and shall be deemed to have been duly given if delivered, mailed by certified or registered mail (postage prepaid), shipped and receipted by express courier service (charges prepaid), mailed first class (postage prepaid), or transmitted by telecopier or similar facsimile transmitter: (a) If to Buyer: Communications Instruments, Inc. 1396 Charlotte Highway Fairview, North Carolina 28730 (facsimile: (704) 628-1439) Attention: Ramzi Dabbagh, Chairman and CEO with a copy to: Parker, Poe, Adams & Bernstein L.L.P. First Union Capitol Center 150 Fayetteville Street Mall, Suite 1400 Raleigh, North Carolina 27602 (facsimile: (919) 834-4564) Attention: John J. Butler, Esq. 33 (b) If to Seller: Cornell-Dubilier Electronics, Inc. 1700 Route 23 Wayne, New Jersey 07470 (facsimile: 973-694-8873) Attention: Ed Brino, Chief Financial Officer with a copy to: Schoenberg, Fisher, Newman & Rosenberg Suite 2100 222 South Riverside Place Chicago, IL 60606-6101 (facsimile: 312-648-1212) Attention: Richard Perlman, Esq. Any party may change its address or telecopier number by prior written notice to the other party. Section 10.6. Counterparts. This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original and the counterparts shall together constitute one and the same instrument. Section 10.7. Expenses. Buyer and Seller shall pay their own respective expenses, costs and fees (including without limitation attorneys' and accountants' fees) incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement. Section 10.8. Entire Agreement. All exhibits and schedules referenced herein are incorporated herein by reference. This Agreement, the exhibits and schedules to this Agreement (including the disclosure schedules), and the agreements referred to in this Agreement set forth the entire agreement and understanding of Seller and Buyer in respect of the transactions contemplated by this Agreement and supersede all prior agreements, arrangements and understandings relating to the subject matter of this Agreement. Section 10.9. Amendment and Waiver. This Agreement may be amended, modified, superseded or canceled and any of the terms, covenants, representations, warranties or conditions of this Agreement may be waived only by a written instrument executed by Seller and Buyer or, in the case of a waiver, by or on behalf of the party waiving compliance. The failure of any party at any time to require performance of any provision of this Agreement shall not affect the right of that party at a later time to enforce the same. No waiver by any party of any condition or of any breach of any term, covenant, representation or warranty contained in this Agreement, in any one or more 34 instances, shall be deemed to be or construed as a further or continuing waiver of the condition or of any breach of the term, covenant, representation or warranty or any other term, covenant, representation or warranty set forth in this Agreement. Section 10.10. Severability. Any provision, or clause thereof, of this Agreement that shall be found to be contrary to applicable law or otherwise unenforceable shall not affect the remaining terms of this Agreement, which shall be construed as if the unenforceable provision, or clause thereof, were absent from this Agreement. Section 10.11. Headings. The headings of the sections and subsections of this Agreement have been inserted for convenience of reference only and shall not restrict or otherwise modify any of the terms or provisions of this Agreement. Section 10.12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, excluding its conflict of law principles. Section 10.13. Choice of Forum, Venue, and Consent to Jurisdiction. Except as provided below in this Section, and with respect to an action instituted by Buyer for equitable relief, including, without limitation, an action for temporary or permanent injunctive relief, Buyer and Seller agree that the General Courts of Justice of the State of North Carolina and the United States District Courts for the Western District of North Carolina shall constitute the exclusive forums for the adjudication of any and all disputes or controversies arising out of or relating to this Agreement. Seller consents to the exercise of jurisdiction over it by such courts with respect to any such dispute or controversy, and Seller waives any objection to the assertion or exercise by such courts of such jurisdiction. Notwithstanding the foregoing, Buyer may elect to implead, join or add Seller as a third-party defendant in any legal action (in any forum) brought by a third party against Buyer if such legal action, or Buyer's defenses or other rights, arises out of or in any manner relates to the parties' obligations under this Agreement. Seller consents to the exercise of jurisdiction over it by such courts with respect to any such dispute or controversy, and Seller waives any objection to the assertion or exercise by such courts of such jurisdiction. [SIGNATURES ON NEXT PAGE] 35 Signed as of the day and year first written above. COMMUNICATIONS INSTRUMENTS, INC., a North Carolina corporation By: ------------------------------- Its: Chairman & CEO --------------------------- "Buyer" CORNELL-DUBILIER ELECTRONICS, INC., a Delaware corporation By: ------------------------------- Its: --------------------------- "CDE" 36 EX-10.30 8 VOTING AGREEMENT DATED 3/10/98 Exhibit 10.30 VOTING AGREEMENT This Voting Agreement (this "Voting Agreement") is entered into as of March 10, 1998, between RF Acquisition Corp., an Illinois corporation ("Purchaser"), and Werner E. Neuman and James A. Steinback (each, a "Shareholder" and collectively, the "Shareholders"). RECITALS A. Pursuant to that certain Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement") among Purchaser, Communications Instruments, Inc., a Delaware corporation and parent of Purchaser, and Corcom, Inc., an Illinois corporation ("Company"), Purchaser will be merged with and into the Company and the Company shall be the surviving corporation in the merger (the "Merger"). B. The Shareholders are executing this Voting Agreement as an inducement to Purchaser to enter into and execute the Merger Agreement. C. All capitalized terms used but not defined herein shall have the meanings set forth in the Merger Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Representations and Warranties of the Shareholder. Each of the Shareholders, severally and not joint and severally, hereby represent and warrant to Purchaser: (a) Such Shareholder has the legal capacity, power and authority to enter into and perform all of such Shareholder's obligations under this Voting Agreement. The execution, delivery and performance of this Agreement by such Shareholder will not violate any other agreement to which such Shareholder is a party including, without limitation, any voting agreement, proxy arrangement, pledge agreement, shareholders, agreement or voting trust. This Voting Agreement has been duly and validly executed and delivered by such Shareholder and constitutes a valid and binding agreement of such Shareholder, enforceable against such Shareholder in accordance with its terms. (b) The execution and delivery of this Voting Agreement by the Shareholder do not, and the performance of this Voting Agreement by the Shareholder will not, result in a violation of, or a default under, or conflict with, any contract, commitment, agreement or arrangement which the Shareholder is a party or by which the Shareholder is bound or affected, which violation, default - 1 - or conflict would materially and adversely affect the Shareholder's ability to perform their obligations under this Voting Agreement. (c) Such Shareholder is the record holder of the number of shares of common stock, no par value per share, of the Company as set forth opposite his name on Schedule I attached hereto (the "Existing Shares"). On the date hereof, the Existing Shares constitute all of the Shares owned of record by such Shareholder. Such Shareholder has sole voting power and sole power to issue instructions with respect to the Existing Shares, sole power of disposition, sole power to demand appraisal rights and sole power to agree to all of the matters set forth in this Voting Agreement, in each case with respect to all of the Existing Shares with no limitations, qualifications or restrictions on such rights, subject to applicable securities laws and the terms of this Voting Agreement. 2. Representations and Warranties of Purchaser. The Purchaser hereby represents and warrants to the Shareholders: (a) Purchaser has all necessary power and authority to execute and deliver this Voting Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Voting Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby have been duly and validly authorized by Purchaser, and no other proceedings on the part of Purchaser are necessary to authorize the execution and delivery of this Voting Agreement or to consummate such transactions. (b) The execution and delivery of this Voting Agreement by Purchaser do not, and the performance of this Voting Agreement by Purchaser will not, result in a violation of, or a default under, or conflict with, any contract, commitment, agreement or arrangement which Purchaser is a party or by which Purchaser is bound or affected, which violation, default or conflict would materially and adversely affect Purchaser's ability to perform its obligations under this Voting Agreement. 3. Disposition of Shares. During the term of this Voting Agreement, each Shareholder hereby covenants and agrees that it shall not transfer ownership of or pledge any of its Shares unless the transferee or pledgee agrees in writing to be bound by the terms and conditions of this Voting Agreement. 4. Voting. (a) At least three business days before any meeting of the shareholders of the Company, however called, or any action by consent of the shareholders of the Company, in which the shareholders of the Company will vote on the adoption of the Merger Agreement, the approval of the transactions contemplated thereby, or the approval or adoption of any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the Merger or reasonably be expected to result in a breach of the Merger Agreement (each, a "Relevant Shareholder Meeting"), - 2 - the Shareholders shall (or shall cause the Company to) provide written notice of such Relevant Shareholder Meeting to the Purchaser. (b) If (i) notice of such Relevant Shareholder Meeting is provided to the Purchaser within the requisite time period as set forth in the preceding sentence and (x) the Purchaser has entered (or does enter) into a definitive credit agreement for the debt financing identified in the commitment letter referenced in Section 4.06 of the Merger Agreement (the "Credit Agreement") before the time at which such Relevant Shareholder Meeting is formally convened, or (y) the Purchaser has waived (or does waive) the condition to closing set forth in Section 6.02(f) of the Merger Agreement before the time at which such Relevant Shareholder Meeting is formally convened, or (ii) notice of such Relevant Shareholder Meeting is not provided to the Purchaser within the requisite time period as set forth in the preceding sentence, then each Shareholder shall vote its Shares owned as of the date hereof or hereafter acquired at such Relevant Shareholder Meeting (a) in favor of adoption of the Merger Agreement and approval of the transactions contemplated thereby and (b) against approval or adoption of any action or agreement (other than the Merger Agreement or the transactions contemplated thereby) that would impede, interfere with, delay, postpone or attempt to discourage the Merger or reasonably be expected to result in a breach of the Merger Agreement; provided, however, that each Shareholder has no obligation to vote in favor of adoption of any agreement other than the Merger Agreement as presently constituted or approval of any transaction other than those transactions described in the Merger Agreement. 5. Proxy. If (i) notice of a Relevant Shareholder Meeting is provided to the Purchaser within the requisite time period as set forth in the first sentence of Section 4 above and (x) the Purchaser has entered (or does enter) into the Credit Agreement before the time at which such Relevant Shareholder Meeting is formally convened, or (y) the Purchaser has waived (or does waive) the condition to closing set forth in Section 6.02(f) of the Merger Agreement before the time at which such Relevant Shareholder Meeting is formally convened, or (ii) notice of such Relevant Shareholder Meeting is not provided to the Purchaser within the requisite time period as set forth in the first sentence of Section 4 above, then, for purposes of such Relevant Shareholder Meeting each Shareholder hereby constitutes and appoints Purchaser, or any nominee of Purchaser, with full power of substitution, as his or its true and lawful attorney and proxy, for and in his, her or its name, place and stead, to vote as his, her or its proxy as any meeting of the shareholders of the Company, however called (a) in favor of adoption of the Merger Agreement and approval of the transactions contemplated hereby and (b) against approval or adoption of any action or agreement (other than the Merger Agreement or the transactions contemplated thereby) that would impede, interfere with, delay, postpone or attempt to discourage the Merger or reasonably be expected to result in a breach of the Merger Agreement; provided, however, that each Shareholder has no obligation, and the Purchaser has no authority, to vote in favor of adoption of any agreement other than the Merger Agreement as presently constituted or approval of any transaction other than those transactions described in the Merger Agreement. The Purchaser may sign any such Shareholder's name to any written consent of the shareholders of the Company with respect to the Shares but only with respect to matters referenced in clauses (a) and (b) of this Section 5 and subject to the limitations set forth in Section 4 and this Section 5. - 3 - 6. Waiver of Appraisal Rights. To the extent applicable, each Shareholder hereby waives any rights of appraisal or rights to dissent from the Merger that each Shareholder may have on the terms set forth in the Merger Agreement in effect on the date hereof. 7. Termination. The covenants, agreements and proxy contained herein may be terminated: (a) By mutual consent of the parties hereto. (b) By any party hereto, if such party is precluded by an order or injunction of a court of competent jurisdiction from consummating the transactions contemplated hereby. (c) By any party hereto, if after the date hereof any action has been taken or any statute, rule or regulation has been enacted, promulgated or deemed applicable to the transactions contemplated hereby by any government or governmental agency that makes the consummation of the transactions contemplated hereby illegal. (d) By any party hereto upon termination of the Merger Agreement in accordance with its terms. (e) By any party hereto upon the consummation of the Merger. 8. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Voting Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. 9. Entire Agreement. This Voting Agreement constitutes the entire agreement between the parties hereto and supersedes all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof. 10. Amendment; Waiver. This Voting Agreement shall not be amended, altered or modified except by an instrument in writing duly executed by each of the parties hereto. No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver hereof; not shall any single or partial exercise of any rights, power or remedy preclude any other future exercise thereof or the exercise of any other right, power or remedy hereunder. 11. Assignment. Neither this Voting Agreement nor any right or obligation hereunder is assignable in whole or in part, whether by operation of law or otherwise, by the parties to this Voting Agreement without the express written consent of the other parties, and any such attempted assignment shall be void and unenforceable. - 4 - 12. Governing Law. This Voting Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without giving effect to the principles of conflict of laws thereof. 13. Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 14. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have then duly given upon receipt) by delivery in person, by cable, telegram, telex or telecopies, or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows: If to Purchaser: RF Acquisition Corp. c/o CII Technologies, Inc. 1396 Charlotte Hwy. Fairview, NC 28730 Attention: President with a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attention: Sanford E. Perl If to Shareholder: The Shareholders c/o Corcom, Inc. 844 East Rockland Road Libertyville, IL 60048 Attention: Werner E. Neuman with a copy to: D'Ancona & Pflaum 20 North LaSalle Street Suite 2900 Chicago, IL 60602 Attention: Walter Roth or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above (provided that notice of any change of address shall be effective only upon receipt thereof). - 5 - 15. Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Voting Agreement. 16. Counterparts. This Voting Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. It shall not be necessary for all parties hereto to execute the same counterpart(s) of this Voting Agreement for this Voting Agreement to become effective. * * * * * - 6 - IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to be duly executed and delivered as of the date first written above. RF ACQUISITION CORP. By: /s/ Simmons --------------------------------- Name: Simmons ---------------------------- Title: Vice President --------------------------- SHAREHOLDERS /s/ Werner E. Neuman ------------------------------------ Werner E. Neuman /s/ James A. Steinback ------------------------------------ James A. Steinback - 7 - EX-10.31 9 CREDIT AGREEMENT DATED 6/19/98 Exhibit 10.31 EXECUTION COPY CREDIT AGREEMENT among CII TECHNOLOGIES, INC., COMMUNICATIONS INSTRUMENTS, INC., VARIOUS LENDERS, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as an Issuing Lender and the Swingline Lender, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the Administrative Agent Arranged by BANCAMERICA ROBERTSON STEPHENS ---------------------------------- Dated as of June 19, 1998 ---------------------------------- TABLE OF CONTENTS SECTION PAGE ARTICLE I. DEFINITIONS........................................................1 1.01 Defined Terms................................................1 1.02 Other Definitional Provisions...............................28 (a) Defined Terms.......................................28 (b) The Agreement.......................................28 (c) Certain Common Terms................................28 (d) Performance; Time...................................28 (e) Contracts...........................................29 (f) Laws................................................29 1.03 Accounting Principles.......................................29 ARTICLE II. THE CREDIT FACILITIES.............................................29 2.01 Amounts and Terms of Commitments............................29 (a) The Revolving Loans.................................29 (b) The Swingline Loans.................................30 (c) The Term Loan......................................31 2.02 Loan Accounts; Notes........................................31 2.03 Procedure for Borrowing.....................................32 2.04 Conversion and Continuation Elections for Revolving and Term Borrowings.............................................34 2.05 Reduction and Termination of Commitments....................35 2.06 Voluntary Prepayments.......................................38 2.07 Mandatory Prepayments.......................................38 2.08 Repayment of Principal......................................41 (a) The Revolving Loans.................................41 (b) The Swingline Loans.................................41 (c) The Term Loan......................................41 2.09 Interest....................................................41 2.10 Fees........................................................44 (a) Commitment Fees.....................................44 (b) Other Fees..........................................45 2.11 Computation of Fees and Interest............................45 2.12 Payments by the Borrower....................................45 2.13 Payments by the Lenders to the Administrative Agent.........46 2.14 Sharing of Payments, etc....................................47 2.15 Security and Guaranties.....................................47 -i- ARTICLE III. THE LETTERS OF CREDIT.............................................48 3.01 The Letter of Credit Subfacility............................48 3.02 Issuance, Amendment and Renewal of Letters of Credit........49 3.03 Participations, Drawings and Reimbursements.................51 3.04 Repayment of Participations.................................53 3.05 Role of the Issuing Lenders.................................53 3.06 Obligations Absolute........................................54 3.07 Cash Collateral Pledge......................................55 3.08 Letter of Credit Fees.......................................55 3.09 Uniform Customs and Practice................................57 3.10 Transitional Provisions.....................................57 ARTICLE IV. TAXES, YIELD PROTECTION AND ILLEGALITY............................57 4.01 Taxes.......................................................57 4.02 Illegality..................................................61 4.03 Increased Costs and Reduction of Return.....................62 4.04 Funding Losses..............................................62 4.05 Inability to Determine Rates................................63 4.06 Increased Costs on Eurodollar Loans.........................63 4.07 Certificates of Lenders.....................................64 4.08 Change of Lending Office, Replacement Lender, etc...........64 4.09 Survival....................................................65 ARTICLE V. CONDITIONS PRECEDENT..............................................65 5.01 Conditions to Loans and Letters of Credit on the Effective Date..............................................65 (a) Credit Agreement....................................66 (b) Resolutions; Incumbency.............................66 (c) Articles of Incorporation; By-laws and Good Standing............................................67 (d) Subsidiary Guaranty.................................67 (e) Pledge Agreement....................................67 (f) Security Agreement..................................68 (g) Legal Opinions......................................68 (h) Other Documents.....................................68 (i) Payment of Fees and Expenses........................68 (j) Certificates........................................69 (k) Solvency Certificate. .............................69 (l) Transaction.........................................70 -ii- (m) Adverse Changes.....................................70 (n) Governmental and Third Party Approvals..............71 (o) Litigation..........................................71 (p) Shareholders' Agreements, Management Agreements and Holdings Tax Sharing Agreement...............................71 (q) Financial Statements................................71 (r) Insurance...........................................72 (s) Minimum Revolving Loan Availability.................72 (t) Subordinated Debt Compliance........................72 5.02 Conditions to all Borrowings and the Issuance of any Letters of Credit...........................................72 (a) Notice..............................................72 (b) Continuation of Representations and Warranties......72 (c) No Existing Default.................................72 (d) No Material Adverse Effect..........................73 ARTICLE VI. REPRESENTATIONS AND WARRANTIES....................................73 6.01 Corporate Existence and Power...............................73 6.02 Corporate Authorization; No Contravention...................74 6.03 Governmental Authorization..................................74 6.04 Binding Effect..............................................74 6.05 Litigation..................................................74 6.06 No Default..................................................75 6.07 ERISA Compliance............................................75 6.08 Use of Proceeds; Margin Regulations.........................76 6.09 Title to Properties.........................................76 6.10 Taxes.......................................................76 6.11 Financial Statements........................................76 6.12 Securities Law, etc.; Compliance............................76 6.13 Governmental Regulation.....................................77 6.14 Labor Controversies.........................................77 6.15 Subsidiaries................................................77 6.16 Patents, Trademarks, etc....................................77 6.17 Accuracy of Information.....................................77 6.18 Hazardous Materials.........................................77 6.19 Collateral Documents........................................78 6.20 Solvency....................................................78 6.21 Representations and Warranties in the other Documents.......79 6.22 Capitalization..............................................79 6.23 Special Purpose Corporation.................................80 6.24 Insurance...................................................80 6.25 Borrower Senior Subordinated Note; etc......................80 -iii- 6.26 The Transaction.............................................81 6.27 Year 2000 Compliance........................................81 ARTICLE VII. AFFIRMATIVE COVENANTS.............................................82 7.01 Financial Statements........................................82 7.02 Certificates; Other Information.............................83 7.03 Notices.....................................................83 7.04 Books, Records and Inspections..............................86 7.05 Maintenance of Property; Insurance..........................86 7.06 Corporate Franchises........................................87 7.07 Compliance with Law.........................................87 7.08 Payment of Taxes............................................87 7.09 Contributions...............................................87 7.10 End of Fiscal Years; Fiscal Quarters........................88 7.11 Cash Management System......................................88 7.12 Foreign Subsidiaries Security...............................88 7.13 Future Liens on Real Property...............................89 7.14 Holdings Preferred Stock....................................89 7.15 Use of Proceeds; Margin Regulations.........................90 ARTICLE VIII. NEGATIVE COVENANTS................................................90 8.01 Liens.......................................................90 8.02 Consolidation, Merger, Purchase or Sale of Assets, etc......93 8.03 Dividends...................................................96 8.04 Indebtedness................................................98 8.05 Advances, Investments and Loans............................100 8.06 Transactions with Affiliates...............................103 8.07 Capital Expenditures.......................................104 8.08 Consolidated Coverage Ratios...............................105 8.09 Maximum Leverage Ratio.....................................106 8.10 Minimum Consolidated EBITDA................................106 8.11 Limitation on Voluntary Payments and Modification of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc.........................................107 8.12 Limitation on Certain Restrictions on Subsidiaries.........109 8.13 Limitation on Issuance of Capital Stock....................110 8.14 Business...................................................110 8.15 Limitation on Creation of Subsidiaries.....................110 -iv- ARTICLE IX EVENTS OF DEFAULT................................................111 9.01 Event of Default...........................................111 (a) Non-Payment........................................111 (b) Representation or Warranty.........................111 (c) Specific Defaults..................................111 (d) Other Defaults.....................................111 (e) Cross-Default......................................111 (f) Insolvency; Voluntary Proceedings..................112 (g) Involuntary Proceedings............................112 (h) ERISA..............................................112 (i) Judgments..........................................113 (j) Change of Control..................................113 (k) Collateral; Guaranties.............................113 9.02 Remedies...................................................113 9.03 Rights Not Exclusive.......................................114 ARTICLE X. THE GUARANTY.....................................................114 10.01 Guaranty from Holdings....................................114 ARTICLE XI. THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE ISSUING LENDERS AND THE ARRANGER........................118 11.01 Appointment and Authorization.............................118 11.02 Delegation of Duties......................................119 11.03 Liability of Agent........................................119 11.04 Reliance by Agent.........................................120 11.05 Notice of Default.........................................120 11.06 Credit Decision...........................................121 11.07 Indemnification...........................................121 11.08 Agent in Individual Capacity..............................122 11.09 Successor Agent...........................................122 11.10 The Arranger..............................................123 ARTICLE XII. MISCELLANEOUS....................................................123 12.01 Amendments and Waivers....................................123 12.02 Notices...................................................124 -v- 12.03 No Waiver; Cumulative Remedies............................125 12.04 Costs and Expenses........................................125 12.05 Indemnity.................................................126 12.06 Successors and Assigns....................................127 12.07 Assignments, Participations, etc..........................127 12.08 Confidentiality...........................................129 12.09 Set-off...................................................129 12.10 Notification of Addresses, Lending Offices, etc...........130 12.11 Counterparts..............................................130 12.12 Severability..............................................130 12.13 No Third Parties Benefited................................130 12.14 Governing Law and Jurisdiction............................130 12.15 Waiver of Jury Trial......................................131 12.16 Domicile of Loans.........................................131 -vi- SCHEDULE 1.01(a) -- Lending Offices SCHEDULE 1.01(b) -- Commitments SCHEDULE 1.01(c) -- Subsidiary Guarantors SCHEDULE 3.10 -- Existing L/Cs SCHEDULE 6.15 -- Subsidiaries SCHEDULE 6.24 -- Insurance SCHEDULE 8.01 -- Existing Liens SCHEDULE 8.04 -- Existing Indebtedness SCHEDULE 8.05 -- Existing Investments EXHIBIT A -- Form of Revolving Note EXHIBIT B -- Form of Term Note EXHIBIT C -- Form of Notice of Borrowing EXHIBIT D -- Form of Notice of Conversion/Continuation EXHIBIT E -- Form of Pledge Agreement EXHIBIT F -- Form of Subsidiary Guaranty EXHIBIT G -- Form of Security Agreement EXHIBIT H -- Form of Guarantor Supplement EXHIBIT I -- Form of Leverage Ratio Certificate EXHIBIT J-1 -- Form of Kirkland & Ellis Opinion EXHIBIT J-2 -- Form of McGuire, Wood & Bissette, P.A. Opinion EXHIBIT K -- Form of Solvency Certificate EXHIBIT L -- Form of Assignment and Acceptance EXHIBIT M -- Form of Compliance Certificate EXHIBIT N -- Form of Intercompany Note EXHIBIT O -- Form of Holdings Shareholder Subordinated Note EXHIBIT P -- List of Closing Documents EXHIBIT Q -- Form of Contribution and Indemnification Agreement EXHIBIT R -- Form of Borrowing Base Certificate -vii- CREDIT AGREEMENT CREDIT AGREEMENT, dated as of June 19, 1998, among CII TECHNOLOGIES, INC., a Delaware corporation ("Holdings"), COMMUNICATIONS INSTRUMENTS, INC., a North Carolina corporation (the "Borrower"), the several financial institutions from time to time party to this Agreement (the "Lenders"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as an Issuing Lender and the Swingline Lender, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the Administrative Agent. W I T N E S S E T H : WHEREAS, subject to and upon the terms and conditions set forth herein, the Lenders are willing to make available to the Borrower the respective credit facilities provided for herein; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I. DEFINITIONS 1.01 Defined Terms. As used in this Agreement, the capitalized terms in the preamble and the recitals hereto shall have the meanings therein given them, and the following words and terms shall have the meanings specified below: "Acquired Entity or Business" has the meaning specified in the definition of "Consolidated Net Income". "Additional Junior Subordinated Note Investment" means the cash payment by shareholders of Holdings of the purchase price consideration for the Holdings Junior Subordinated Note issued as one of the Additional Junior Subordinated Note Documents. "Additional Junior Subordinated Note Documents" means that certain CII Technologies, Inc. Junior Subordinated Promissory Note (Series B) of even date herewith executed and delivered by Holdings and made payable to CHS in an original principal amount of $5,000,000, and that certain Junior Subordination Agreement of even date herewith among CHS and the holders of Holdings Junior Subordinated Notes issued prior to the date hereof. "Additional Subordinated Guaranty" means the guaranty by Corcom of the Borrower's payment and performance obligations under and with respect to the Borrower Senior Subordinated Notes pursuant to the terms and conditions of the Additional Subordinated Guaranty Documents. "Additional Subordinated Guaranty Documents" means that certain Supplemental Indenture of even date herewith executed by Corcom pursuant to the Borrower Senior Subordinated Note Indenture. "Adjustment Date" means (A) the earlier of (x) the date which is 90 days after Holdings' fiscal quarter ending December 31, 1998 and (y) the date which is two Business Days after Holdings has delivered a Leverage Ratio Certificate to the Agent in accordance with Section 12.02 as of the end of such fiscal quarter (the "First Adjustment Date") and (B) after the First Adjustment Date, the earlier of (x) each date which is 45 days after the end of a fiscal quarter of Holdings (or, in the case of the fourth fiscal quarter of Holdings, 90 days) and (y) the date which is two Business Days after Holdings has delivered a Leverage Ratio Certificate to the Administrative Agent in accordance with Section 12.02 as of the end of a fiscal quarter. "Administrative Agent" means Bank of America in its capacity as representative for the Lenders hereunder, and any successor agent. "Administrative Agent's Payment Office" means the address for payments set forth on the signature page hereto in relation to the Administrative Agent or such other address as the Administrative Agent may from time to time specify in accordance with Section 12.02. "Affiliate" means, with respect to any Person, any other Person (i) directly or in directly controlling, controlled by, or under direct or indirect common control with, such Person or (ii) that directly or indirectly owns more than 5% of any class of the capital stock, of or equity interests in, such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" means Bank of America, in its capacity as Administrative Agent and as Collateral Agent, in each case for the Lenders and certain other beneficiaries hereunder and under the Collateral Documents, and shall include any successor to the Agent appointed pursuant to Article XI. "Agent-Related Persons" has the meaning specified in Section 11.03. "Aggregate Commitment" means, collectively, the Aggregate Revolving Commitment and the Aggregate Term Commitment. -2- "Aggregate Revolving Commitment" means the combined Revolving Commitments of the Lenders in the initial principal amount of $25,000,000 as such amount may be reduced from time to time pursuant to this Agreement. "Aggregate Term Commitment" means the combined Term Commitments of the Lenders in the principal amount of $35,000,000. "Agreement" means this Credit Agreement as from time to time amended, modified or supplemented. "Applicable Margin" means the margin to be added to the Base Rate or LIBOR, as the case may be, in accordance with Section 2.09(a). "Arranger" means BancAmerica Robertson Stephens. "Asset Sale" means the direct or indirect sale, lease (other than operating leases entered into in the ordinary course of business), transfer, conveyance or other disposition (including, without limitation, dispositions pursuant to sale and leaseback transactions), in a single transaction or a series of transactions, by Holdings or any of its Subsidiaries to any Person (other than to Holdings or any of its Wholly-Owned Subsidiaries) of any property or assets of Holdings or any of its Subsidiaries, other than sales of assets pursuant to Sections 8.02(ii), (iii), (iv), (viii), (ix), (xii), (xiii), (xiv), (xv), (xvi), (xvii) and (xviii). "Assignee" has the meaning specified in Section 12.07(a). "Assignment and Acceptance" has the meaning specified in Section 12.07(a). "Attorney Costs" means and includes all reasonable fees and disbursements of any law firm or other external counsel and, without duplication, the allocated cost of internal legal services and all reasonable disbursements of internal counsel. "Bank of America" means Bank of America National Trust and Savings Association, a national banking association, in its individual capacity. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. ss.101, et seq.). "Base Rate" means, for any day, the higher of (a) the Reference Rate or (b) the Federal Funds Rate plus 1/2%, in each case as in effect for such day. "Base Rate Loan" means each Swingline Loan, Revolving Loan and Term Loan that bears interest based on the Base Rate. -3- "Borrower" has the meaning specified in the preamble hereto. "Borrower Senior Subordinated Note Documents" means the Borrower Senior Subordinated Note Indenture, the Borrower Senior Subordinated Notes, the Additional Subordinated Guaranty Documents and all other documents and agreements executed and delivered pursuant to the Borrower Senior Subordinated Note Indenture, including any guaranty given by Holdings thereunder as permitted by Section 8.04(vii). "Borrower Senior Subordinated Note Indenture" means the Indenture, dated as September 18, 1997, among the Borrower, the Subsidiary Guarantors and Norwest Bank Minnesota National Association, as trustee, as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. "Borrower Senior Subordinated Notes" means the Borrower's 10% senior subordinated notes due 2004 (which term includes the senior subordinated notes of the Borrower issued as part of the Exchange Offer). "Borrowing" means a borrowing hereunder consisting of one or more Loans made to the Borrower on the same Borrowing Date by the Lenders or the Swingline Lender pursuant to Section 2.01, and may be a Swingline Borrowing, a Revolving Borrowing or a Term Borrowing. "Borrowing Base" means, at any time, the sum of (a) eighty-five percent (85%) of the Net Amount of Eligible Receivables at such time plus (b) sixty percent (60%) of the value (determined on a first-in-first-out basis and valued at the lower of cost or market value) of Eligible Inventory at such time. "Borrowing Base Certificate" means a certificate in substantially the form of Exhibit R, to be executed by a Responsible Officer of Holdings and delivered pursuant to Section 7.01(e). "Borrowing Date" means, in relation to any Loan, the date of the borrowing of such Loan as specified in the relevant Notice of Borrowing for a Borrowing. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in San Francisco or Chicago are authorized or required by law to close and, if such term is used in relation to any Eurodollar Loan or the Interest Period therefor, any such day on which dealings are carried on by and between banks in Dollar deposits in the London interbank market. "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law (but with which a Lender customarily complies) regarding capital adequacy of any bank or of any corporation controlling a bank. -4- "Capital Expenditures" means, for any period and with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which is capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "Capital Lease" has the meaning specified in the definition of "Capital Lease Obligations". "Capital Lease Obligations" means all monetary obligations of Holdings or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, is classified as a capital lease ("Capital Lease"). "Cash Collateralize" means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the Administrative Agent, the Issuing Lenders and the Lenders, as collateral for the Letter of Credit Obligations, cash or deposit account balances pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent and the Issuing Lenders (which documents are hereby consented to by the Lenders). Derivatives of such term shall have corresponding meanings. Cash collateral shall be invested in Cash Equivalents of a tenor reasonably satisfactory to the Administrative Agent and as instructed by the Borrower, which Cash Equivalents shall be held in the name of the Borrower and under the control of the Administrative Agent in a manner reasonably satisfactory to the Collateral Agent. "Cash Equivalents" means any or all of the following: (i) obligations of, or guaranteed as to interest and principal by, the United States Government maturing within one year after the date on which such obligations are purchased; (ii) open market commercial paper of any corporation (other than Holdings, the Borrower or any of its Subsidiaries) incorporated under the laws of the United States or any State thereof or the District of Columbia rated P-1 or its equivalent by Moody's or A-1 or its equivalent or higher by S&P; (iii) time deposits or certificates of deposit maturing within one year after the issuance thereof issued by commercial banks organized under the laws of any country which is a member of the OECD and having a combined capital and surplus in excess of $250,000,000 or which is a Lender; (iv) repurchase agreements with a term of not more than seven days with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above; (v) bankers' acceptances with maturities not exceeding one year and overnight bank deposits in each case with an office of a bank or trust company meeting the criteria specified in clause (iii) above; and (vi) money market, mutual or similar funds substantially all of whose investments are comprised of the investments described in clauses (i) through (v) above. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C. ss. 9601 et seq. -5- "Change of Control" means (a) (i) prior to a Qualified Public Equity Offering, the Permitted Holders shall cease to own on a fully diluted basis in the aggregate at least 51% of the economic and voting interest in Holdings' capital stock and (ii) on and after the consummation of a Qualified Public Equity Offering, (x) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as such term is defined in Section 13(d)(3) of the Exchange Act) or group of related persons, together with any Affiliates thereof (other than the Permitted Holders), becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 35% of the Voting Stock of Holdings (as determined on a fully diluted basis and measured by voting power rather than number of shares) provided that the Permitted Holders "beneficially own" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the Voting Stock of Holdings than such other "person" or group of related persons and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of Holdings or (y) the first day on which a majority of the members of the Board of Directors of Holdings are not Continuing Directors or (b) the Borrower shall cease to be a direct Wholly-Owned Subsidiary of Holdings or (c) a "change of control" or similar event shall occur under the Borrower Senior Subordinated Note Documents or any Refinancing Subordinated Indebtedness. "CHS" means Code, Hennessy & Simmons, III, L.P., a Delaware limited partnership. "CHS Management" means CHS Management III, L.P., a Delaware limited partnership. "CHS Management Agreement" means the Management Agreement, dated as of September 18, 1997, between the Borrower and CHS Management, as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. "Collateral" means all property with respect to which any security interest has been granted (or purported to be granted) pursuant to any Collateral Document, as well as all Obligations which have been Cash Collateralized. "Collateral Agent" means the Administrative Agent acting as collateral representative for the Lenders and certain other beneficiaries pursuant to the Collateral Documents. "Collateral Documents" means the Pledge Agreement, the Subsidiary Guaranty, the Security Agreement, each Guarantor Supplement and each Security Instrument. -6- "Commitment" means, for each Lender, the amount set forth opposite such Lender's name under the caption "Total Commitment" on Schedule 1.01(b) (or as such Lender's "Total Commitment (Total Outstanding Loans and Commitments)" on Schedule I to the most recent Assignment and Acceptance to which such Lender is a party), as such amount may be modified from time to time pursuant to the provisions hereof. "Commitment Percentage" means, as to any Lender, the percentage equivalent of such Lender's Commitment divided by the Commitments of all the Lenders, provided that if the Commitments have been terminated in full, the "Commitment Percentage" of each Lender shall be determined by dividing such Lender's Commitment immediately prior to such termination by all the Lenders' Commitments immediately prior to such termination. "Compliance Certificate" means the compliance certificate in substantially the form of Exhibit M, to be executed by a Responsible Officer of Holdings and delivered pursuant to Section 7.02(a). "Consolidated EBIT" means, for any period, Consolidated Net Income for such period before Consolidated Interest Expense (calculated without regard to the proviso contained in the definition thereof) and provision for taxes for such period and without giving effect to (w) any extraordinary gains or losses, (x) any gains or losses from sales of assets other than from sales of inventory sold in the ordinary course of business and any income or loss from discontinuing operations, (y) any premiums, fees or expenses incurred in connection with any Permitted Acquisition and any related financings, and (z) the amortization or depreciation of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 (including non-cash write-ups and non-cash charges relating to inventory and fixed assets, in each case arising in connection with any Permitted Acquisition) and 17 (including non-cash charges relating to intangibles and goodwill arising in connection with any Permitted Acquisition). "Consolidated EBITDA" means, for any period, Consolidated EBIT for such period, adjusted by (x) adding thereto, without duplication, the sum of (i) the amount of all amortization of goodwill and other intangibles (including debt issuance and other deferred financing, legal and accounting costs (including those associated with the Transaction and any Permitted Acquisition consummated after the Effective Date)) and depreciation, (ii) all fees and expenses incurred in connection with the Transaction, (iii) all management fees paid during such period to CHS Management or its Affiliates to the extent permitted under Section 8.06 (iv) and (iv) other non-cash charges and expenses (including non-cash charges or expenses included in costs of goods sold), in each case to the extent that same were deducted in arriving at Consolidated EBIT for such period and (y) subtracting therefrom, without duplication, the sum of (i) the amount of all non-cash credits to the extent that same were included in arriving at Consolidated EBIT for such period (but which will be added back to Consolidated EBITDA in any subsequent period to the extent cash is received in respect of any such non-cash credits in such subsequent period) and (ii) the amount of all (but which will be added back to Consolidated EBITDA in any subsequent period to the extent cash is received in respect of any such non-cash -7- credits in such subsequent period) cash payments made in such period to the extent that same relate to a non-cash charge incurred in a previous period. Notwithstanding anything in this Agreement to the contrary, solely for purposes of determining the Borrower's compliance with Sections 8.08(a), 8.09 and 8.10, and for purposes of calculating the Consolidated Senior Leverage Ratio, (x) in the case of the Measurement Period ending on September 30, 1998, Consolidated EBITDA for such Measurement Period shall be the actual Consolidated EBITDA for such Measurement Period multiplied by 4, (y) in the case of the Measurement Period ending on December 31, 1998, Consolidated EBITDA for such Measurement Period shall be the actual Consolidated EBITDA for such Measurement Period multiplied by 2, and (z) in the case of the Measurement Period ending on March 31, 1999, Consolidated EBITDA for such Measurement period shall be the actual Consolidated EBITDA for such Measurement Period multiplied by a fraction the numerator of which is 4 and the denominator of which is 3. "Consolidated Fixed Charge Coverage Ratio" means, for any period, ratio of (x) Consolidated EBITDA for such period minus Capital Expenditures made or incurred during such period to (y) the sum of regularly scheduled installments of principal with respect to Consolidated Indebtedness which are scheduled to become due and payable during such period plus Consolidated Interest Expense that is paid or would be payable in cash for such period (it being understood that, in any event, the interest payment to be made on the Holdings Junior Subordinated Notes pursuant to Section 8.11(iii)(y) in any year shall be treated as if such payment was made on December 31 of the immediately preceding fiscal year of Holdings). "Consolidated Indebtedness" means, at any time, the principal amount of all Indebtedness of Holdings and its Subsidiaries at such time determined on a consolidated basis to the extent that such Indebtedness would be accounted for as debt on the liability side of a balance sheet in accordance with GAAP plus, without duplication, (i) the maximum amount available to be drawn under all letters of credit (including any Letters of Credit), bankers acceptances and similar obligations issued for the account of Holdings and its Subsidiaries and all unpaid drawings or reimbursement obligations in respect of Holdings thereof, (ii) the principal amount of all bonds issued by the Borrower and its Subsidiaries in connection with workers' compensation obligations, lease obligations, surety and similar obligations, and (iii) the amount of all Contingent Obligations of Holdings and its Subsidiaries determined on a consolidated basis in respect of Indebtedness of other Persons of the type described above in this definition, provided that Consolidated Indebtedness shall exclude Indebtedness in respect of any Holdings Junior Subordinated Notes and Holdings Shareholder Subordinated Notes. "Consolidated Interest Coverage Ratio" means, for any period, the ratio of (x) Consolidated EBITDA for such period to (y) Consolidated Interest Expense that is paid or would be payable in cash for such period (it being understood that, in any event, the interest payment to be made on the Holdings Junior Subordinated Notes pursuant to Section 8.11(iii)(y) in any year shall be treated as if such payment was made on December 31 of the immediately preceding fiscal year of Holdings). -8- "Consolidated Interest Expense" means, for any period, the total consolidated interest expense of Holdings and its Subsidiaries for such period (calculated without regard to any limitations on the payment thereof) (net of interest income of Holdings and its Subsidiaries for such period) plus, without duplication, that portion of Capital Lease Obligations of Holdings and its Subsidiaries representing the interest factor for such period provided that (w) the amortization of debt issuance and deferred financing, legal and accounting costs with respect to this Agreement, the Borrower Senior Subordinated Notes and any Refinancing Subordinated Indebtedness, (x) all fees and expenses incurred in connection with the Transaction and payable as of the Effective Date, (y) all interest on the Holdings Junior Subordinated Notes to the extent paid in kind and (z) all interest on any Holdings Shareholder Subordinated Notes, in each case shall be excluded from Consolidated Interest Expense to the extent same would otherwise have been included therein. Any cash payments (other than in respect of principal) made under or on account of the Holdings Junior Subordinated Notes (whether or not characterized as interest) to the holders thereof shall be included as interest expense for purposes of this Agreement. Notwithstanding anything in this Agreement to the contrary, solely for purposes of determining the Borrower's compliance with Section 8.08(a), (x) in the case of the Measurement Period ending on December 31, 1998, Consolidated Interest Expense for such Measurement Period shall be the actual Consolidated Interest Expense for such Measurement Period multiplied by 2, and (y) in the case of the Measurement Period ending on March 31, 1999, Consolidated Interest Expense for such Measurement period shall be the actual Consolidated Interest Expense for such Measurement Period multiplied by a fraction the numerator of which is 4 and the denominator of which is 3. "Consolidated Leverage Ratio" means, at any time, the ratio of (i) Consolidated Indebtedness at such time to (ii) Consolidated EBITDA for the Measurement Period then most recently ended, provided that in determining the Consolidated Leverage Ratio at any time, there shall be subtracted from Consolidated Indebtedness at such time an amount equal to the amount of unrestricted cash and/or Cash Equivalents of Holdings and its Subsidiaries as would be reflected on the consolidated balance sheet of Holdings at such time. "Consolidated Net Income" means, for any period, the net income (or loss) of Holdings and its Subsidiaries for such period, determined on a consolidated basis (after any deduction for minority interests), provided that (i) in determining Consolidated Net Income, the net income of any other Person which is not a Subsidiary of Holdings or is accounted for by Holdings by the equity method of accounting shall be included only to the extent of the payment of cash dividends or distributions by such other Person to Holdings or a Subsidiary thereof during such period, (ii) the net income of any Subsidiary of Holdings (other than the Borrower) shall be excluded to the extent that the declaration or payment of cash dividends or similar distributions by that Subsidiary of that net income is not at the date of determination permitted by operation of its charter or any agreement, instrument or law applicable to such Subsidiary, (iii) the net income (or loss) of any other Person acquired by such specified Person or a Subsidiary of such Person in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) there shall be included (to the extent not already included) in determining -9- Consolidated Net Income for any period the net income (or loss) of any Person, business, property or asset acquired during such period pursuant to a Permitted Acquisition and not subsequently sold or otherwise disposed of by Holdings or one of its Subsidiaries during such period (each such Person, business, property or asset acquired and not subsequently disposed of during such period, an "Acquired Entity or Business"), in each case based on the actual net income (or loss) of such Acquired Entity or Business for the entire period (including the portion thereof occurring prior to such acquisition) and (v) in determining Consolidated Net Income for any period, there shall be excluded any interest income for such period to the extent otherwise included therein. "Consolidated Senior Indebtedness" means, at any time, the outstanding principal balance of the Loans and other Obligations plus the undrawn amount of all Letters of Credit then outstanding. "Consolidated Senior Leverage Ratio" means, at any time the ratio of (i) Consolidated Senior Indebtedness at such time to (ii) Consolidated EBITDA for the Measurement Period then most recently ended, provided that in determining the Consolidated Leverage Ratio at any time, there shall be subtracted from Consolidated Indebtedness at such time an amount equal to the amount of unrestricted cash and/or Cash Equivalents of Holdings and its Subsidiaries as would be reflected on the consolidated balance sheet of Holdings at such time. "Contingent Obligation" means, as applied to any Person, any direct or indirect liability of that Person with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor; (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor; (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof; in each case, including arrangements wherein the rights and remedies of the holder of the primary obligation are limited to repossession or sale of certain property of such Person. The amount of any Contingent Obligation shall be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or if less, the stated or determinable amount of such Contingent Obligation) or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof. "Continuation Date" means any date on which the Borrower elects to continue a Eurodollar Loan as a Eurodollar Loan for a further Interest Period in accordance with the provisions of Section 2.04. -10- "Continuing Director" means, as of any date of determination, any member of the Board of Directors of Holdings who (i) was a member of such Board of Directors on the Effective Date or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "Contractual Obligations" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Conversion Date" means any date on which the Borrower elects to convert a Base Rate Loan to a Eurodollar Loan, or a Eurodollar Loan to a Base Rate Loan, in each case in accordance with the provisions of Section 2.04. "Corcom" means Corcom, Inc., an Illinois corporation. "Credit Party" means each of Holdings, the Borrower and each Subsidiary Guarantor. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Disbursement Date" has the meaning specified in Section 3.03(b). "Dividend" with respect to any Person means that such Person has declared or paid a dividend or returned any equity capital to its stockholders as such or made any other distribution, payment or delivery of property or cash to its stockholders as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for a consideration any shares of any class of its capital stock outstanding on or after the Effective Date (or any options or warrants issued by such Person with respect to its capital stock), or set aside any funds for any of the fore going purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock of such Person outstanding on or after the Effective Date (or any options or warrants issued by such Person with respect to its capital stock). "Dollars" and "$" each mean lawful money of the United States. "Domestic Lending Office" has the meaning provided in the definition of "Lending Office". -11- "Domestic Subsidiary" means each Subsidiary of Holdings that is incorporated under the laws of the United States or any State or territory thereof. "Effective Date" means the date on which all conditions precedent set forth in Sections 5.01 and 5.02 are satisfied or waived in accordance with this Agreement. "Eligible Assignee" means (a) a commercial bank or commercial finance company organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank or commercial finance company organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank or commercial finance company is acting through a branch or agency located in the United States; (c) a Person that is primarily engaged in the business of commercial banking or commercial finance and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary; and (d) any other entity approved by the Borrower and Administrative Agent. "Eligible Inventory" means (a) all Inventory owned by the Borrower or any of its Domestic Subsidiaries which is subject to a first priority, perfected security interest in favor of the Collateral Agent and (b) all Inventory owned by any the Borrower's Mexican Subsidiaries to the extent that the value of such Inventory (determined on a first-in-first-out basis and valued at the lower of cost or market value) does not exceed $2,000,000 in the aggregate at any time and that such Inventory is located in Mexico at one or more premises which are leased or owned by the Borrower or any of its Subsidiaries. . "Eligible Receivables" means (a) all Receivables which are subject to a first priority, perfected security interest in favor of the Collateral Agent and (b) all Receivables (other than those described in clause (a) of this definition) which arise out of a sale to an account debtor located outside of the United States to the extent that the Net Amount of Eligible Receivables with respect to such Receivables does not exceed $5,000,000 in the aggregate at any time. "Environmental Claims" means all actions, suits, proceedings or claims by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from property, whether or not owned by Holdings or any of its Subsidiaries, or (b) any other circumstances forming the reasonable basis of any violation, or alleged violation, of any Environmental Law. -12- "Environmental Law" has the meaning specified in the definition of "Hazardous Material". "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder as from time to time in effect. "ERISA Affiliate" means each person (as defined in Section 3(9) of ERISA) which together with Holdings or a Subsidiary of Holdings would be deemed to be a "single employer" (i) within the meaning of Section 414(b), (c), (m) or (o) of the Code or (ii) as a result of Holdings or a Subsidiary of Holdings being a general partner of such person. "Eurodollar Lending Office" has the meaning provided in the definition of "Lending Office". "Eurodollar Loan" means a Revolving Loan or Term Loan that bears interest based on LIBOR. "Event of Default" means any of the events or circumstances specified in Section 9.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing CII Credit Agreement" means the Credit Agreement, dated as of September 18, 1997, among the Borrower, Holdings, the financial institutions from time to time party thereto, Bank of America, as Administrative Agent thereunder, and BancAmerica Robertson Stephens (as successor to BancAmerica Securities, Inc.), as Arranger thereunder, as amended through and including the Effective Date. "Existing Corcom Credit Agreement" means that certain Revolving Line of Credit Note dated December 31, 1996 in the original maximum principal amount of $4,000,000 executed and delivered by Corcom and made payable to American National Bank and Trust Company of Chicago. "Existing L/C's" has the meaning specified in Section 3.10. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day the appropriate rate for such previous day is not yet published in H.15(519), the rate for such day will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. -13- "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "Fee Letter" means that certain letter agreement dated March 9, 1998 among the Borrower, the Arranger and Bank of America with respect to certain fees due and payable to the Arranger and Bank of America in connection with the financing contemplated by this Agreement. "First Adjustment Date" has the meaning specified in the definition of the term "Adjustment Date". "Foreign Subsidiary" means each Subsidiary of Holdings which is not a Domestic Subsidiary. "Form 4224" has the meaning specified in Section 4.01(f). "Form 1001" has the meaning specified in Section 4.01(f). "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such other entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranteed Creditors" means and includes each of the Administrative Agent, the Collateral Agent, the Issuing Lenders, the Lenders and, in the case of any Interest Rate Protection Agreements or Other Hedging Agreements, also any Affiliate of a Bank which has entered into an Interest Rate Protection Agreement or Other Hedging Agreement (even if such Lender subsequently ceases to be a Lender under this Agreement for any reason). "Guaranteed Obligations" means (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of the principal and interest on each note issued by, and Loans made to, the Borrower under this Agreement and all reimbursement obligations and unpaid drawings with respect to Letters of Credit, together with all the other obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities (including, without limitation, indemnities, fees, interest and other Obligations) of the Borrower to the Lenders, the Administrative Agent, -14- the Issuing Lender and the Collateral Agent now existing or hereafter incurred under, arising out of or in connection with this Agreement or any other Loan Document and the due performance and compliance by the Borrower with all the terms, conditions and agreements contained in the Loan Documents and (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) of the Borrower owing under any Interest Rate Protection Agreement or Other Hedging Agreement entered into by the Borrower with any Lender or any other Guaranteed Creditor so long as such Lender or affiliate participates in such Interest Rate Protection Agreement or Other Hedging Agreement, and their subsequent assigns, if any, whether now in existence or hereafter arising, and the due performance and compliance with all terms, conditions and agreements contained therein. "Guarantor" means Holdings and each Subsidiary Guarantor. "Guarantor Supplement" means a supplement to the Subsidiary Guaranty, the Pledge Agreement and the Security Agreement substantially in the form of Exhibit H, whereby a Subsidiary of the Borrower becomes a party to each such Loan Document. "Guaranty" means the guaranty of Holdings pursuant to Article X and the Subsidiary Guaranty. "Hazardous Material" means and includes (a) any asbestos, urea-formaldehyde, PCBs or dioxins or other material composed of or containing asbestos, PCBs or dioxins, (b) crude oil, any fraction thereof, and any petroleum product, (c) any natural gas, natural gas liquids, liquefied natural gas or other natural gas product or synthetic gas, and (d) any hazardous or toxic waste, substance or material or pollutant or contaminant defined as such in (or for purposes of) or that may result in the imposition of liability under any "Environmental Law", defined as the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund", or any other applicable Federal, state, local or other statute, law, ordinance, code, rule, regulation, order or decree, as now or at any time hereafter in effect, regulating, relating to, or imposing liability concerning the environment, the impact of the environment on human health, or any hazardous or toxic waste, substance or material or pollutant or contaminant. "Holdings" has the meaning specified in the preamble hereto. "Holdings Common Stock" has the meaning specified in Section 6.22. "Holdings Junior Subordinated Notes" means the junior subordinated promissory notes issued by Holdings pursuant to that certain Recapitalization Agreement dated as of August 6, 1997, by and among Holdings, CHS and certain of its present and former shareholders, as amended, and the junior subordinated promissory note issued as one of the Additional Junior Subordinated Note Documents, which notes have an aggregate outstanding principal balance of -15- $18,037,999.00 as of the date hereof (after giving effect to the consummation of the Transactions). "Holdings Preferred Stock" has the meaning specified in Section 6.22. "Holdings Shareholder Subordinated Note" means an unsecured junior subordinated note issued by Holdings (and not guaranteed or supported in any way by any Subsidiary of Holdings) in the form of Exhibit O (appropriately completed), as amended, modified or supplemented from time to time in accordance with the terms of this Agreement. "Holdings Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of September 18, 1997, among Holdings, the Borrower and certain other Subsidiaries of Holdings, as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. "Indebtedness" of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than (i) trade payables entered into in the ordinary course of business pursuant to ordinary terms and (ii) ordinary course purchase price adjustments); (c) all reimbursement or payment obligations with respect to letters of credit or non-contingent reimbursement or payment obligations with respect to bankers' acceptances and similar documents; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement or sales of accounts receivable, in any such case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all Capital Lease Obligations; (g) all net obligations with respect to Interest Rate Protection Agreements and Other Hedging Agreements; (h) all indebtedness referred to in clauses (a) through (g) above and clause (i) below secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, valued, in the case of Indebtedness not assumed, at the lesser of the amount of such obligation and the fair market value of the encumbered property or asset; and (i) all Contingent Obligations. Notwithstanding the foregoing, Indebtedness shall not include trade payables and accrued expenses incurred by any Person in accordance with customary practices and in the ordinary course of business of such Person. "Indebtedness to be Refinanced" means (a) all Indebtedness evidenced or governed by the Existing CII Credit Agreement and (b) all Indebtedness evidenced or governed by the Existing Corcom Credit Agreement. -16- "Indemnified Liabilities" has the meaning provided in Section 12.05. "Indemnified Person" has the meaning provided in Section 12.05. "Insolvency Proceeding" means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors or similar proceedings, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally; in each case undertaken under U.S. Federal, State or foreign law, including the Bankruptcy Code. "Intercompany Loan" has the meaning provided in Section 8.05(xi). "Intercompany Note" means a promissory note in the form of Exhibit N. "Interest Payment Date" means, (a) with respect to any Base Rate Loan, the last day of the last calendar month of each calendar quarter and the Termination Date, and (b) with respect to any Eurodollar Loan, the last day of each Interest Period applicable to such Loan and the date such Loan is repaid or prepaid; provided, however, that if any Interest Period for any Eurodollar Loan exceeds three months, then also the date which falls three months after the beginning of such Interest Period and, if applicable, at three month intervals thereafter shall also be an "Interest Payment Date". "Interest Period" means, in relation to any Eurodollar Loan, the period commencing on the applicable Borrowing Date or any Conversion Date or Continuation Date with respect thereto and ending on the date one, two, three or six months thereafter, as selected or deemed selected by the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: (i) if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month which is one, two, three or six months, as the case may be, after the calendar month in which such Interest Period began; -17- (iii) the Borrower may not select an Interest Period with respect to any portion of principal of a Loan which extends beyond a date on which the Borrower is required to make a scheduled payment of that portion of principal; and (iv) no Interest Period for any Loan shall extend beyond the Termination Date. "Interest Rate Protection Agreement" means an interest rate swap, cap, collar or similar arrangement entered into to hedge interest rate risk (and not for speculative purposes). "Inventory" means all of the Borrower's, and its Domestic Subsidiaries' and Mexican Subsidiaries' now owned and hereafter acquired inventory, goods, merchandise, and other personal property, wherever located, to be furnished under any contract of service or held for sale or lease, all returned goods, raw materials, other materials and supplies of any kind, nature or description which are or might be consumed in the Borrower's or its Domestic Subsidiaries' or Mexican Subsidiaries' business or used in connection with the packing, shipping, advertising, selling or finishing of such goods, merchandise and such other personal property, and all documents of title or other documents representing them. "Investment" has the meaning provided in Section 8.05. "Issuing Lender" means Bank of America or any Affiliate thereof in its capacity as issuer of one or more Letters of Credit hereunder, and each other Lender which is designated as an Issuing Lender on the signature pages hereto, on an Assignment and Acceptance to which it is a party, or on another writing to which such Lender and the Administrative Agent is a party. "Kilovac Corporation" means Kilovac Corporation, a California corporation. "Lender Affiliate" means a Person engaged primarily in the business of commercial banking that is an Affiliate of a Lender. "Lenders" has the meaning specified in the preamble hereto. "Lending Office" means, with respect to any Lender, the office or offices of such Lender specified as its "Lending Office", "Domestic Lending Office" or "Eurodollar Lending Office", as the case may be, on Schedule 1.01(a) hereto, or such other office or offices of the Lender as it may from time to time notify the Borrower and the Agent. "Letter of Credit" means any letter of credit issued (or deemed issued) by an Issuing Lender pursuant to Article III. "Letter of Credit Amendment Application" means an application form for amendment of outstanding standby or commercial documentary letters of credit as shall at any time be in use by an Issuing Lender, as such Issuing Lender shall request. -18- "Letter of Credit Application" means an application form for issuances of standby or commercial documentary letters of credit as shall at any time be in use by an Issuing Lender, as such Issuing Lender shall request. "Letter of Credit Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on or before the Business Day following the respective Disbursement Date when made nor converted into a Borrowing of Revolving Loans under Section 3.03(b). "Letter of Credit Commitment" means the commitment of the Issuing Lenders to issue Letters of Credit, the Letter of Credit Obligations in respect thereof not to exceed in aggregate amount on any date the lesser of (i) the Aggregate Revolving Commitment on such date and (ii) $3,000,000. "Letter of Credit Obligations" means at any time the sum of (a) the aggregate undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of all outstanding Letter of Credit Borrowings. "Letter of Credit Related Documents" means the Letters of Credit, the Letter of Credit Applications, the Letter of Credit Amendment Applications and any other document relating to any Letter of Credit, including any of the Issuing Lenders' standard form documents for letter of credit issuances. "Level I" has the meaning specified in Section 2.09(a)(ii). "Level II" has the meaning specified in Section 2.09(a)(ii). "Level III" has the meaning specified in Section 2.09(a)(ii). "Level IV" has the meaning specified in Section 2.09(a)(ii). "Leverage Ratio Certificate" means a certificate duly executed by a Responsible Officer of Holdings, substantially in the form of Exhibit I (with such changes thereto as may be agreed upon from time to time by the Administrative Agent and Holdings), and including therein, among other things, calculations supporting the information contained therein. "LIBOR" means, for each Interest Period for Eurodollar Loans comprising the same Borrowing, (i) the rate of interest per annum determined by Bank of America (or any successor Administrative Agent) to be the arithmetic mean (rounded upward to the nearest whole multiple of 1/16%) of the rate of interest per annum as the rate at which Dollar deposits for such Interest Period and in an amount approximately equal to the amount of the proposed Eurodollar Loan of Bank of America during such Interest Period, would be offered by Bank of America's (or any successor Administrative Agent's) Eurodollar Lending Office to major banks in the London -19- interbank market at or about 11:00 a.m. (London time) on the second Business Day prior to the commencement of such Interest Period divided (and rounded upwards to the nearest whole multiple of 1/100%) by (ii) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). "Lien" means any interest in any real or personal property or fixture which secures payment or performance of any obligation and shall include any mortgage, lien, pledge, encumbrance, charge or other security interest of any kind, whether arising under a Security Instrument or as a matter of law, judicial process or otherwise, including the retained security title of a conditional vendor or lessor. "Loan" means an extension of credit by a Lender to the Borrower pursuant to Article II and shall include Revolving Loans, Term Loans and Swingline Loans. "Loan Documents" means this Agreement (including the guaranty of Holdings set forth in Article X), each Collateral Document, each Revolving Note and Term Note, the Fee Letter and all other Security Instruments, agreements, instruments, certificates or other documents evidencing, guaranteeing or securing the Loans, Letter of Credit Borrowings or the other obligations of Holdings, the Borrower or any Subsidiary Guarantor hereunder or under any Collateral Document. "Majority Lenders" means at any time Lenders holding more than 50% of the then Aggregate Commitment, provided that if the Commitments shall have been terminated in full, "Majority Lenders" shall mean Lenders holding (including as a result of participations pursuant to Sections 2.01(c)(iv) and 3.03(a) and (d)) more than 50% of the then aggregate unpaid amount of the Total Exposure. "Mandatory Borrowing" has the meaning specified in Section 2.01(b)(iv). "Margin Stock" means "margin stock" as such term is defined in Regulation G, T, U or X of the Federal Reserve Board. "Material Adverse Effect" means, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), a material adverse effect on: (a) the operations, business, assets, properties, liabilities, condition (financial or otherwise) or prospects of the Borrower, or of Holdings and its Subsidiaries taken as a whole; or -20- (b) the rights and remedies of the Administrative Agent, the Collateral Agent and the Lenders under this Agreement or under any other Loan Document. "Measurement Period" means (i) at any time on or prior to June 30, 1999, the period from July 1, 1998 through the last day of Holdings' fiscal quarter then last ended (taken as one accounting period) and (ii) at any time thereafter, any period of four consecutive fiscal quarters of Holdings (taken as one accounting period). "Merger" means the merger of Merger Sub with and into Corcom pursuant to the terms and conditions of the Merger Agreement. "Merger Agreement" means that certain Agreement and Plan of Merger dated March 10, 1998 among the Borrower, Merger Sub and Corcom, and related disclosure schedules, pursuant to which, among other things, the Merger is to occur. "Merger Documents" means the Merger Agreement; that certain Voting Agreement dated as of March 10, 1998 among Merger Sub, Werner E. Neuman and James A. Steinback; those certain Employment Agreements dated as of the effective date of the Merger between Corcom and each of Michael Raleigh, Fernando Pena, Joseph Ritter, Gary Baltimore, Oswald Hoffman and Sheryl Bishop; that certain Consulting and Non-Competition Agreement dated as of the effective date of the Merger between Corcom and Werner E. Neuman; all other agreements, documents and instruments executed and delivered by Merger Sub or any Credit Party in connection with the Merger Agreement.. "Merger Sub" means RF Acquisition Corp., an Illinois corporation and Wholly- Owned Subsidiary of the Borrower. "Mexican Subsidiary" means each Subsidiary of the Borrower that is organized under the laws of Mexico. "Moody's" means Moody's Investors Service, Inc. "Net Amount of Eligible Receivables" means, at any time, the gross amount of Eligible Receivables less returns, rebates, discounts, claims, credits and allowances of any nature at any time issued, owing, granted, outstanding or claimed. "Net Cash Proceeds" means, in connection with any Asset Sale, the cash proceeds (including any cash payments received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received in cash) of such Asset Sale net of (i) reasonable transaction costs (including any underwriting, brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses, including title and recording expenses, associated therewith actually incurred), (ii) required debt payments (other than pursuant hereto), (iii) taxes estimated to be paid as a result of such Asset Sale and (iv) any -21- portion of such cash proceeds which Holdings determines in good faith should be reserved for post-closing adjustments or liabilities (to the extent Holdings delivers to the Lenders a certificate signed by a Responsible Officer of Holdings as to such determination). "Net Insurance Proceeds" means, with respect to any Recovery Event, the cash proceeds (net of reasonable costs and taxes incurred in connection with such Recovery Event) received by the respective Person in connection with the respective Recovery Event. "Net Issuance Proceeds" means, with respect to the issuance of any Indebtedness for borrowed money, or the issuance or sale of any equity securities or other equity interests or rights: (a) the gross cash proceeds received in connection with such issuance or sale; minus (b) all reasonable transaction costs (including legal, investment banking or other fees and disbursements) paid or incurred in connection therewith in favor of any Person not an Affiliate of Holdings or the Borrower. "Notice of Borrowing" means a notice given by the Borrower to the Administrative Agent pursuant to Section 2.03(a), in substantially the form of Exhibit C. "Notice of Conversion/Continuation" means a notice given by the Borrower to the Administrative Agent pursuant to Section 2.04(b), in substantially the form of Exhibit D. "Obligations" means all Loans, Letter of Credit Borrowings and other indebtedness, advances, debts, liabilities, obligations, expenses (including, without limitation, Attorney Costs), covenants and duties, of any kind or nature, owing by Holdings, the Borrower or any Subsidiary Guarantor to any Lender, the Administrative Agent, the Collateral Agent, any Issuing Lender or the Swingline Lender in connection with this Agreement or any other Loan Document, in each case whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and however acquired (including those acquired by assignment) or arising and whether or not for the payment of money or evidenced by any note, guarantee or other instrument. "OECD" means the Organization for Economic Cooperation and Development. "Originating Lender" has the meaning provided in Section 12.07(d). "Other Hedging Agreement" means any foreign exchange contracts, currency swap agreements, commodity agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency or commodity values. -22- "Other Taxes" has the meaning specified in Section 4.01(b). "Participant" has the meaning specified in Section 12.07(d). "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "Permitted Acquisition" has the meaning specified in Section 8.02(ix). "Permitted Holders" means Code, Hennessy & Simmons, Inc., CHS and their respective Affiliates. "Permitted Liens" has the meaning provided in Section 8.01. "Person" means any natural person, corporation, firm, trust, partnership, limited liability company, business trust, association, government, governmental agency or authority, or any other entity, whether acting in an individual, fiduciary, or other capacity. "Plan" means any defined benefit plan as defined in Section 3(35) of ERISA in respect of which Holdings or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreement" means the Pledge Agreement in the form of Exhibit E, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Pledged Securities" has the meaning specified in the Pledge Agreement. "Qualified Public Equity Offering" means a bona fide underwritten sale to the public of common stock of Holdings pursuant to a registration statement (other than on Form S-8 or any other form relating to securities issuable under any benefit plan of Holdings or any of its Subsidiaries, as the case may be) that is declared effective by the Securities and Exchange Commission and such offering results in gross cash proceeds to Holdings (exclusive of under writer's discounts and commissions and other expenses) of at least $30,000,000. "Qualified Seller Subordinated Debt" means unsecured junior subordinated notes issued by Holdings or any of its Subsidiaries so long as the terms of any such junior subordinated note (i) do not provide any collateral security, (ii) do not contain any mandatory put, redemption, repayment, sinking fund or other similar provision occurring before September 30, 2004, (iii) do not contain any covenants other than periodic reporting requirements, (iv) do not have an interest rate above 12% per annum, (v) do not have any defaults other than a payment thereunder or a bankruptcy of the obligor thereunder and (vi) are otherwise reasonably satisfactory to Bank of America (or any successor Administrative Agent). -23- "Receivables" means all of the Borrower's and its Domestic Subsidiaries' now owned or hereafter acquired or arising accounts, contract rights, and any other rights to payment for the sale or lease of goods or rendition of services, whether or not they have been earned by performance. "Recovery Event" means the receipt by Holdings or any of its Subsidiaries of any cash insurance proceeds or condemnation awards payable by reason of theft, loss, physical destruction, damage, taking or any other similar event with respect to any property or assets of Holdings or any of its Subsidiaries. "Reference Rate" means the rate of interest publicly announced from time to time by Bank of America in San Francisco as its "reference rate." It is a rate set by Bank of America based upon various factors, including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate. Any change in the Reference Rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "Refinancing" means, collectively, the repayment of all Indebtedness to be Refinanced (other than unmatured letter of credit obligations with respect to Existing L/Cs subject to Section 3.10), together with all accrued interest, premiums, fees, commissions and expenses owing in connection therewith, and the termination of all commitments under the Existing CII Credit Agreement and under the Existing Corcom Credit Agreement. "Refinancing Documents" means payoff letters, termination agreements, UCC Termination Statements, mortgage releases, intellectual property reconveyance documents and other similar Lien release instruments, in form and substance acceptable to the Administrative Agent and executed and delivered by the creditors to whom the Indebtedness to be Refinanced is owing to evidence such creditors' agreements as to the outstanding amount of Indebtedness to be Refinanced, the repayment thereof and such creditors' obligations to terminate their financing arrangements with the Credit Parties and release their Liens against the Credit Parties' properties. "Refinancing Subordinated Indebtedness" has the meaning specified in Section 8.04(viii). "Regulation D" shall mean Regulation D of the Federal Reserve Board or from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Replaced Lender" has the meaning specified in Section 4.08(b). "Replacement Lender" has the meaning specified in Section 4.08(b). -24- "Reportable Event" means, an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30- day notice period is waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulations issued under Section 4043 of ERISA. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of a court or of a Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" means, for Holdings, the Borrower or any Subsidiary thereof, its chief executive officer, its president, any of its executive vice presidents, its chief operating officer, its chief financial officer or its treasurer or any other officer having substantially the same authority and responsibility as any of the foregoing officers. "Revolving Availability" means, at any time, (a) the Borrowing Base minus (b) all reserves which the Agent deems necessary or desirable, in its reasonable credit judgment, in connection with the value of, or the perfection or ability to realize upon, its Liens on, Eligible Receivables or Eligible Inventory. "Revolving Commitment" means, for each Lender, the amount set forth opposite such Lender's name under the caption "Revolving Commitment" on Schedule 1.01(b) (or on Schedule I of the most recent Assignment and Acceptance to which such Lender is a party), as such amount may be modified from time to time pursuant to the provisions hereof. "Revolving Borrowing" means a Borrowing hereunder consisting of Revolving Loans made to the Borrower on the same Borrowing Date by the Lenders ratably according to their respective Commitment Percentages and in the case of Eurodollar Loans, having the same Interest Periods, provided that any Base Rate Loans incurred pursuant to Section 4.02 shall be considered as part of the related Revolving Borrowing of Eurodollar Loans. "Revolving Loan" means a Loan by a Lender to the Borrower under Section 2.01(a), which may be a Eurodollar Loan or a Base Rate Loan. "Revolving Notes" means the promissory notes executed by the Borrower and made payable to the Lenders pursuant to Section 2.02(b) to evidence the Revolving Loans. "S&P" means Standard & Poor's Ratings Service, a division of McGraw Hill, Inc. "Security Agreement" means the Security Agreement in the form of Exhibit G, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. -25- "Security Instrument" means any security agreement, chattel mortgage, assignment, pledge agreement, financing or similar statement or notice, continuation statement, other agreement or instrument, or amendment or supplement to any thereof, providing for, evidencing or perfecting any security interest. "Specified Default" means (i) any Default under Section 9.01(a), 9.01(f) or 9.01(g) or (ii) any Event of Default under Section 9.01(a), 9.01(b), 9.01(c) (but only as a result of a breach of Section 8.07, 8.08, 8.09 or 8.10), 9.01(e), 9.01(f), 9.01(g), 9.01(i), 9.01(j) or 9.01(k). "Standby Letter of Credit" has the meaning specified in Section 3.01(a). "Subsidiary" of a Person means any corporation, association, partnership or other business entity of which more than 50% of the voting stock or other voting equity interests (in the case of Persons other than corporations) is owned or controlled directly or indirectly by such Person, or one or more of the Subsidiaries of the Person, or a combination thereof. "Subsidiary Guarantor" means each of the Domestic Subsidiaries of the Borrower listed on Schedule 1.01(c) and each other Domestic Subsidiary of the Borrower (and, to the extent Section 7.12 is operative, each Foreign Subsidiary of the Borrower) that hereafter executes and delivers a Guarantor Supplement. "Subsidiary Guaranty" means the Guaranty in the form of Exhibit F, as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. "Swingline Amount" means the least of (i) the Aggregate Revolving Commitment, (ii) the Revolving Availability and (iii) $2,500,000. "Swingline Borrowing" means a Borrowing of a Swingline Loan hereunder on any Borrowing Date. "Swingline Lender" means Bank of America. "Swingline Loan" means a Loan by the Swingline Lender to the Borrower pursuant to Section 2.01(b). "Taxes" has the meaning specified in Section 4.01(a). "Term Borrowing" means a Borrowing hereunder consisting of Term Loans made to the Borrower on the Effective Date by the Lenders ratably according to their respective Commitment Percentages and in the case of Eurodollar Loans, having the same Interest Periods, provided that any Base Rate Loans incurred pursuant to Section 4.02 shall be considered as part of the related Term Borrowing of Eurodollar Loans. -26- "Term Commitment" means, for each Lender, the amount set forth opposite such Lender's name under the caption "Term Commitment" on Schedule 1.01(b) (or on Schedule I of the most recent Assignment and Acceptance to which such Lender is a party), as such amount may be modified from time to time pursuant to the provisions hereof. "Term Loan" means a Loan by a Lender to the Borrower under Section 2.01(c), which may be a Eurodollar Loan or a Base Rate Loan. "Term Notes" means the promissory notes executed by the Borrower and made payable to the Lenders pursuant to Section 2.02(b) to evidence the Term Loans. "Termination Date" means the earlier to occur of (a) June 19, 2003 and (b) the date on which the Commitments shall terminate in accordance with the provisions of this Agreement. "Total Exposure" means the sum of all outstanding Loans and Letters of Credit Obligations. "Trade Letter of Credit" has the meaning specified in Section 3.01(a). "Transaction" means, collectively, (i) the Merger, (ii) the Refinancing, (iii) the Additional Junior Subordinated Note Investment, (iv) the Additional Subordinated Guaranty and (v) the entering into of this Agreement, the making of the initial Loans hereunder, the issuance of initial Letters of Credit on the Effective Date, the application of the proceeds of such initial Loans and the Additional Junior Subordinated Note Investment, and the occurrence of the Effective Date. "Transaction Documents" mean, this Agreement, the other Loan Documents, the Merger Documents, the Refinancing Documents, the Additional Junior Subordinated Note Documents and the Additional Subordinated Guaranty Documents. "Transferee" has the meaning specified in Section 12.08. "UCC" means the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. "Unfunded Current Liability" of any Plan means the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year, determined in accordance with actuarial assumptions at such time consistent with Statement of Financial Accounting Standards No. 87, exceeds the market value of the assets allocable thereto. "United States" and "U.S." each means the United States of America. -27- "Voting Stock" of any Person as of any date means the capital stock of such Person that is of the time entitled to vote in the election of the Board of Directors of such Person. "Wholly-Owned Domestic Subsidiary" means each Domestic Subsidiary of Holdings that is also a Wholly-Owned Subsidiary of Holdings. "Wholly-Owned Foreign Subsidiary" means each Foreign Subsidiary of Holdings that is also a Wholly-Owned Subsidiary of Holdings. "Wholly-Owned Subsidiary" means, as to any Person, (i) any corporation 100% of whose capital stock (other than director's or other qualifying shares) is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time. 1.02 Other Definitional Provisions. (a) Defined Terms. Unless otherwise specified herein or therein, all terms defined in this Agreement shall have such defined meanings when used in any certificate or other document made or delivered pursuant hereto. The meaning of defined terms shall be equally applicable to the singular and plural forms of the defined terms. Terms (including uncapitalized terms) not otherwise defined herein and that are defined in the UCC shall have the meanings therein described. (b) The Agreement. The words "hereof", "herein", "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. (c) Certain Common Terms. (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The terms "including" or "include" are not limiting and mean "including without limitation" or "include without limitation". (d) Performance; Time. Subject to the definition of the term "Interest Period" in Section 1.01, whenever any performance obligation hereunder shall be stated to be due or required to be satisfied on a day other than a Business Day, such performance shall be made or satisfied on the next succeeding Business Day. In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and -28- including"; the words "to" and "until" each mean "to but excluding"; and the word "through" means "to and including". If any provision of this Agreement refers to any action taken or to be taken by any Person, or which such Person is prohibited from taking, such provision shall be interpreted to encompass any and all means, direct or indirect, of taking, or not taking, such action. (e) Contracts. Unless otherwise expressly provided herein, references to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document. (f) Laws. References to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending or replacing such statute or regulation. 1.03 Accounting Principles. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted in accordance with GAAP. Unless the context otherwise clearly requires, all financial computations required under this Agreement shall be made in accordance with generally accepted accounting principles applied in a manner consistent with those in effect on December 31, 1997. ARTICLE II. THE CREDIT FACILITIES 2.01 Amounts and Terms of Commitments. (a) The Revolving Loans. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Revolving Loans to the Borrower from time to time on any Business Day during the period from the Effective Date to the Termination Date, in an aggregate amount not to exceed at any time outstanding the amount of such Lender's Revolving Commitment; provided, however, that after giving effect to any Revolving Borrowing, the aggregate principal amount of all outstanding Revolving Loans, together with the aggregate principal amount of all outstanding Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) plus the aggregate amount of all outstanding Letter of Credit Obligations (exclusive of unpaid drawings under any Letter of Credit which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans), shall not exceed the lesser of the Aggregate Revolving Commitment and the Revolving Availability. Within such limits, and subject to the other terms and conditions hereof, the Borrower may -29- borrow Revolving Loans under this Section 2.01(a), repay pursuant to Section 2.08(a), prepay pursuant to Section 2.06 or 2.07(a) and reborrow pursuant to this Section 2.01(a). (b) The Swingline Loans. (i) The Swingline Lender agrees, on the terms and conditions hereinafter set forth, to make Swingline Loans to the Borrower on any Business Day during the period from the Effective Date to the Termination Date, in an aggregate amount not to exceed at any time outstanding the Swingline Amount; provided, however, (x) each Swingline Loan shall be made and maintained as a Base Rate Loan and (y) that after giving effect to any Swingline Borrowing, the aggregate principal amount of all outstanding Swingline Loans, together with the aggregate principal amount of all outstanding Revolving Loans plus the aggregate amount of all outstanding Letter of Credit Obligations (exclusive of unpaid drawings under any Letter of Credit which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans), shall not exceed the lesser of the Aggregate Revolving Commitment and the Revolving Availability. Within such limits, and subject to the other terms and conditions hereof, the Borrower may borrow Swingline Loans under this Section 2.01(b), repay pursuant to Section 2.08(b) or prepay pursuant to Section 2.06 or 2.07(a) and reborrow pursuant to this Section 2.01(b). (ii) The Swingline Lender shall not be responsible for or liable to any Lender for determining whether (A) any representation or warranty of the Borrower in connection with any request for a Swingline Loan is correct or (B) any Default or Event of Default exists or would result from the making of any such Swingline Loan; provided, however, that the Swingline Lender shall not make any Swingline Loan after receiving a written notice from the Borrower or the Majority Lenders stating that a Default or an Event of Default exists and is continuing until such time as the Swingline Lender shall have received written notice from the Administrative Agent that such Default or Event of Default has been cured or waived. (iii) Each Swingline Loan shall reduce the available Aggregate Revolving Commitment. For purposes of Section 2.10(a), each Swingline Loan shall be deemed to utilize only the Revolving Commitment of the Swingline Lender (but not any other Lender) by an amount equal to such Swingline Loan (it being understood that the aggregate principal amount of Swingline Loans at any time outstanding may exceed the otherwise unutilized portion of the Revolving Commitment of the Swingline Lender). -30- (iv) On any Business Day, the Swingline Lender may, in its sole discretion, give notice to the Lenders that its outstanding Swingline Loans shall be funded with a Revolving Borrowing of Revolving Loans (provided that each such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under Section 9.01(e) or 9.01(f) or upon the exercise of any of the remedies provided in Section 9.02), in which case a Revolving Borrowing of Revolving Loans constituting Base Rate Loans (each such Revolving Borrowing, a "Mandatory Borrowing") shall be made on the immediately succeeding Business Day by all Lenders pro rata based on each Lender's Commitment Percentage, and the proceeds thereof shall be applied directly to repay the Swingline Lender for such outstanding Swingline Loans. Each Lender hereby irrevocably agrees to make Base Rate Loans upon one Business Day's notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by the Swingline Lender notwithstanding (i) that the amount of the Mandatory Borrowing may not comply with the minimum borrowing denominations set forth in Section 2.03(a), (ii) whether any of the conditions precedent set forth in Section 5.02 is then satisfied and (iii) whether the borrowing limitations set forth in this Agreement are met or the amount of the Aggregate Revolving Commitment then in effect (including the fact that the Aggregate Revolving Commitment may have been terminated). In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code in respect of the Borrower), each Lender hereby agrees that it shall forthwith purchase from the Swingline Lender (without recourse or warranty) such assignment of the outstanding Swingline Loans as shall be necessary to cause the Lenders to share in such Swingline Loans ratably based upon their respective Commitment Percent ages, provided that all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date the respective assignment is purchased and, to the extent attributable to the purchased assignment, shall be payable to the Lender purchasing same from and after such date of purchase. The failure of any Lender to pay such amount to the Swingline Lender shall not relieve any other Lender of its obligation to make the payment to be made by it. (c) The Term Loan. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make a Term Loan to the Borrower in an amount equal to such Lender's Term Commitment. All Term Loans shall be made on the Effective Date. 2.02 Loan Accounts; Notes. (a) The Loans made by each Lender shall be evidenced by the Revolving Notes, the Term Notes and one or more loan accounts maintained by such Lender and the Administrative Agent in the ordinary course of business. The Swingline Loans shall be -31- evidenced by one or more loan accounts maintained by the Swingline Lender and the Administrative Agent in the ordinary course of business. The loan accounts maintained by the Administrative Agent shall, in the event of a discrepancy between the entries in the Administrative Agent's books and any Lender's or the Swingline Lender's books relating to such loan accounts, be controlling and, absent manifest error, shall be conclusive as to the amount of the Loans made by the Lenders or the Swingline Lender's to the Borrower, the interest and payments thereon and any other amounts owing in respect of this Agreement. Any failure to make a notation in any such loan account or any error in doing so shall not limit or otherwise affect the obligations of the Borrower hereunder to pay any amount owing with respect to the Loans. (b) On or before the Effective Date, the Borrower shall execute and deliver to each Lender (and deliver a copy thereof to the Administrative Agent) a Revolving Note in the form of Exhibit A to evidence the Revolving Loans owing to such Lender and a Term Note in the form of Exhibit B to evidence the Term Loan owing to such Lender. Each such note shall be entitled to all of the rights and benefits of this Agreement and the other Loan Documents. 2.03 Procedure for Borrowing. (a) Each Borrowing of Revolving Loans or Term Loans (other than a Borrowing of Revolving Loans pursuant to Section 2.01(b)(iv) or Section 3.03(b)) shall be made upon the Borrower's irrevocable written notice delivered to the Administrative Agent in accordance with Section 12.02 in the form of a Notice of Borrowing (which notice must be received by the Administrative Agent (i) prior to 10:00 a.m. (Chicago time) not less than three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans and (ii) prior to 11:00 a.m. (Chicago time) on the requested Borrowing Date, in the case of Base Rate Loans, specifying: (A) whether such Borrowing is a Revolving Borrowing, a Term Borrowing, or both; (B) the amount of the Borrowing, which shall be in an aggregate minimum principal amount of (x) in the case of Base Rate Loans, $100,000 or any multiple of $100,000 in excess thereof and (y) in the case of Eurodollar Loans, $500,000 or any multiple of $100,000 in excess thereof; (C) the requested Borrowing Date, which shall be a Business Day; (D) whether the Borrowing is to be comprised of Eurodollar Loans or Base Rate Loans; and -32- (E) the duration of the Interest Period, if any, applicable to such Loans included in such notice. If the Notice of Borrowing shall fail to specify the duration of the Interest Period for any Borrowing comprised of Eurodollar Loans, such Interest Period shall be one month. (b) Upon receipt of the Notice of Borrowing, the Administrative Agent will promptly notify each Lender thereof and of the amount of such Lender's Commitment Percentage of the Borrowing. (c) Each Lender will make the amount of its Commitment Percentage of each Revolving Borrowing and Term Borrowing available to the Administrative Agent for the account of the Borrower at the Administrative Agent's Payment Office by 1:00 p.m. (Chicago time) on the Borrowing Date (or by 2:00 p.m. (Chicago time) on such Borrowing Date in the case of a Borrowing of Base Rate Loans made on same day notice) requested by the Borrower in funds immediately available to the Administrative Agent. Unless any applicable condition of Article V has not been satisfied, the proceeds of all such Revolving Loans and Term Loans (other than Revolving Loans made pursuant to a Mandatory Borrowing) will then be made available to the Borrower by the Administrative Agent by wire transfer in accordance with written instructions provided to the Administrative Agent by the Borrower. Each Lender will make the amount of its Commitment Percentage of each Mandatory Borrowing available to the Administrative Agent for the account of the Swingline Lender at the Administrative Agent's Payment Office by 1:00 p.m. (Chicago time) on the date specified in Section 2.01(b)(iv). (d) Upon the occurrence and during the continuance of (x) any Default under Section 9.01(a), 9.01(f) or 9.01(g) or (y) any Event of Default, the Borrower shall not elect to have a Loan be made as a Eurodollar Loan. (e) After giving effect to any Borrowing, there shall not be more than six different Interest Periods in effect in respect of all Loans. (f) (i) Whenever the Borrower desires to make a Swingline Borrowing hereunder, the Borrower shall give the Administrative Agent and the Swingline Lender not later than 11:00 a.m. (Chicago time) on the date that a Swingline Loan is to be made, written notice or telephonic notice promptly confirmed in writing of each Swingline Loan to be made hereunder. Each such notice shall be irrevocable and specify in each case: (A) the amount of the Swingline Loan, which shall be in an aggregate minimum principal amount of $50,000 or any multiple of $50,000 in excess thereof; and (B) the requested Borrowing Date, which shall be a Business Day. -33- (ii) The Swingline Lender shall not incur any liability to the Borrower in acting upon any telephonic notice which the Swingline Lender believes in good faith to have been given by any officer authorized to act on behalf of the Borrower. 2.04 Conversion and Continuation Elections for Revolving and Term Borrowings. (a) The Borrower may upon irrevocable written notice to the Administrative Agent in accordance with paragraph (b) below: (ii) elect to convert on any Business Day, any Base Rate Loans (or any part thereof so long as the minimum borrowing amounts set forth in Section 2.03(a)(ii)(B)(y) are still satisfied), other than those constituting Swingline Loans, into Eurodollar Loans; (ii) elect to convert on the last day of the Interest Period with respect thereto, any Eurodollar Loans (or any part thereof in an amount of not less than $500,000 or an integral multiple of $100,000 in excess thereof) into Base Rate Loans; or (iii) elect to continue on the last day of the Interest Period with respect thereto, any Eurodollar Loans (or any part thereof in an amount not less than $500,000 or an integral multiple of $100,000 in excess thereof); provided, however, (x) that if the aggregate amount of a Borrowing comprised of Eurodollar Loans shall have been reduced, by payment, prepayment or conversion of part thereof to be less than $500,000, the Eurodollar Loans comprising such Borrowing shall automatically convert into Base Rate Loans, and on and after such date the right of the Borrower to continue such Loans as, and convert such Loans into, Eurodollar Loans shall terminate and (y) Swingline Loans may not be converted pursuant to this Section 2.04. (b) The Borrower shall deliver a Notice of Conversion/Continuation in accordance with Section 12.02 to be received by the Administrative Agent not later than (i) 10:00 a.m. (Chicago time) not less than three Business Days in advance of the Conversion Date or Continuation Date, if the Loans are to be converted into or continued as Eurodollar Loans and (ii) 11:00 a.m. (Chicago time) not less than one Business Day in advance of the Conversion Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion Date or Continuation Date which shall be a Business Day; (B) the aggregate principal amount of Loans to be converted or continued; (C) the nature of the proposed conversion or continuation; and -34- (D) the duration of the requested Interest Period, if applicable. (c) If upon the expiration of any Interest Period applicable to Eurodollar Loans, the Borrower has failed to select timely a new Interest Period or the Borrower is not permitted to elect a new Interest Period, such Loans shall automatically convert into Base Rate Loans. (d) Upon receipt of a Notice of Conversion/Continuation, the Administrative Agent will promptly notify each Lender thereof, or, if no timely notice is provided by the Borrower, the Administrative Agent will promptly notify each Lender of the details of any automatic conversion. All conversions and continuations shall be made pro rata according to the respective outstanding principal amounts of the Loans with respect to which the notice was given. (e) Upon the occurrence and during the continuance of (x) any Default under Section 9.01(a), 9.01(f) or 9.01(g) or (y) any Event of Default, the Borrower shall not elect to have a Loan converted into or continued as a Eurodollar Loan. (f) Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any Loans, there shall not be more than six different Interest Periods in effect in respect of all Loans. 2.05 Reduction and Termination of Commitments. (a) The Borrower may, upon not less than three Business Days' prior notice to the Administrative Agent, terminate the Aggregate Revolving Commitment (including the Letter of Credit Commitment) or permanently reduce the Aggregate Revolving Commitment (including the Letter of Credit Commitment) by an aggregate minimum amount of $500,000 or any multiple of $100,000 in excess thereof; provided, however, that no such reduction or termination shall be permitted if after giving effect thereto and to any prepayment of the Revolving Loans and/or Swingline Loans made on the effective date thereof, (i) the then outstanding principal amount of the Revolving Loans and Swingline Loans plus the outstanding Letter of Credit Obligations would exceed the Aggregate Revolving Commitment then in effect or (ii) the aggregate amount of Letter of Credit Obligations would exceed the Letter of Credit Commitment then in effect; and, provided further, that once reduced in accordance with this Section 2.05, the Aggregate Revolving Commitment (including the Letter of Credit Commitment) may not be increased. (b) On each date after the Effective Date upon which Holdings or any of its Subsidiaries receives any Net Issuance Proceeds from any incurrence by Holdings or any of its Subsidiaries of Indebtedness for borrowed money (other than Indebtedness for borrowed money permitted to be incurred under Section 8.04 as in effect on the Effective -35- Date), the Aggregate Revolving Commitment shall be permanently reduced by an amount equal to 100% of the Net Issuance Proceeds of the respective incurrence of Indebtedness minus the aggregate principal amount of the Term Loan which has been prepaid in connection with such incurrence of Indebtedness pursuant to Section 2.07(b); provided, however, that no reduction shall occur hereunder with respect to the first $500,000 of such Net Issuance Proceeds received after the Effective Date or with respect to any Net Issuance Proceeds received after the Effective Date in connection with the incurrence of Indebtedness for borrowed money secured by Letters of Credit. Nothing in this paragraph (b) shall be deemed to permit the issuance of any Indebtedness not otherwise permitted under this Agreement. (c) On each date after the Effective Date upon which Holdings or any of its Subsidiaries receives any Net Issuance Proceeds from any issuance or sale by Holdings or any of its Subsidiaries of any equity securities or other equity interests or rights, the Aggregate Revolving Commitment shall be permanently reduced by an amount equal to 50% of the Net Issuance Proceeds of the respective issuance or sale of such securities, interests or rights minus the aggregate principal amount of the Term Loan which has been prepaid in connection with such issuance or sale pursuant to Section 2.07(c); provided, however, that, no reduction shall occur hereunder with respect to the first $250,000 of Net Issuance Proceeds received after the Effective Date in connection with the issuance or sale of any such securities or other equity interests or rights. (d) Within two Business Days after Holdings or any of its Subsidiaries receives any Net Cash Proceeds from any Asset Sale, the Aggregate Revolving Commitment shall be permanently reduced on such date by an amount equal to 100% of the Net Cash Proceeds from such Asset Sale minus the aggregate principal amount of the Term Loan which has been prepaid in connection with such Asset Sale pursuant to Section 2.07(d); provided, however, that (i) with respect to no more than $1,000,000 in the aggregate of such Net Cash Proceeds in any fiscal year of Holdings, such Net Cash Proceeds shall not give rise to a reduction to the Aggregate Revolving Commitment pursuant to this paragraph (d) if no Default or Event of Default then exists and Holdings has delivered a certificate to the Administrative Agent on or prior to such date stating that such Net Cash Proceeds shall be used to purchase replacement assets used or to be used in the Borrower's or any of its Subsidiaries' business within 270 days following the date of receipt of such Net Cash Proceeds from such Asset Sale (which certificate shall set forth the estimates of the proceeds to be so expended), and if all or any portion of such Net Cash Proceeds are not so used within such 270 day period, the Aggregate Revolving Commitment shall be permanently reduced on the last day of such period by an amount equal to such remaining portion minus the aggregate principal amount of the Term Loan which has been prepaid in connection with such Asset Sale pursuant to Section 2.07(d) and (ii) no reduction shall occur hereunder with respect to the first $500,000 of Net Cash Proceeds received after the Effective Date in connection with any Asset Sale. Nothing in -36- this paragraph (d) shall be deemed to permit any Asset Sale not otherwise permitted under this Agreement. (e) Within 10 days following each date after the Effective Date upon which Holdings or any of its Subsidiaries receives any cash proceeds from any Recovery Event, the Aggregate Revolving Commitment shall be permanently reduced on such date by an amount equal to 100% of the Net Insurance Proceeds from such Recovery Event minus the aggregate principal amount of the Term Loan which has been prepaid in connection with such Recovery Event pursuant to Section 2.07(e), provided, however, that if no Default or Event of Default then exists and such proceeds from such Recovery Event do not exceed $4,000,000, such proceeds shall not give rise to a reduction to the Aggregate Revolving Commitment pursuant to this paragraph (e) on such date if Holdings has delivered a certificate to the Administrative Agent on or prior to such date stating that such proceeds shall be used to replace or restore any properties or assets in respect of which such proceeds were paid within 365 days following the date of receipt of such proceeds (which certificate shall set forth the estimates of the proceeds to be so expended), and provided further, that (i) if the amount of such proceeds exceeds $4,000,000, then the Aggregate Revolving Commitment shall be reduced by the entire amount of such proceeds and not just the portion in excess of $4,000,000 as provided above in this paragraph (e), minus the aggregate principal amount of the Term Loan which has been prepaid in connection with such Recovery Event pursuant to Section 2.07(e) and (ii) if all or any portion of such proceeds are not contractually committed to be used within 180 days after the date of receipt of such proceeds or are not actually used within 365 days after the date of receipt of such proceeds to effect such restoration or replacement, the Aggregate Commitment shall be permanently reduced on the last day of such 180-day or 365-day period, as the case may be, by an amount equal to such remaining portion minus the aggregate principal amount of the Term Loan which has been prepaid in connection with such Recovery Event pursuant to Section 2.07(e). (f) Any reduction of the Aggregate Revolving Commitment and the Letter of Credit Commitment pursuant to this Section 2.05 shall be applied pro rata to each Lender's Revolving Commitment in accordance with such Lender's Commitment Percentage. The amount of any such reduction of the Aggregate Revolving Commitment shall not be applied to the Letter of Credit Commitment unless otherwise specified by the Borrower or required by the definition thereof. All accrued commitment and letter of credit fees to the effective date of any reduction or termination of Aggregate Revolving Commitment, shall be paid on the effective date of such reduction or termination. The Administrative Agent shall promptly notify the Lenders of any reduction or termination of the Aggregate Revolving Commitment. -37- 2.06 Voluntary Prepayments. (a) (i) The Borrower may, prior to 10:00 a.m. (Chicago time), upon at least three Business Days' notice to the Administrative Agent in the case of Eurodollar Loans, and prior to 11:00 a.m. (Chicago time), upon notice thereof to the Administrative Agent on the Business Day of the same in the case of Base Rate Loans, ratably prepay Revolving Loans or Term Loans, in whole or in part in amounts of $100,000 or an integral multiple of $100,000 in excess thereof. (ii) The Borrower may at any time prepay Swingline Loans, in whole or in part in minimum amounts of $50,000 or an integral multiple of $50,000 in excess thereof; provided, however, that notice of such prepayment shall be required to be delivered to the Administrative Agent by 11:00 a.m. (Chicago time) on the date of such prepayment. (b) Any notice of prepayment delivered pursuant to this Section 2.06 shall specify the date and amount of such prepayment, whether Revolving Loans, Term Loans or Swingline Loans are to be prepared and the type of Loans to be prepaid, including in the case of Revolving Loans or Term Loans whether such prepayment is of Base Rate Loans or Eurodollar Loans or any combination thereof. Each such notice shall be irrevocable by the Borrower and the Administrative Agent will promptly notify each Lender thereof and of such Lender's Commitment Percentage of such prepayment, if applicable. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and the amounts, if any, required pursuant to Section 4.04; provided that interest shall be paid in connection with any such prepayment of Base Rate Loans (other than a prepayment in full) on the next occurring Interest Payment Date. 2.07 Mandatory Prepayments. (a) (i) If on any date (A) the aggregate unpaid principal amount of outstanding Revolving Loans and Swingline Loans plus the outstanding Letter of Credit Obligations (to the extent not Cash Collateralized pursuant to clause (ii) below or as provided for in Section 3.07) exceeds the lesser of the Aggregate Revolving Commitment and the Revolving Availability or (B) the aggregate unpaid principal amount of Swingline Loans exceeds the Swingline Amount, in each such case the Borrower shall immediately prepay the amount of such excess. (ii) If on any date the aggregate amount of all Letter of Credit Obligations shall exceed the lesser of the Letter of Credit Commitment and the Revolving Availability, the Borrower shall Cash Collateralize on such date its obligations in respect of Letters of Credit in an amount equal to such excess. -38- (b) On each date after the Effective Date upon which Holdings or any of its Subsidiaries receives any Net Issuance Proceeds from the incurrence by Holdings or any of its Subsidiaries of Indebtedness for borrowed money (other than Indebtedness for borrowed money permitted to be incurred under Section 8.04 as in effect on the Effective Date), the Borrower shall promptly prepay the Loans in an amount equal to 100% of the Net Issuance Proceeds thereof. Nothing in this paragraph (b) shall be deemed to permit the incurrence of any Indebtedness not otherwise permitted under this Agreement; provided, however, that no prepayment shall be required hereunder with respect to the first $500,000 of such Net Issuance Proceeds received after the Effective Date or with respect to any Net Issuance Proceeds received after the Effective Date in connection with the incurrence of Indebtedness for borrowed money secured by Letters of Credit. (c) On each date after the Effective Date upon which Holdings or any of its Subsidiaries receives any Net Issuance Proceeds from the issuance or sale by Holdings or any of its Subsidiaries of equity securities or other equity interests or rights, the Borrower shall promptly prepay the Loans in an amount equal to 50% of the Net Issuance Proceeds thereof; provided, however, that no prepayment shall be required hereunder with respect to the first $250,000 of Net Issuance Proceeds received after the Effective Date in connection with the issuance on sale of any such Securities or other equity interests or rights. (d) Within two Business Days after Holdings or any of its Subsidiaries receives any Net Cash Proceeds from any Asset Sale, the Borrower shall promptly prepay the Loans on such date by an amount equal to 100% of the Net Cash Proceeds from such Asset Sale; provided, however, that (i) with respect to no more than $1,000,000 in the aggregate of such Net Cash Proceeds in any fiscal year of Holdings, such Net Cash Proceeds shall not give rise to a prepayment pursuant to this paragraph (d) if no Default or Event of Default then exists and Holdings has delivered a certificate to the Administrative Agent on or prior to such date stating that such Net Cash Proceeds shall be used to purchase replacement assets used or to be used in the Borrower's or any of its Subsidiaries' business within 270 days following the date of receipt of such Net Cash Proceeds from such Asset Sale (which certificate shall set forth the estimates of the proceeds to be so expended), and if all of any portion of such Net Cash Proceeds are not so used within such 270 day period, the Borrower shall promptly prepay the Loans on the last day of such period by an amount equal to such remaining portion and (ii) no prepayment shall be required hereunder with respect to the first $500,000 of Net Cash Proceeds received after the Effective Date in connection with any Asset Sale. Nothing in this paragraph (d) shall be deemed to permit any Asset Sale not otherwise permitted under this Agreement. -39- (e) Within 10 days following each date after the Effective Date upon which Holdings or any of its Subsidiaries receives any cash proceeds from any Recovery Event, the Borrower shall promptly prepay the Loans on such date by an amount equal to 100% of the Net Insurance Proceeds from such Recovery Event; provided, however, that if no Default or Event of Default then exists and such proceeds from such Recovery Event do not exceed $4,000,000, such proceeds shall not give rise to a prepayment pursuant to this paragraph (e) on such date if Holdings has delivered a certificate to the Administrative Agent on or prior to such date stating that such proceeds shall be used to replace or restore any properties or assets in respect of which such proceeds were paid within 365 days following the date of receipt of such proceeds (which certificate shall set forth in the estimates of such proceeds to be so expended), and provided, further, that (i) if the amount of such proceeds exceeds $4,000,000, then the Borrower shall promptly prepay the Loans by the entire amount of such proceeds and not just the portion in excess of $4,000,000 as provided above in this paragraph (e), and (ii) if all or any portion of such proceeds are not contractually committed to be used within 180 days after the date of receipt of such proceeds or are not actually used within 365 days after the date of receipt of such proceeds to effect such restoration or replacement, the Borrower shall promptly prepay the Loans on the last day of such 180-day or 365-day period, as the case may be, by an amount equal to such remaining portion. (f) Any prepayments pursuant to this Section 2.07 shall be applied to the outstanding Loans, first, to the outstanding Term Loan installments in the inverse order of their maturities, second, to the outstanding principal balance of the Swingline Loan, and, then, to the outstanding principal balance of the Revolving Loans. If, at the time of the application of any amounts otherwise required to be prepaid pursuant to this Section 2.07, no Loans are outstanding, but Letter of Credit Obligations are outstanding, then the Borrower shall Cash Collateralize such Letter of Credit Obligations in amounts equal to the prepayments otherwise required hereby. (g) The Borrower shall pay, together with each prepayment made by the Borrower under this Section 2.07, accrued interest on the amount prepaid and any amounts required pursuant to Section 4.04; provided that interest shall be paid in connection with any such prepayment of Base Rate Loans (other than a prepayment in full) on the next occurring Interest Payment Date. (h) Any prepayments pursuant to this Section 2.07 made on a day other than an Interest Payment Date for any Loan shall be applied first to any Base Rate Loans then outstanding and then to Eurodollar Loans with the shortest Interest Periods remaining. -40- 2.08 Repayment of Principal. (a) The Revolving Loans. The Borrower shall repay to the Lenders in full on the Termination Date the aggregate principal amount of the Revolving Loans outstanding on the Termination Date. (b) The Swingline Loans. The Borrower shall repay to the Swingline Lender in full on the Termination Date the aggregate principal amount of the Swingline Loans outstanding on the Termination Date. (c) The Term Loan. The Borrower shall repay the Term Loan on each the following dates in the following corresponding amounts:
Date Amount ---- ------ September 30, 1998, December 31, 1998 March 31, 1999 and June 30, 1999 $1,000,000 September 30, 1999, December 31, 1999 March 31, 2000 and June 30, 2000 $1,375,000 September 30, 2000, December 31, 2000 March 31, 2001 and June 30, 2001 $1,750,000 September 30, 2001, December 31, 2001 March 31, 2002 and June 30, 2002 $2,125,000 September 30, 2002, December 31, 2002 and March 31, 2003 $2,500,000 Termination Date $2,500,000.
2.09 Interest. (a) Each Loan shall bear interest on the outstanding principal amount thereof from the Borrowing Date applicable thereto until it becomes due at a rate per annum equal to the Base Rate or LIBOR, as the case may be, plus the Applicable Margin then in effect as set forth below: -41- (i) for the period commencing on the Effective Date and ending on the day immediately preceding the First Adjustment Date: Applicable Margin ----------------- Base Rate 1.500% LIBOR 2.500% (ii) from and after the First Adjustment Date, for each period beginning on an Adjustment Date and ending on the day immediately preceding the next succeeding Adjustment Date, the rate per annum for the relevant type of Loan set forth below opposite the Consolidated Senior Leverage Ratio determined as at the end of the last fiscal quarter ended prior to the first day of such period: Applicable Margin ----------------- LIBOR Base Rate ----- --------- Consolidated Senior Leverage Ratio is less than 0.50 to 1.00 ("Level I") 1.500% 0.500% Consolidated Senior Leverage Ratio is less than 1.00 to 1.00 but greater than or equal to 0.50 to 1.00 ("Level II") 2.000% 1.000% Consolidated Senior Leverage Ratio is less than 1.75 to 1.00 but greater than or equal to 1.00 to 1.00 ("Level III") 2.250% 1.250% Consolidated Senior Leverage Ratio is greater than or equal to 1.75 to 1.00 ("Level IV") 2.500% 1.500%. (i) If by the last day for determining any Adjustment Date, Holdings has failed to deliver a Leverage Ratio Certificate as at the end of the fiscal quarter ended immediately prior to such Adjustment Date, interest for the next succeeding period commencing on such Adjustment Date and ending on the day immediately -42- preceding the next succeeding Adjustment Date shall be computed as if the Consolidated Senior Leverage Ratio were at Level IV; provided, however, to the extent that Holdings thereafter delivers a Leverage Ratio Certificate during such succeeding period, interest for the remainder of such succeeding period shall be computed at the rate prescribed by Section 2.09(a)(ii). Subject to Section 2.09(d), at any time that a Specified Default shall exist, the Applicable Margin shall be computed as if the Consolidated Senior Leverage Ratio were at Level IV. (b) Except as provided in the last sentence of Section 2.09(a)(iii) or in the proviso to the first sentence of Section 2.09(a)(iii), any change in the Applicable Margin due to a change in the Consolidated Senior Leverage Ratio shall be effective on the applicable Adjustment Date and shall apply to all Loans that are outstanding at any time during the period commencing on such Adjustment Date and ending on the date immediately preceding the next Adjustment Date. (c) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of any portion of Loans (excluding Base Rate Loans) for the portion of such Loans so prepaid and upon payment (including prepayment) of any Loans (excluding Base Rate Loans) in full thereof. In addition, interest which accrues under Section 2.09(d) also shall be paid on demand by the Administrative Agent or the Majority Lenders. (d) If any amount of principal of or interest on any Loan, or any other regularly scheduled amount payable hereunder or under any other Loan Document is not paid in full when due, after giving effect to any applicable grace period (whether at stated maturity, by acceleration, demand or otherwise), then, notwithstanding the provisions of Section 2.09(a), the Borrower shall pay interest (after as well as before judgment) on the overdue principal amount of all outstanding Loans and on all other overdue amounts (including interest to the extent permitted by law), at a rate per annum equal to the Base Rate plus the Applicable Margin plus 2%. (e) Anything herein to the contrary notwithstanding, the obligations of the Borrower hereunder shall be subject to the limitation that payments of interest shall not be required, for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by the respective Lender would be contrary to the provisions of any law applicable to such Lender limiting the highest rate of interest which may be lawfully contracted for, charged or received by such Lender, and in such event the Borrower shall only pay such Lender interest at the highest rate permitted by applicable law. -43- 2.10 Fees. In addition to fees described in Section 3.08: (a) Commitment Fees. The Borrower shall pay to the Administrative Agent for the account of each Lender a commitment fee on the average daily unused portion of such Lender's Revolving Commitment (subject to Section 2.01(b)(iii) in the case of the Swingline Lender), computed on a quarterly basis in arrears, on each Interest Payment Date for Base Rate Loans based upon the daily utilization for the previous three month period as calculated by the Administrative Agent, equal to (A) for the period from the Effective Date and ending on the day immediately preceding the First Adjustment Date, 0.50% per annum and (B) from and after the First Adjustment Date, for each period commencing on an Adjustment Date and ending on the day immediately preceding the next succeeding Adjustment Date, the rate per annum set forth below opposite the relevant Level of Consolidated Senior Leverage Ratio determined as at the end of the last fiscal quarter ended prior to the first day of such period: Consolidated Senior Leverage Ratio Rate --------------- ---- Level I 0.300% Level II 0.400% Level III 0.500% Level IV 0.500% provided, however, that if by the last day for determining any Adjustment Date, Holdings has failed to deliver a Leverage Ratio Certificate as at the end of the fiscal quarter ended immediately prior to such Adjustment Date, the commitment fee for the next succeeding period beginning on such Adjustment Date and ending on the next succeeding Adjustment Date shall be computed as if the Consolidated Senior Leverage Ratio were at Level IV; provided further, however, to the extent that Holdings thereafter delivers a Leverage Ratio Certificate during such succeeding period the commitment fee for the remainder of such succeeding period shall be computed at the rate prescribed in the table above in this Section 2.10(a)(i). In addition, at any time that a Specified Default shall exist, the commitment fee shall be computed as if the Consolidated Senior Leverage Ratio were at Level IV. Such commitment fees shall be paid in arrears on each Interest Payment Date for Base Rate Loans. -44- (b) Other Fees. The Borrower shall pay such other fees as have or may be agreed between or among, CHS, Holdings, the Borrower, the Administrative Agent and the Arranger from time to time, including, without limitation, pursuant to the Fee Letter. 2.11 Computation of Fees and Interest. (a) All computations of interest payable in respect of Base Rate Loans shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest under this Agreement shall be made on the basis of a 360-day year (of 12 months with 30 days each) and actual days elapsed. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) The Administrative Agent will promptly notify the Borrower, and the Lenders of each determination of LIBOR; provided, however, that any failure to do so shall not relieve the Borrower of any liability hereunder. Except as otherwise provided in the last sentence of Section 2.09(a)(iii) or in the proviso to the first sentence of Section 2.09(a)(iii), any change in the interest rate on a Loan resulting from a change in the Applicable Margin shall become effective as of the opening of business on the relevant Adjustment Date. The Administrative Agent will promptly notify the Borrower and the Lenders of the effective date and the amount of each such change, provided, however, that any failure to do so shall not relieve the Borrower of any liability hereunder. (c) Each determination of an interest rate by the Administrative Agent shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. 2.12 Payments by the Borrower. (a) All payments (including prepayments) to be made by the Borrower on account of principal, interest, drawings under Letters of Credit, fees and other amounts required hereunder shall be made, except as otherwise expressly provided herein, without set-off or counterclaim and shall, except as otherwise expressly provided with respect to drawings under Letters of Credit and elsewhere herein, be made to the Administrative Agent for the ratable account of the Lenders at the Administrative Agent's Payment Office, and shall be made in Dollars and in immediately available funds, no later than 1:00 p.m. (Chicago time) on the date specified herein. The Administrative Agent will promptly distribute to each Lender its share, if any, of such principal, interest, fees or other amounts, in like funds as received. Any payment which is received by the Administrative Agent later than 1:00 p.m. (Chicago time) shall be deemed to have been received on the immediately succeeding Business Day and any applicable interest or fee shall continue to accrue until such payment is deemed to have been received. -45- (b) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be, subject to the provisions set forth in the definition of the term of "Interest Period" herein. (c) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make the payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent as required hereunder on such date in immediately available funds and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent on demand such amount distributed to such Lender, together with interest thereon for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate as in effect for each such day. 2.13 Payments by the Lenders to the Administrative Agent. (a) Unless the Administrative Agent shall have received notice from a Lender on the Effective Date or, with respect to each Borrowing after the Effective Date, at least one Business Day prior to the date of any proposed Borrowing (other than a Borrowing of a Swingline Loan which in accordance with Section 2.03(f) is funded directly by the Swingline Lender), that such Lender will not make available to the Administrative Agent for the account of the Borrower the amount of such Lender's Commitment Percentage of the Loans included in such Borrowing, the Administrative Agent may assume that each Lender has made such amount available to the Administrative Agent as required hereunder on the Borrowing Date and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to the Administrative Agent in immediately available funds and the Administrative Agent in such circumstances has made available to the Borrower such amount, such Lender shall immediately make such amount available to the Administrative Agent, together with interest at the Federal Funds Rate from the date of such Borrowing to the date on which the Administrative Agent recovers such amount from such Lender or the Borrower. A notice of the Administrative Agent submitted to any Lender with respect to amounts owing under this Section 2.13(a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Administrative Agent shall constitute such Lender's Loan on the Borrowing Date for all purposes of this Agreement. If such amount is not made available to the Administrative Agent on the next Business Day following such Borrowing Date, the Administrative Agent may notify the Borrower -46- of such failure to fund and, upon demand by the Administrative Agent, the Borrower shall pay such amount to the Administrative Agent for the Administrative Agent's account, together with interest thereon for each day elapsed since such Borrowing Date, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. (b) The failure of any Lender to make any Loan on any Borrowing Date shall not relieve any other Lender of any obligation hereunder to make a Loan on such Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on any Borrowing Date. 2.14 Sharing of Payments, etc. (a) If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Obligations owing to it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Commitment Percentage of payments on account of the Obligations of the same kind obtained by all the Lenders, such Lender shall forthwith (i) notify the Administrative Agent of such fact, and (ii) purchase from the other Lenders such participations in such Obligations made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender's Commitment Percentage (according to the proportion of (A) the amount of such paying Lender's required repayment to (B) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased pursuant to this Section 2.14 and will in each case notify the Lenders following any such purchases. (b) The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 12.09) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. 2.15 Security and Guaranties. (a) All Obligations of the Borrower, Holdings and the Subsidiary Guarantors under this Agreement and all other Loan Documents to which they are a party shall be secured in accordance with the Collateral Documents. -47- (b) All Obligations of the Borrower under this Agreement and all other Loan Documents to which it is a party shall be unconditionally guaranteed by Holdings pursuant to Article X and by the Subsidiary Guarantors pursuant to the Subsidiary Guaranty. ARTICLE III. THE LETTERS OF CREDIT 3.01 The Letter of Credit Subfacility. (a) On the terms and conditions set forth herein, (i) each Issuing Lender agrees, (A) from time to time, on any Business Day during the period from the Effective Date to the date which is 30 days prior to the Termination Date to issue (x) irrevocable sight standby Letters of Credit (each such standby Letter of Credit, a "Standby Letter of Credit") for the account of the Borrower and (y) irrevocable sight commercial Letters of Credit (each such commercial Letter of Credit, a "Trade Letter of Credit" and each such Trade Letter of Credit and each Standby Letter of Credit, a "Letter of Credit") for the account of the Borrower, and to amend or renew Letters of Credit previously issued by it, in accordance with Sections 3.02(c) and 3.02(d), and (B) to honor drafts, and honor other payment demands that strictly comply with, the Letters of Credit; and (ii) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower; provided, however, that no Issuing Lender shall issue any Letter of Credit if as of the date of, and after giving effect to, the issuance of such Letter of Credit, (x) the aggregate amount of all Letter of Credit Obligations (exclusive of unpaid drawings under any Letter of Credit which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) plus the aggregate principal amount of all Revolving Loans and all Swingline Loans shall exceed the lesser of the Aggregate Revolving Commitment and the Revolving Availability, or (y) the Letter of Credit Obligations (exclusive of unpaid drawings under any Letter of Credit which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) shall exceed the lesser of the Letter of Credit Commitment and the Revolving Availability. All Letters of Credit shall be denominated in Dollars. (b) No Issuing Lender shall issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority shall by its terms purport to enjoin or restrain such Issuing Lender from issuing such Letter of Credit, or any Requirement of Law applicable to such Issuing Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuing Lender shall prohibit, or request that such Issuing Lender refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing -48- Lender with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Lender is not otherwise compensated hereunder) not in effect on the Effective Date or shall impose upon such Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the Effective Date and which such Issuing Lender in good faith deems material to it; (ii) such Issuing Lender has received written notice from the Majority Lenders, the Administrative Agent or the Borrower on or prior to the Business Day prior to the requested date of issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article V is not then satisfied; (iii) the expiry date of any requested Letter of Credit (x) is more than (A) in the case of Standby Letters of Credit, one year after the date of issuance or (B) in the case of Trade Letters of Credit, 180 days after the date of issuance, unless (in each case) the Majority Lenders and such Issuing Lender have approved such expiry date in writing or (y) is later than the 30th day prior to the Termination Date; (iv) any requested Letter of Credit is not in form and substance acceptable to such Issuing Lender, or the issuance, of a Letter of Credit shall violate any applicable policies of such Issuing Lender; or (v) such Letter of Credit is in a face amount less than $100,000. 3.02 Issuance, Amendment and Renewal of Letters of Credit. (a) Each Letter of Credit shall be issued upon the irrevocable written request of the Borrower received by an Issuing Lender (with a copy sent by the Borrower to the Administrative Agent) at least five days (or such shorter time as such Issuing Lender may agree in a particular instance in its sole discretion) prior to the proposed date of issuance. Each such request for issuance of a Letter of Credit shall be by facsimile, confirmed immediately in an original writing, in the form of a Letter of Credit Application, and shall specify in form and detail satisfactory to such Issuing Lender: (i) the proposed date of issuance of the Letter of Credit (which shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such other matters as the Issuing Lender may reasonably require. (b) From time to time while a Letter of Credit is outstanding and prior to the Termination Date, the Issuing Lender with respect thereto will, upon the written request of the Borrower received by such Issuing Lender (with a copy sent by the Borrower to the -49- Administrative Agent) at least five days (or such shorter time as such Issuing Lender may agree in a particular instance in its sole discretion) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, made in the form of a Letter of Credit Amendment Application and shall specify in form and detail satisfactory to the Issuing Lender with respect thereto: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as such Issuing Lender may reasonably require. No Issuing Lender shall be under any obligation to amend any Letter of Credit if: (A) such Issuing Lender would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit. (c) The Administrative Agent will promptly notify the Lenders of the receipt by it of any Letter of Credit Application or Letter of Credit Amendment Application. (d) Each Issuing Lender and the Lenders agree that, while a Letter of Credit issued by such Issuing Lender is outstanding and prior to the Termination Date, at the option of the Borrower and upon the written request of the Borrower received by such Issuing Lender (with a copy sent by the Borrower to the Agent) at least five days (or such shorter time as such Issuing Lender may agree in a particular instance in its sole discretion) prior to the proposed date of notification of renewal, such Issuing Lender shall be entitled to authorize the automatic renewal of such Letter of Credit. Each such request for renewal of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, in the form of a Letter of Credit Amendment Application, and shall specify in form and detail satisfactory to the applicable Issuing Lender: (i) the Letter of Credit to be renewed; (ii) the proposed date of notification of renewal of the Letter of Credit (which shall be a Business Day); (iii) the revised expiry date of the Letter of Credit; and (iv) such other matters as such Issuing Lender may reasonably require. No Issuing Lender shall be under any obligation to renew any Letter of Credit if such Issuing Lender would have no obligation at such time to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement. If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the applicable Issuing Lender that such Letter of Credit shall not be renewed, and if at the time of renewal such Issuing Lender would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this Section 3.02(d) upon the request of the Borrower but such Issuing Lender shall not have received any Letter of Credit Amendment Application from the Borrower with respect to such renewal or other written direction by the Borrower with respect thereto, such Issuing Lender shall nonetheless be permitted to allow such Letter of Credit to be renewed, and the Borrower and the Lenders hereby authorize such renewal, and, accordingly, such Issuing Lender shall be deemed to have received a Letter of Credit Amendment Application from the Borrower requesting -50- such renewal. Notwithstanding anything in this Section 3.02(d) to the contrary, no Issuing Lender shall issue a Letter of Credit that, by its terms, automatically renews unless such Letter of Credit expressly provides that, regardless of such automatic renewal provisions, in no event shall such Letter of Credit's term be extended beyond a date which is later than the 30th day prior to the Termination Date. (e) This Agreement shall control in the event of any conflict with any Letter of Credit Related Document (other than any Letter of Credit). (f) Each Issuing Lender will also deliver to the Administrative Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment to or renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to or renewal of a Letter of Credit. 3.03 Participations, Drawings and Reimbursements. (a) Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the applicable Issuing Lender a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Commitment Percentage of such Lender times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of Section 2.10(a), each issuance of a Letter of Credit shall be deemed to utilize the Revolving Commitment of each Lender by an amount equal to the amount of such participation. (b) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the applicable Issuing Lender will promptly notify the Borrower. The Borrower shall reimburse such Issuing Lender prior to 1:00 p.m. (Chicago time), on the Business Day immediately following each date that any amount is paid by such Issuing Lender under any Letter of Credit (each such date on which any amount is so paid by an Issuing Lender, a "Disbursement Date"), in an amount equal to the amount so paid by such Issuing Lender. In the event the Borrower shall fail to reimburse an Issuing Lender for the full amount of any drawing under any Letter of Credit issued by it by 1:00 p.m. (Chicago time) on the Business Day immediately following the respective Disbursement Date, such Issuing Lender will promptly notify the Administrative Agent and the Administrative Agent will promptly notify each Lender thereof, and the Borrower shall be deemed to have requested that Revolving Loans consisting of Base Rate Loans be made by the Lenders (and hereby irrevocably consents to such deemed request) pursuant to Section 2.01(b) to be disbursed on the Business Day immediately following the respective Disbursement Date under such Letter of Credit. Any notice given by an Issuing Lender or the Administrative Agent pursuant to this Section 3.03(b) may be oral if immediately confirmed in writing (including by facsimile); provided, however, that the lack -51- of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (c) Regardless of any failure of the satisfaction of any condition set forth in Section 5.02 or any other reason, each Lender shall upon receipt of any notice pursuant to Section 3.03(b) make available to the Administrative Agent for the account of the applicable Issuing Lender an amount in Dollars and in immediately available funds equal to its Commitment Percentage of the amount of the drawing, whereupon the participating Lenders shall each be deemed to have made a Revolving Loan consisting of a Base Rate Loan to the Borrower in that amount. If any Lender so notified shall fail to make available to the Administrative Agent for the account of the applicable Issuing Lender the amount of such Lender's Commitment Percentage of the amount of the drawing by no later than 1:00 p.m. (Chicago time) on the Business Day immediately following the respective Disbursement Date, then interest shall accrue on such Lender's obligation to make such payment, from the Business Day immediately following the respective Disbursement Date to the date such Lender makes such payment, at a rate per annum equal to (i) the Federal Funds Rate in effect from time to time during the period commencing on the later of the Business Day immediately following the respective Disbursement Date and the date such Lender receives notice of the Disbursement Date prior to 1:00 p.m. (Chicago time) on such date and ending on the date three Business Days thereafter, and (ii) thereafter at the Base Rate as in effect from time to time plus the Applicable Margin. The Administrative Agent will promptly give notice of the occurrence of the Disbursement Date, but failure of the Administrative Agent to give any such notice on the Disbursement Date or in sufficient time to enable any Lender to effect such payment on such date shall not relieve such Lender from its obligations under this Section 3.03. (d) With respect to any unreimbursed drawing which is not converted into Revolving Loans consisting of Base Rate Loans to the Borrower in whole or in part, for any reason, the Borrower shall be deemed to have incurred from the applicable Issuing Lender a Letter of Credit Borrowing in the amount of such drawing, which Letter of Credit Borrowing shall be due and payable on demand by the Majority Lenders (together with interest) and shall bear interest from the respective Disbursement Date at a rate per annum equal to the Base Rate, plus the Applicable Margin for Base Rate Loans, plus in the case of any Letter of Credit Borrowing outstanding after the Business Day immediately following the respective Disbursement Date, 2% per annum, and each Lender's payment to such Issuing Lender pursuant to Section 3.03(c) shall be deemed payment in respect of its participation in such Letter of Credit Borrowing. (e) Each Lender's obligation in accordance with this Agreement to make the Revolving Loans or fund its participation in any Letter of Credit Borrowing, as contemplated by this Section 3.03, as a result of a drawing under a Letter of Credit shall be absolute and unconditional and without recourse to the applicable Issuing Lender and shall not be affected by any circumstance, including (i) any set-off, counterclaim, defense or -52- other right which such Lender may have against such Issuing Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default, an Event of Default, a Material Adverse Effect, or any failure of the satisfaction of any condition set forth in Section 5.02; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 3.04 Repayment of Participations. (a) Upon (and only upon) receipt by the Administrative Agent for the account of an Issuing Lender of funds from the Borrower (i) in reimbursement of any payment made by such Issuing Lender under the Letter of Credit with respect to which any Lender has paid the Administrative Agent for the account of such Issuing Lender for such Lender's participation in a Letter of Credit pursuant to Section 3.03, or (ii) in payment of interest on amounts described in clause (i), the Administrative Agent will pay to each Lender, in the same funds as those received by the Administrative Agent for the account of such Issuing Lender, the amount of such Lender's Commitment Percentage of such funds, and such Issuing Lender shall receive the amount of the Commitment Percentage of such funds of any Lender that did not so pay the Administrative Agent for the account of such Issuing Lender. (b) If the Administrative Agent or an Issuing Lender is required at any time to return to the Borrower, or to a trustee, receiver, liquidator, custodian, or any similar official in any Insolvency Proceeding, any portion of the payments made by the Borrower to the Administrative Agent for the account of such Issuing Lender pursuant to Section 3.04(a) in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Lender shall, on demand of the Administrative Agent, forthwith return to the Administrative Agent or such Issuing Lender the amount of its Commitment Percentage of any amounts so returned by the Administrative Agent or such Issuing Lender plus interest thereon from the date such demand is made to the date such amounts are returned by such Lender to the Administrative Agent or such Issuing Lender, at a rate per annum equal to the Federal Funds Rate in effect from time to time. 3.05 Role of the Issuing Lenders. (a) Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the applicable Issuing Lender shall not have any responsibility to obtain any document (other than any sight draft and certificates expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) Neither the Issuing Lenders nor any of their respective correspondents, participants or assignees of any such Issuing Lender shall be liable to any Lender for: (i) any action taken or omitted in connection herewith at the request or with the approval of -53- the Majority Lenders; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any Letter of Credit Related Document. (c) The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit. Neither the Issuing Lenders nor any of the respective correspondents, participants or assignees of any such Issuing Lender, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 3.06; provided, however, that the Borrower may have a claim against an Issuing Lender, and an Issuing Lender may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by such Issuing Lender's willful misconduct or gross negligence or such Issuing Lender's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) or other documents strictly complying with the terms and conditions of such Letter of Credit. In furtherance and not in limitation of the foregoing: (i) each Issuing Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) each Issuing Lender shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 3.06 Obligations Absolute. The obligations of the Borrower under this Agreement and any Letter of Credit Related Document to reimburse an Issuing Lender for a drawing under a Letter of Credit, and to repay any Letter of Credit Borrowing and any drawing under a Letter of Credit converted into Revolving Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other Letter of Credit Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any Letter of Credit Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Borrower in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the Letter of Credit Related Documents; (iii) the existence of any claim, set-off, defense or other right that the Borrower or any Subsidiary of the Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), an Issuing Lender or any other Person, whether in connection -54- with this Agreement, the transactions contemplated hereby or by the Letter of Credit Related Documents or any unrelated transaction; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by an Issuing Lender under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by an Issuing Lender under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the obligations of the Borrower in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor. 3.07 Cash Collateral Pledge. Upon (a) the request of the Administrative Agent, (i) if an Issuing Lender has honored any full or partial drawing request on any Letter of Credit and such drawing has resulted in a Letter of Credit Borrowing hereunder, or (ii) if, as of the Termination Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, or (b) the occurrence of the circumstances described in Section 2.07 requiring the Borrower to Cash Collateralize Letters of Credit, then the Borrower shall immediately Cash Collateralize the Letter of Credit Obligations in an amount equal to such Letter of Credit Obligations (or in the case of clause (b) above, the amount required pursuant to Section 2.07) and such cash will be held as security for all Obligations of the Borrower to the Lenders hereunder in a cash collateral account to be established by the Administrative Agent, and during the existence of an Event of Default, the Administrative Agent may, upon the request of the Majority Lenders, apply such amounts so held to the payment of such outstanding Obligations. 3.08 Letter of Credit Fees. (a) The Borrower shall pay to the Administrative Agent for the account of each Lender a letter of credit fee with respect to the Letters of Credit computed on the average daily maximum amount available to be drawn of the outstanding Letters of Credit, on each -55- Interest Payment Date for Base Rate Loans based upon Letters of Credit outstanding for the previous three-month period. The letter of credit fee shall be equal to (i) for the period from the Effective Date and ending on the day immediately preceding the First Adjustment Date, 2.500% per annum and (ii) from and after the First Adjustment Date, for each period commencing on an Adjustment Date and ending on the day immediately preceding the next succeeding Adjustment Date, the rate per annum set forth below opposite the relevant Level of Consolidated Senior Leverage Ratio determined as at the end of the last fiscal quarter ended prior to the first day of such period: Consolidated Senior Leverage Ratio Rate -------------- ---- Level I 1.500% Level II 2.000% Level III 2.250% Level IV 2.500% provided, however, that if by the day for determining any Adjustment Date Holdings has failed to deliver a Leverage Ratio Certificate as at the end of the fiscal quarter ended immediately prior to such Adjustment Date, the letter of credit fee for the next succeeding period beginning on such Adjustment Date and ending on the day immediately preceding the next succeeding Adjustment Date shall be computed as if the Consolidated Senior Leverage Ratio were at Level IV; provided further, however, to the extent that Holdings thereafter delivers a Leverage Ratio Certificate during such succeeding period, the letter of credit fee for the remainder of such succeeding period shall be computed at the rate prescribed in the table above in this Section 3.08(a). In addition, at any time that a Specified Default shall exist, the letter of credit fee shall be computed as if the Consolidated Senior Leverage Ratio were at Level IV. Such letter of credit fee shall be due and payable in arrears on each Interest Payment Date for Base Rate Loans. (b) The Borrower shall pay to each Issuing Lender a letter of credit fronting fee for each Letter of Credit issued by such Issuing Lender in an amount, and at such times, as is required by such Issuing Lender (but in no event in an amount in excess of .25% per annum of the face amount of such Letter of Credit). (c) The Borrower shall pay to each Issuing Lender from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such Issuing Lender relating to letters of credit as from time to time in effect. -56- 3.09 Uniform Customs and Practice. The Uniform Customs and Practice for Documentary Credits as most recently published by the International Chamber of Commerce shall in all respects be deemed a part of this Article III as if incorporated herein and (unless otherwise expressly provided in the Letters of Credit) shall apply to the Letters of Credit. 3.10 Transitional Provisions. Pursuant to the Existing CII Credit Agreement Bank of America, as "Issuing Lender" thereunder, issued and may hereafter continue to issue prior to the Effective Date, certain "Letters of Credit" (as defined therein) for the account of the Borrower (to the extent outstanding on the Effective Date and set forth on Schedule 3.10 hereto, the "Existing L/C's"). As of the Effective Date, the Existing L/C's shall remain outstanding, constitute Letters of Credit under this Agreement, and upon satisfaction of the conditions set forth in Article V hereof, shall be deemed to have been issued on the Effective Date for all purposes under this Agreement, including, without limitation, for the purpose of the accrual and payment of letter of credit fees payable pursuant to Section 3.08 for the remaining term of such Existing L/C's (but shall not, however, result in the payment by the Borrower of additional customary processing fees for the issuance or any amendment or renewal of such Existing L/C's with respect to issuances, amendments and renewals occurring prior to the Effective Date). All "Letter of Credit Obligations" (as defined in the Existing CII Credit Agreement) which remain outstanding on the Effective Date with respect to the Existing L/C's shall constitute Letter of Credit Obligations for all purposes under this Agreement. ARTICLE IV. TAXES, YIELD PROTECTION AND ILLEGALITY 4.01 Taxes. (a) Subject to Section 4.01(g), any and all payments made by Holdings and the Borrower to any Lender or the Administrative Agent under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent (except as otherwise provided in Section 4.01(c)), as the case may be, such taxes as are imposed on or measured by such Person's net income or net profits by the jurisdiction under the laws of which such Person is organized or has its principal office or in which the Lending Office of such Person is located or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). (b) In addition, the Borrower and Holdings shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or -57- registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) Subject to Section 4.01(g), the Borrower and Holdings shall indemnify and hold harmless each Lender and the Administrative Agent for (i) the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under Section 4.01(d) and this Section 4.01(c)) and (ii) the full amount of all taxes imposed on or measured by the net income or net profits of such Lender or the Administrative Agent pursuant to the laws of the jurisdiction in which such Lender or the Administrative Agent is organized or has its principal office or in which the Lending Office of such Person is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which such Lender or the Administrative Agent is organized or has its principal office or in which their Lending Office is located paid by such Lender or the Administrative Agent as a result of amounts payable by the Borrower under Section 4.01(d) and this Section 4.01(c), and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such taxes or other liabilities were correctly or legally asserted. (d) If the Borrower or Holdings shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, then, subject to Section 4.01(g): (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.01(d)) such Lender or the Administrative Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Borrower or Holdings shall make such deductions; and (iii) the Borrower or Holdings shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (e) Within 30 days after the date of any payment by the Borrower or Holdings of Taxes or Other Taxes, such Person shall furnish to the Administrative Agent, at its address referred to in Section 12.02, the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Administrative Agent. (f) Each Lender which is organized under the laws of a jurisdiction outside the United States agrees that: -58- (i) it shall, no later than the Effective Date (or, in the case of a Lender which becomes a party hereto pursuant to Section 12.07 after the Effective Date, the date upon which such Lender becomes a party hereto) deliver to the Borrower and the Administrative Agent two accurate and complete signed originals of Internal Revenue Service Form 4224 or any successor thereto ("Form 4224"), or two accurate and complete signed originals of Internal Revenue Service Form 1001 or any successor thereto ("Form 1001"), as appropriate, in each case indicating that such Lender is on the date of delivery thereof entitled to receive all payments under this Agreement free from withholding of United States Federal income tax; (ii) if at any time such Lender makes any change in its place of incorporation or fiscal residence necessitating a new Form 4224 or Form 1001, such Lender shall promptly deliver to the Borrower through the Administrative Agent in replacement for, or in addition to, the forms previously delivered by such Lender hereunder, two accurate and complete signed originals of Form 4224 or Form 1001, as appropriate, in each case indicating that such Lender is on the date of delivery thereof entitled to receive all payments under this Agreement free from withholding of United States Federal income tax; (iii) it shall, to the extent it is legally entitled to do so, before or promptly after such Lender makes any change of a Lending Office or its principal office, or the occurrence of any event (including the passing of time but excluding any event mentioned in clause (ii) above) requiring a change in or renewal of the most recent Form 4224 or Form 1001 previously delivered by such Lender, deliver to the Borrower through the Administrative Agent two accurate and complete original signed copies of Form 4224 or Form 1001 in replacement for the forms previously delivered by such Lender indicating that such Lender continues to be entitled to receive all payments under this Agreement free from any withholding of any United States Federal income tax; (iv) it shall, to the extent it is legally entitled to do so, promptly upon the Borrower's or the Administrative Agent's reasonable request to that effect, deliver to the Borrower or the Administrative Agent (as the case may be) such other forms or similar documentation as may be required from time to time by any applicable law, treaty, rule or regulation in order to establish such Lender's complete exemption from withholding on all payments under this Agreement; and (v) without limiting or restricting any Lender's right to increased amounts under Section 4.01(d) from the Borrower and Holdings upon satisfaction of such Lender's obligations under the provisions of this Section 4.01(f), if such Lender is entitled to a reduction in the applicable withholding tax, the Administrative Agent may (but shall not be obligated to) withhold from any interest to such Lender an -59- amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other administrative documentation required by clause (i) are not delivered to the Administrative Agent, then the Administrative Agent shall withhold from any interest payment to Lender not providing such forms or other documentation, an amount equivalent to the applicable withholding tax and in addition, the Administrative Agent shall also withhold against periodic payments other than interest payments to the extent United States withholding tax is not eliminated by obtaining Form 4224 or Form 1001. The Borrower shall indemnify and hold harmless the Administrative Agent and each of its officers, directors, employees, counsel, agents and attorney-in-fact, on an after tax basis, from and against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including attorney's fees) of any kind whatsoever incurred as a result of or in connection with the Administrative Agent's failure to withhold as provided pursuant to the preceding sentence, unless such failure constitutes gross negligence or willful misconduct of the Administrative Agent itself as the same is determined by a final judgment of a court of competent jurisdiction and the obligations in this sentence shall survive payment of all other Obligations. (g) Neither the Borrower nor Holdings will be required to pay any additional amounts in respect of Taxes imposed by the United States Federal government pursuant to Sections 4.01(a) or 4.01(d) to any Lender if and to the extent the obligation to pay such additional amounts would not have arisen but for a failure by such Lender to comply with its obligations under Section 4.01(f) in respect of its Lending Office. (h) Each Lender agrees that it shall, at any time upon reasonable advance request in writing by the Borrower or the Administrative Agent, promptly deliver such certification or other documentation as may be required under the law or regulation in any applicable jurisdiction and which such Lender is entitled to submit to avoid or reduce withholding taxes on amounts to be paid by the Borrower or Holdings and received by such Lender pursuant to this Agreement or any other Loan Document. (i) Subject to Section 4.01(g), the Borrower and Holdings shall indemnify each Lender and the Administrative Agent, to the extent required by this Section 4.01 within 30 days after receipt of written request from such Lender or the Administrative Agent thereof accompanied by a written statement describing in reasonable detail the Taxes or Other Taxes or other additional amounts that are the subject of the basis for such indemnity and the computation of the amount payable. (j) If the Borrower or Holdings is required to pay additional amounts to any Lender or the Administrative Agent pursuant to Section 4.01(d), then such Lender shall, upon the Borrower's request, use its reasonable best efforts (consistent with policy considerations of such Lender) to change the jurisdiction of its Lending Office so as to -60- reduce or eliminate any such additional payment which may thereafter accrue if such change in the sole judgment of such Lender is not otherwise disadvantageous to such Lender. (k) Each Lender agrees that it will (i) take all reasonable actions reasonably requested by Holdings or the Borrower (consistent with policy considerations by such Lender) to maintain all exemptions, if any, available to it from withholding taxes (whether available by treaty or existing administrative waiver), and (ii) to the extent reasonable, otherwise cooperate with Holdings or the Borrower to minimize any amounts payable by Holdings or the Borrower under this Section 4.01, in any case described in the preceding clauses (i) and (ii), however, only if such action or cooperation is not disadvantageous to such Lender in the sole judgment of such Lender. 4.02 Illegality. (a) If any Lender shall determine that (i) the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration thereof, has made it unlawful, or (ii) any central bank or other Governmental Authority has asserted that it is unlawful for any Lender or its Lending Office to make a Eurodollar Loan or to convert any Base Rate Loan to a Eurodollar Loan, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, the obligation of such Lender to make or convert any such Loans shall be suspended until such Lender shall have notified the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. (b) If a Lender shall determine that it is unlawful to maintain any Eurodollar Loan, the Borrower shall, unless otherwise permitted under paragraph (c) below, prepay in full all Eurodollar Loans of such Lender then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof if such Lender may lawfully continue to maintain such Eurodollar Loans to such day, or immediately, if the Lender may not lawfully continue to maintain such Eurodollar Loans, together with any amounts required to be paid in connection therewith pursuant to Section 4.04. (c) If the Borrower is required to prepay any Eurodollar Loan immediately, then concurrently with such prepayment, the Borrower shall borrow from the affected Lender, in the aggregate amount of such repayment, Base Rate Loans. (d) Before giving any notice to the Administrative Agent pursuant to this Section 4.02, the affected Lender shall designate a different Lending Office with respect to its Eurodollar Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of such Lender, be illegal, inconsistent with the policies of such Lender or otherwise disadvantageous to such Lender. -61- 4.03 Increased Costs and Reduction of Return. (a) If any Lender or Issuing Lender shall determine that, due to either (i) the introduction of or any change in or in the interpretation or administration of any law or regulation (other than any law or regulation relating to taxes, including those relating to Taxes or Other Taxes) after the Effective Date or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) made after the Effective Date, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Eurodollar Loans or participating in any Letter of Credit Obligations, or any increase in the cost to such Issuing Lender of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the Borrower shall be liable for, and shall from time to time, within ten days of demand therefor by such Lender or Issuing Lender, as the case may be (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender or Issuing Lender, additional amounts as are sufficient to compensate such Lender or Issuing Lender for such increased costs. (b) If any Lender or Issuing Lender shall have determined that (i) the introduction of any Capital Adequacy Regulation after the Effective Date, (ii) any change in any Capital Adequacy Regulation after the Effective Date, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof after the Effective Date, or (iv) compliance by any Lender (or its Lending Office) or Issuing Lender, as the case may be, or any corporation controlling such Lender or Issuing Lender, as the case may be, with any Capital Adequacy Regulation adopted after the Effective Date, affects or would affect the amount of capital required or expected to be maintained by such Lender or Issuing Lender or any corporation controlling such Lender or Issuing Lender and (taking into consideration such Lender's, Issuing Lender's or such corporation's policies with respect to capital adequacy and such Lender's, the Issuing Lender's or corporation's desired return on capital) determines that the amount of such capital is (or is required to be) increased as a consequence of its Commitment, Loans, participations in Letters of Credit, or obligations under this Agreement, then, within ten days of demand by Issuing Lender (with a copy to the Administrative Agent), the Borrower shall be liable for and shall immediately pay to such Lender or Issuing Lender, from time to time as specified by such Lender or Issuing Lender, additional amounts sufficient to compensate such Lender or Issuing Lender for such increase. 4.04 Funding Losses. The Borrower agrees to reimburse each Lender and to hold each Lender harmless from any loss, cost or expense (other than loss of margin) which such Lender may sustain or incur as a consequence of: -62- (a) any failure by the Borrower to make any payment of principal of any Eurodollar Loan (including payments made after any acceleration thereof) when due; (b) any failure by the Borrower to borrow a Eurodollar Loan or continue a Eurodollar Loan or convert a Base Rate Loan to a Eurodollar Loan after the Borrower has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation as the case may be; (c) any failure by the Borrower to make any prepayment of a Eurodollar Loan after the Borrower has given a notice in accordance with Section 2.06; or (d) any payment or prepayment (including pursuant to Section 2.07 or after acceleration thereof) of a Eurodollar Loan for any reason whatsoever on a day which is not the last day of the Interest Period with respect thereto; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain any Eurodollar Loan hereunder or from fees payable to terminate the deposits from which such funds were obtained. 4.05 Inability to Determine Rates. Notwithstanding any provisions herein to the contrary, if, in relation to any proposed Eurodollar Loan, (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon all parties hereto) that by reason of circumstances affecting the interbank markets adequate and fair means do not exist for ascertaining LIBOR to be applicable to such Eurodollar Loan or (b) the Administrative Agent shall have received notice from the Majority Lenders that LIBOR determined or to be determined for any Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such affected Interest Period, then, the obligation of the Lenders to make, continue or maintain Eurodollar Loans or to convert Base Rate Loans into Eurodollar Loans shall be suspended until the Administrative Agent upon the instruction of the Majority Lenders revokes such notice in writing. If, notwithstanding the provisions of this Section 4.05, any Lender has made available to the Borrower its Commitment Percentage of any such proposed Eurodollar Loan, then such Eurodollar Loan shall immediately be converted into a Base Rate Loan. 4.06 Increased Costs on Eurodollar Loans. At any time that any Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of net income taxes or similar charges) because of (x) any change since the date of this Agreement in any Requirement of Law or governmental guideline, order or request (whether or not having the force of law), or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline, order or request (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under -63- Regulation D to the extent included in the computation of LIBOR) and/or (y) other circumstances affecting such Lender, the interbank Eurodollar market or the position of such Lender in such market, then the Borrower shall pay to each such Lender, upon written demand therefor (accompanied by the written notice referred to in Section 4.07 below), such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts received or receivable hereunder. 4.07 Certificates of Lenders. Any Lender, the Swingline Lender or any Issuing Lender claiming reimbursement or compensation pursuant to this Article IV shall deliver to the Borrower or Holdings, as applicable (with a copy to the Administrative Agent) a certificate setting forth in reasonable detail the amount payable to such Person hereunder and such certificate shall be conclusive and binding on the Borrower or Holdings in the absence of manifest error. In determining any amounts payable under Section 4.03(b), each Lender, the Swingline Lender, and each Issuing Lender, as the case may be, shall act reasonably and in good faith and will use averaging and attribution methods which are reasonable. 4.08 Change of Lending Office, Replacement Lender, etc. (a) Each Lender agrees that upon the occurrence of an event giving rise to the operation of Section 4.02, 4.03 or 4.06 with respect to such Lender, it will if so requested by the Borrower, use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Lending Office for any Loans affected by such event with the object of avoiding the consequence of the event giving rise to the operation of such section; provided, however, that such designation would not, in the sole judgment of such Lender, be otherwise disadvantageous to such Lender. Nothing in this Section 4.08(a) shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided in Section 4.02, 4.03 or 4.06. (b) Notwithstanding anything to the contrary contained herein or in any other Loan Document, (x) upon the occurrence of any event that obligates the Borrower or Holdings to pay any amount under Section 4.01 or giving rise to the operation of Section 4.02, 4.03 or 4.06 with respect to such Lender or (y) as provided in Section 12.01(b) in the case of certain refusals by a Lender to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Majority Lenders, the Borrower shall have the right, if no Default or Event of Default then exists or will exist immediately after giving effect to the respective replacement, to replace such Lender (the "Replaced Lender") by designating another Lender or an Eligible Assignee (such Lender or Eligible Assignee being herein called a "Replacement Lender") to which such Replaced Lender shall assign, in accordance with Section 12.07 and without recourse to or warranty by, or expense to, such Replaced Lender, the rights and obligation of such Replaced Lender hereunder (except for such rights as survive repayment of the Loans), and, upon such assignment, such Replaced Lender shall no longer be a party -64- hereto or have any rights hereunder and such Replacement Lender shall succeed to the rights and obligations of such Replaced Lender hereunder. The Borrower shall pay to such Replaced Lender in same day funds on the date of replacement all interest, fees and other amounts then due and owing such Replaced Lender by the Borrower hereunder to and including the date of replacement, including, without limitation, costs incurred under Sections 4.01, 4.02, 4.03 or 4.06. (c) Notwithstanding anything to the contrary contained in Section 4.02, 4.03 or 4.06, unless a Lender gives notice to the Borrower that the Borrower is obligated to pay an amount under any such Section within 180 days after the later of (x) the date such Lender incurs the respective increased costs, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital or (y) the date such Lender has actual knowledge of its incurrence of the respective increased costs, loss, expense or liability, reductions in amounts received or receivable or reduction in return on capital, then such Lender shall only be entitled to be compensated for such amount by the Borrower pursuant to said Section 4.02, 4.03 or 4.06, as the case may be, to the extent the respective increased costs, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital are incurred or suffered on or after the date which occurs 180 days prior to such Lender giving such notice to the Borrower as provided above that the Borrower is obligated to pay the respective amounts pursuant to said Section 4.02, 4.03 or 4.06, as the case may be. This paragraph (c) shall have no applicability to any Section of this Agreement other than said Section 4.02, 4.03 or 4.06. 4.09 Survival. The agreements and obligations of Holdings and the Borrower in this Article IV shall survive the payment of all other Obligations. ARTICLE V. CONDITIONS PRECEDENT 5.01 Conditions to Loans and Letters of Credit on the Effective Date. The occurrence of the Effective Date, the obligation of each Lender to make Loans hereunder and the obligation of each Issuing Lender to issue Letters of Credit on the Effective Date is subject to the condition that the Administrative Agent shall be reasonably satisfied that the following conditions have been satisfied on or before the Effective Date and, to the extent applicable, shall have received on or before the date for making such Loans and/or issuing such Letters of Credit all of the following, in form and substance reasonably satisfactory to the Administrative Agent and each Lender and (except for the original instruments or documents representing Pledged Collateral) in sufficient copies for each Lender: -65- (a) Credit Agreement. This Agreement executed by the Borrower, Holdings, the Administrative Agent, the Issuing Lender, the Swingline Lender and each of the Lenders (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of facsimile or other written confirmation from such party of execution of a counterpart hereof by such party), together with the Revolving Notes and Term Notes executed by the Borrower and made payable to the Lenders. (b) Resolutions; Incumbency. (i) Copies of the resolutions of the Board of Directors of the Borrower approving and authorizing the execution, delivery and performance by the Borrower of this Agreement and the other Transaction Documents to be delivered by the Borrower, and authorizing the borrowing of the Loans and the issuance of the Letters of Credit, certified as of the Effective Date by the Secretary or an Assistant Secretary of the Borrower; (ii) Copies of the resolutions of the Board of Directors of Holdings approving and authorizing the execution, delivery and performance by Holdings of this Agreement (including the guaranty of the Obligations of the Borrower) and the other Transaction Documents to be delivered by Holdings, certified by the Secretary or an Assistant Secretary of Holdings; (iii) Copies of the resolutions of the Board of Directors of each Subsidiary Guarantor approving and authorizing the execution, delivery and performance by such Subsidiary Guarantor of the Subsidiary Guaranty and the other Transaction Documents to be delivered by such Subsidiary Guarantor; (iv) Copies of the resolutions of the Board of Directors of Merger Sub approving and authorizing the execution, delivery and performance by Merger Sub of the Merger Agreement and the other Transaction Documents to be delivered by Merger Sub; and (v) Certificates of the Secretary or Assistant Secretary of Holdings, the Borrower, Merger Sub and each Subsidiary Guarantor certifying the names, incumbency and true signatures of the officers of Holdings, the Borrower, Merger Sub and such Subsidiary Guarantor authorized to execute, deliver and perform, as applicable, this Agreement and all other Transaction Documents, notices, requests and other communications to be delivered hereunder or thereunder. -66- (c) Articles of Incorporation; By-laws and Good Standing. Each of the following documents: (i) the articles or certificate of incorporation of Holdings, the Borrower, Merger Sub and each Subsidiary Guarantor as in effect on the Effective Date, certified by the Secretary of State (or similar, applicable Governmental Authority) of the State of such Credit Party's or Merger Sub's organization as of a recent date and by the Secretary or Assistant Secretary of Holdings, the Borrower, Merger Sub and such Subsidiary Guarantor as of the Effective Date, and the bylaws of Holdings, the Borrower, Merger Sub and such Subsidiary Guarantor as in effect on the Effective Date, certified by the Secretary or Assistant Secretary of Holdings, the Borrower, Merger Sub and each Subsidiary Guarantor as of the Effective Date; (ii) a good standing certificate for Holdings, the Borrower and each Subsidiary Guarantor from the Secretary of State of the State of such Credit Party's organization and each state where Holdings, the Borrower and each Subsidiary Guarantor is qualified to do business as a foreign corporation as of a recent date; and (iii) a bring-down certificate, to the extent reasonably available, of Holdings, the Borrower and each Subsidiary Guarantor from the Secretary of State of the State of such Credit Party's organization, dated the Effective Date. (d) Subsidiary Guaranty. The Subsidiary Guaranty, duly executed by each Subsidiary Guarantor. (e) Pledge Agreement. (i) The Pledge Agreement, duly executed by each Credit Party named as a signatory thereto; (ii) all certificates and instruments (endorsed in blank) representing the Pledged Securities then to be pledged; (iii) an undated stock power for each such certificate executed in blank; and (iv) with respect to Pledged Securities, if any, consisting of book-entry shares, evidence that all actions described in the Pledge Agreement which are necessary to create and perfect the security interests pursuant to the Pledge Agreement in accordance with Articles 8 and 9 of the UCC have been taken. -67- (f) Security Agreement. (i) The Security Agreement, duly executed by each Credit Party; (ii) proper Financing Statements (Form UCC-1 or the equivalent) fully executed for filing under the UCC or other appropriate filing offices of each jurisdiction as may be necessary or, in the reasonable opinion of the Administrative Agent, desirable to perfect the security interests purported to be created by the Security Agreement; (iii) evidence of the completion of all other recordings and filings of, or with respect to, the Security Agreement as may be necessary or to perfect the security interests intended to be created by the Security Agreement; and (iv) evidence that all other actions necessary or to perfect and protect the security interests purported to be created by the Security Agreement have been taken. (g) Legal Opinions. (i) An opinion of Kirkland & Ellis, counsel to Holdings, the Borrower, Merger Sub and the Subsidiary Guarantors, addressed to the Administrative Agent and the Lenders, containing opinions substantially in the form of Exhibit J-1 and as to such other matters as the Administrative Agent may reasonably request; (ii) An opinion of McGuire, Wood & Bissette, P.A., North Carolina counsel to the Borrower, addressed to the Administrative Agent and the Lenders containing opinions substantially in the form of Exhibit J-2 and as to such other matters as the Administrative Agent may reasonably request; and (iii) Opinions delivered in connection with the Merger pursuant to the Merger Agreement, together with reliance letters in favor of the Administrative Agent and the Lenders to the extent available. (h) Other Documents. The other agreements, documents and instruments described in the List of Closing Documents attached hereto as Exhibit P, each duly executed where appropriate and in form and substance reasonably satisfactory to the Administrative Agent. (i) Payment of Fees and Expenses. Evidence that all fees, costs and expenses (including Attorney Costs of the Administrative Agent) payable by the Borrower on or before the Effective Date have been (or, upon application of the proceeds of the initial Loans hereunder, will be) paid to the extent then invoiced, and evidence that the fees -68- payable on the Effective Date pursuant to the Fee Letter will be paid upon application of the proceeds of the initial Loans hereunder. (j) Certificates. (i) Certificates signed by a Responsible Officer of Holdings and the Borrower, dated as of the Effective Date stating that: (A) The representations and warranties of Holdings and the Borrower contained in Article VI and in the other Loan Documents to which they are a party are true and correct in all material respects on and as of such date, as though made on and as of such date (except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); (B) no Default or Event of Default exists or would result from any Borrowing on the Effective Date; and (C) the conditions set forth in paragraphs (l), (n) and (o)(i) of this Section 5.01 have been satisfied; (ii) Certificates signed by a Responsible Officer of each of the Subsidiary Guarantors, dated as of the Effective Date, stating that the representations and warranties of such Subsidiary Guarantor contained in the Subsidiary Guaranty, the Pledge Agreement, the Security Agreement and each other Loan Document to which it is a party, are true and correct in all material respects on and as of such date, as though made on and as of such date (except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); and (iii) a pro forma Borrowing Base Certificate as of the Effective Date, based upon the most recently available financial information available to the Borrower and giving effect to the consummation of the Transaction. (k) Solvency Certificate. A solvency certificate from the Chief Financial Officer of Holdings in the form of Exhibit K, together with a contribution and indemnification agreement executed and delivered by each Credit Party in the form of Exhibit Q. -69- (l) Transaction. (i) (x) The Merger shall have been consummated in all material respects in accordance with the Merger Documents and all applicable laws, (y) each of the conditions precedent to the consummation of the Merger, as set forth therein, shall have been satisfied and not waived except with the consent of the Administrative Agent and (z) no material breach of any term or provision of the Merger Documents has occurred; (ii) (x) The transactions contemplated by the Additional Junior Subordinated Note Documents shall have been consummated in all material respects in accordance therewith and all applicable laws, (y) Holdings shall have received gross cash proceeds of at least $5,000,000 from the Additional Junior Subordinated Note Investment, and (z) all of such proceeds shall have been contributed by Holdings to the equity capital of the Borrower; (iii) The Administrative Agent shall have received the Refinancing Documents containing agreements and other assurances from the creditors holding Indebtedness to be Refinanced that, upon application of the proceeds of the initial Loans to be made hereunder, (x) the Refinancing will have been consummated and shall be effective, (y) such creditors will have thereupon terminated and released all security interests and Liens on the assets owned by Holdings and its Subsidiaries and all guaranties in respect thereof, and (z) the Administrative Agent will immediately receive such releases of security interests in and Liens on the assets owned by Holdings and its Subsidiaries as may be reasonably requested by the Administrative Agent; (iv) The Additional Subordinated Guaranty shall have been issued in accordance with the Additional Subordinated Guaranty Documents and all applicable laws; and (v) The Administrative Agent shall have received true and correct copies of all Transaction Documents. (m) Adverse Changes. Since January 31, 1997, nothing shall have occurred (and neither the Administrative Agent nor the Lenders shall have become aware of any facts or conditions not known previous to such date) which the Administrative Agent or the Majority Lenders shall reasonably determine has had, or could reasonably be expected to have, a Material Adverse Effect. Since December 31, 1997, nothing shall have occurred (and neither the Administrative Agent nor the Lenders shall have become aware of any facts or conditions not known by such Persons previous to such date) which the Administrative Agent or the Majority Lenders shall reasonably determine has had, or could reasonably be expected to have, a material adverse effect upon the operations, business, -70- assets, properties, liabilities, condition (financial or otherwise) or prospects of Corcom and its Subsidiaries taken as a whole. (n) Governmental and Third Party Approvals. All governmental and material third party approvals necessary in connection with the Transaction shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose materially adverse conditions on the Transaction or the financing thereof. (o) Litigation. There shall be no actions, suits or proceedings pending or threatened (i) with respect to the Transaction or any Transaction Document or (ii) which the Administrative Agent or the Majority Lenders shall reasonably determine could reasonably be expected to have a (x) material adverse effect on the Transaction, (y) a Material Adverse Effect or (z) a material adverse effect upon the operations, business, assets, properties, liabilities, condition (financial or otherwise) or prospects of Corcom and its Subsidiaries taken as a whole. (p) Shareholders' Agreements, Management Agreements and Holdings Tax Sharing Agreement. (i) All agreements entered into by Holdings or any of its Subsidiaries governing the terms and relative rights of its capital stock and any agreements entered into by shareholders relating to any such entity with respect to its capital stock; (ii) the Holdings Tax Sharing Agreement; and (iii) all management and consulting agreements entered into by Holdings or any of its Subsidiaries (including the CHS Management Agreement). (q) Financial Statements. (i) A pro forma consolidated balance sheet as at April 30, 1998 of Holdings after giving effect to the consummation of the Transaction, the making of the initial Loans hereunder and the application of the proceeds thereof; (ii) consolidated balance sheets, income statements and statements of income of Holdings for the fiscal month ended April 30, 1998, the fiscal quarter ended March 31, 1998, and the fiscal year ended December 31, 1997; and -71- (iii) consolidated projected financial statements (including cash flow projections) of the Borrower and its Subsidiaries for the years 1998 through 2003, after giving effect to the Transactions. (r) Insurance. Evidence of insurance complying with the requirements of Section 7.05 for the business and properties of Holdings and its Subsidiaries. (s) Minimum Revolving Loan Availability. After giving effect to the Loans to be made and the Letters of Credit to be issued or outstanding on the Effective Date, each of the Aggregate Revolving Commitment and the Revolving Availability as of the Effective Date shall exceed the sum of the aggregate principal amount of all outstanding Revolving Loans and Swingline Loans, plus the aggregate amount of all outstanding Letter of Credit Obligations, by an amount equal to or greater than $10,000,000. (t) Subordinated Debt Compliance. The Borrower's projections delivered pursuant to Section 5.01(q) shall reasonably indicate that at no time on or prior to the Termination Date would any portion of the projected outstanding Obligations and other Consolidated Indebtedness, not constituting "Permitted Debt" exceed the maximum amount of "Debt" permitted under Section 4.12 of the Borrower Senior Subordinated Note Indenture (as such terms in quotations are defined therein). 5.02 Conditions to all Borrowings and the Issuance of any Letters of Credit. The obligation of each Lender to make any Loan hereunder (other than a Revolving Loan made pursuant to a Mandatory Borrowing) and the obligation of the Issuing Lender to issue, renew or amend any Letter of Credit is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date or date of issuance, as the case may be: (a) Notice. The Administrative Agent shall have received a Notice of Borrowing or in the case of a Swingline Loan, the notice required under Section 2.03(f); or in the case of any issuance of any Letter of Credit, the applicable Issuing Lender and the Administrative Agent shall have received a Letter of Credit Application, as required under Section 3.02; (b) Continuation of Representations and Warranties. The representations and warranties contained in Article VI and in the other Loan Documents shall be true and correct in all material respects on and as of such Borrowing Date or date of issuance (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date); (c) No Existing Default. No Default or Event of Default shall exist or shall result from such Borrowing or issuance of such Letter of Credit; and -72- (d) No Material Adverse Effect. Since December 31, 1997, no events have occurred which, individually or in the aggregate, have had, or could reasonably be expected to have, a Material Adverse Effect. Each Notice of Borrowing, request for a Swingline Loan or Letter of Credit Application submitted by the Borrower hereunder shall be deemed to constitute a representation and warranty by the Borrower hereunder, as of the date of each such notice or application and as of the date of each Borrowing that the applicable conditions in this Section 5.02 are satisfied. ARTICLE VI. REPRESENTATIONS AND WARRANTIES Each of Holdings and the Borrower represents and warrants with respect to itself and its Subsidiaries to the Administrative Agent, the Issuing Lenders and each Lender as of the Effective Date and as of the date of each Borrowing of Loans or issuance, renewal or amendment of each Letter of Credit that: 6.01 Corporate Existence and Power. Each of Holdings and each of its Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and has or will have on or prior to the date required to be obtained all governmental licenses, authorizations, consents and approvals to execute, deliver and perform its obligations under the Transaction Documents to which it is a party and has duly executed and delivered each such Transaction Document, in each case other than (i) immaterial third party authorizations, consents and approvals for the Transaction and (ii) filings necessary to perfect the security interest in the Collateral under the Security Agreement (which filings have been made to the extent that this representation and warranty is made (or deemed made) after 10 days after the Effective Date); (c) is duly qualified to do business as a foreign corporation, and licensed and in good standing, under the laws of each jurisdiction where its ownership, lease or operation of property or the nature or conduct of its business requires such qualification or license except where the failure so to qualify could not reasonably be expected to have a Material Adverse Effect; and (d) is in compliance with all Requirements of Law, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. -73- 6.02 Corporate Authorization; No Contravention. The execution, delivery and performance by each of Holdings and each of its Subsidiaries of any Transaction Document to which such Person is party have been duly authorized by all necessary corporate action, and do not and will not: (a) contravene the terms of any of such Person's charter or by-laws; (b) conflict with or result in any breach or contravention of, or the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Collateral Documents) under, any document evidencing any material Contractual Obligation to which such Person is a party or any order, injunction, writ or decree of any Governmental Authority to which such Person or its property is subject; or (c) violate any Requirement of Law. 6.03 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, Holdings or any of its Subsidiaries of any Transaction Document to which any such Person is a party, in each case other than (i) immaterial approvals, consents, exemptions or authorizations relating to the Transaction and (ii) filings necessary to perfect security interest in the Collateral under the Security Agreement (which filings have been made to the extent that this representation and warranty is made (or deemed made) after 10 days after the Effective Date). 6.04 Binding Effect. This Agreement and each other Transaction Document to which Holdings or any of its Subsidiaries is a party constitute the legal, valid and binding obligations of Holdings and each of its Subsidiaries to the extent such Person is a party thereto, enforceable against such Person in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles of general applicability. 6.05 Litigation. There are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of Holdings or the Borrower, threatened at law, in equity, in arbitration or before any Governmental Authority, against Holdings or any of its Subsidiaries or any of their respective properties or assets which: (a) purport to affect or pertain to this Agreement or any other Loan Document; or (b) could reasonably be expected to have a Material Adverse Effect. As of the Effective Date, no injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other -74- Transaction Document, or directing that any other transaction provided for herein not be consummated as herein provided. 6.06 No Default. No Default or Event of Default exists or would result from the incurring of any Obligations by Holdings, the Borrower or any Subsidiary Guarantor. Neither Holdings nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect. 6.07 ERISA Compliance. Each Plan (and each related trust, insurance contract or fund) is in material compliance with its terms and with all applicable laws, including, without limitation, ERISA and the Code; each Plan (and each related trust, if any) which is intended to be qualified under Section 401(a) of the Code has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable Event has occurred; no Plan which is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded Current Liability which, when added to the aggregate amount of Unfunded Current Liabilities with respect to all other Plans, exceeds $250,000; no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated funding deficiency, within the meaning of such sections of the Code or ERISA, or has applied for or received a waiver of an accumulated funding deficiency or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA; all contributions required to be made with respect to a Plan have been timely made; neither Holdings nor any Subsidiary of Holdings nor any ERISA Affiliate has incurred any material liability (including any indirect, contingent or secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any such material liability under any of the foregoing sections with respect to any Plan; no condition exists which presents a material risk to Holdings or any Subsidiary of Holdings or any ERISA Affiliate of incurring a material liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan which is subject to Title IV of ERISA; no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or the investment of assets of any Plan (other than routine claims for benefits) is pending, expected or threatened; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of Holdings and its Subsidiaries and its ERISA Affiliates to all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan, would not exceed $250,000; each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered employees or former employees of Holdings, any Subsidiary of Holdings, or any ERISA Affiliate has at all times been operated in material compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed under the Code or ERISA on the assets of Holdings or any Subsidiary of Holdings or any ERISA Affiliate exists or is likely to arise on -75- account of any Plan; and Holdings and its Subsidiaries may cease contributions to or terminate any employee benefit plan maintained by any of them without incurring any material liability. 6.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are intended to be and shall be used solely for the purposes set forth in and permitted by Section 7.15. 6.09 Title to Properties. Holdings and each of its Subsidiaries have good record and marketable title in fee simple to, or valid leasehold interests in, all material property owned or leased by them, free and clear of all Liens other than Permitted Liens. 6.10 Taxes. Each of Holdings and each of its Subsidiaries has filed all federal and state income tax returns and all other material tax returns, domestic and foreign, required to be filed by it and has paid all taxes and assessments payable by it which have become due, except for immaterial taxes and taxes contested in good faith and adequately disclosed and fully provided for on the financial statements of Holdings and its Subsidiaries in accordance with GAAP. Holdings and each of its Subsidiaries have at all times paid, or have provided adequate reserves (in the good faith judgment of the management of Holdings) for the payment of, all federal, state, local and foreign income taxes (other than immaterial taxes) applicable for all prior fiscal years and for the current fiscal year to date. There is no material action, suit, proceeding, investigation, audit, or claim now pending or, to the best knowledge of Holdings and the Borrower threatened, by any authority regarding any taxes relating to Holdings or any of its Subsidiaries. As of the Effective Date, neither Holdings nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of Holdings or any of its Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of Holdings or any of its Subsidiaries not to be subject to the normally applicable statute of limitations. 6.11 Financial Statements. All balance sheets, statements of operations and other financial data of Holdings and its Subsidiaries which have been or shall hereafter be furnished to the Administrative Agent and the Lenders for the purposes of or in connection with this Agreement or any transaction contemplated hereby do and will present fairly, in all material respects, the financial condition of Holdings and its Subsidiaries as of the dates thereof and the results of their operations for the period(s) covered thereby. The projections which have been furnished by (or on behalf of) Holdings or any of its Subsidiaries to the Administrative Agent or any Lender pursuant to Section 5.01(q) represent management's good faith estimates of future performance based upon historical financial information and reasonable assumptions of management, it being recognized that such projections are not to be viewed as facts and do not constitute a warranty as to the future performance of Holdings or its Subsidiaries and that actual results may vary from projected results and such variances may be material. 6.12 Securities Law, etc.; Compliance. All transactions contemplated by this Agreement and the other Loan Documents comply with (x) Regulations T, U and X of the Federal Reserve Board and (y) all other applicable laws and any rules and regulations thereunder. -76- 6.13 Governmental Regulation. Neither Holdings nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940 or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a holding company", within the meaning of the Public Utility Holding Company Act of 1935. 6.14 Labor Controversies. There are no labor controversies pending or, to the best of Holdings' and the Borrower's knowledge, threatened against it or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 6.15 Subsidiaries. Holdings has no Subsidiaries, except, on the date hereof, those Subsidiaries which are identified in Schedule 6.15 and, thereafter, those Subsidiaries permitted to be formed or acquired in compliance with the terms hereof. 6.16 Patents, Trademarks, etc. Each of Holdings and each of its Subsidiaries owns (or is licensed to use) and possesses all such patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights, copyrights, permits, licenses and authorizations as it considers necessary for the conduct of the business of Holdings and its Subsidiaries as now conducted without, individually or in the aggregate, any infringement upon rights of other Persons which could reasonably be expected to have a Material Adverse Effect. 6.17 Accuracy of Information. All factual information heretofore or contemporaneously herewith furnished by or on behalf of Holdings or any of its Subsidiaries in writing to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby and all other such factual information here after furnished by or on behalf of Holdings or any of its Subsidiaries to the Administrative Agent or any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information, in the light of the circumstances existing at the time such information was delivered, not misleading. 6.18 Hazardous Materials. Neither Holdings nor any of its Subsidiaries have caused or permitted any Hazardous Material to be disposed of or otherwise released, either from, on or under any property currently or formerly legally or beneficially owned or operated by, or otherwise used by, Holdings or any of its Subsidiaries, which has or could reasonably be expected to have a Material Adverse Effect. No such property has ever been used as a dump site or storage site for any Hazardous Materials or otherwise contains or contained Hazardous Materials, which has or could reasonably be expected to have a Material Adverse Effect. The failure, if any, of Holdings or any of its Subsidiaries, in connection with their current and former properties or their businesses, to be in compliance with any Environmental Law or to obtain any permit, certificate, license, approval and other authorization under such Environmental Laws has not had, nor is reasonably expected to have, a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries have entered into, have agreed to or are subject to any judgment, decree or order or other similar requirement of any Governmental Authority under any Environmental Law, including without limitation, relating to compliance or to investigation, cleanup, remediation or removal of Hazardous Materials, which has or could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its -77- Subsidiaries have contractually assumed any liabilities or obligations under any Environmental Law which have or could reasonably be expected to have a Material Adverse Effect. There are no facts or circumstances which exist that could reasonably be expected to give rise to liabilities with respect to Hazardous Materials or any Environmental Law, which have or could reasonably be expected to have a Material Adverse Effect. 6.19 Collateral Documents. (i) The provisions of the Pledge Agreement will be, on and after the Effective Date, effective to create, in favor of the Collateral Agent for the benefit of the Lenders and the Collateral Agent, legal, valid and enforceable security interests in all of the Collateral described therein, and upon the taking of and continued possession of such Collateral by the Collateral Agent on or prior to the Effective Date, the Pledge Agreement shall constitute, as of and after the Effective Date, a fully perfected security interest in such Collateral superior in right to any other security interests, existing or future, which any Person may have against such Collateral, except to the extent, if any, otherwise provided in the Pledge Agreement; and (ii) the provisions of the Security Agreement are effective to create in favor of the Collateral Agent for the benefit of the Lenders and the Collateral Agent, a legal, valid and enforceable security interest in all right, title and interest in all of the Collateral described therein, and the Security Agreement, upon the filing of Form UCC-1 financing statements or the appropriate equivalent (which filing, if this representation is being made more than 10 days after the Effective Date, has been made), create a fully perfected first priority lien on, and security interest in, all right, title and interest in all of the Collateral described in the Security Agreement to the extent that such security interests can be perfected by the filing of a financing statement under the UCC or in which a filing may be made in the United States Patent and Trademark Office or in the United States Copyright Office, subject to no other Liens other than Permitted Liens. 6.20 Solvency. On and as of the Effective Date and after giving effect to the Transaction and to all Indebtedness being incurred or assumed and Liens created by the Credit Parties in connection therewith (a) the sum of the assets, at a fair valuation on a going-concern basis, of each of the Borrower on a stand-alone basis and of Holdings and its Subsidiaries taken as a whole will exceed its debts; (b) each of the Borrower on a stand-alone basis and Holdings and its Subsidiaries taken as a whole has not incurred and does not intend to incur, and does not believe that it will incur, debts beyond its ability to pay such debts as such debts mature; and (c) each of the Borrower on a stand alone basis and Holdings and its Subsidiaries taken as a whole will have sufficient capital with which to conduct its business. For purposes of this Section 6.20, -78- "debt" means any liability on a claim, and "claim" means (i) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. 6.21 Representations and Warranties in the other Documents. All representations and warranties made by any Credit Party or Merger Sub in the Merger Documents and in the other Transaction Documents were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made) and shall be true and correct in all material respects as of Effective Date as if such representations and warranties were made on and as of such date, unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. 6.22 Capitalization. (a) On the Effective Date and after giving effect to the Transaction and the other transactions contemplated hereby, the authorized capital stock of Holdings shall consist of (i) 7,800,000 shares of common stock, $.01 par value per share ("Holdings Common Stock"), of which 1,003,880 shares shall be issued and outstanding and (ii) 110,000 shares of preferred stock, $.01 par value per share ("Holdings Preferred Stock"), of which 1,962 shares shall be issued and outstanding. All outstanding shares of capital stock of Holdings have been duly and validly issued and are fully paid and non-assessable. Holdings does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock, except (i) for options to purchase shares of Holdings' Common Stock which may be issued from time to time to directors, officers and employees of Holdings or any of its Subsidiaries and (ii) as provided in the Shareholders Agreement. (b) On the Effective Date and after giving effect to the Transaction and the other transactions contemplated hereby, the authorized capital stock of (i) the Borrower shall consist of 1,000 shares of common stock, $.01 par value per share, of which 1,000 shares shall be issued and outstanding and owned by Holdings, (ii) Kilovac shall consist of 200,000 shares of Class A common stock, $.01 par value per share, of which 124,785 shares shall be issued and outstanding and owned by the Borrower and 200,000 shares of Class B shares of common stock, $.01 par value per shares, none of which shares shall be issued and outstanding and (iii) Corcom shall consist of 1,000 shares of common stock, -79- $.01 par value per share, of which 1,000 shares shall be issued and outstanding and owned by the Borrower. All outstanding shares of capital stock of the Borrower, Kilovac and Corcom have been duly and validly issued, are fully paid and nonassessable. Neither the Borrower, Kilovac nor Corcom has outstanding securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock. 6.23 Special Purpose Corporation. Holdings engages in no significant business activities and has no significant assets (other than the capital stock of the Borrower, Investments permitted to be made by it pursuant to Section 8.05(xvi), immaterial assets used for the performance of those activities permitted to be performed by Holdings pursuant to Section 8.14(b) and any obligations held by it to the extent permitted by Section 8.05(vi)) or liabilities (other than those incurred under this Agreement and under the other Transaction Documents to which it is a party and, after the issuance thereof in accordance with the terms of this Agreement, additional Holdings Junior Subordinated Notes, the Holdings Shareholder Subordinated Notes, any Intercompany Note and any guaranty issued under Section 8.04(vii) or 8.04(viii)). 6.24 Insurance. Schedule 6.24 sets forth a true and complete listing of all insurance maintained by Holdings and its Subsidiaries as of the Effective Date, and with the amounts insured (and any deductibles) set forth therein. 6.25 Borrower Senior Subordinated Note; etc. (a) The subordination provisions contained in the Borrower Senior Subordinated Note Documents are enforceable against the Borrower, the respective Subsidiary Guarantors and the holders thereof, and all Obligations and Guaranteed Obligations (as defined in the Subsidiary Guaranty) are within the definition of "Senior Debt" or "Guarantor Senior Debt", as the case may be, included in such subordination provisions, and the Borrower's incurrence of the Obligations are permitted under Section 4.12 of the Borrower Senior Subordinated Note Indenture. (b) The subordination provisions contained in the Holdings Junior Subordinated Notes are enforceable against Holdings and the holders thereof, and all Guaranteed Obligations (as defined in this Agreement) and within the definition of "Superior Debt" included in such subordination provisions. -80- 6.26 The Transaction. (a) Each of the Transaction Documents filed with the Securities and Exchange Commission and other securities authorities complied in all material respects with the provisions of the Exchange Act and all other applicable federal securities laws, state securities or "Blue Sky" laws, foreign securities laws, general corporation laws and rules and regulations thereunder; (b) All conditions precedent to, and all consents necessary to permit, the Merger pursuant to the Merger Agreement have been satisfied or delivered, or waived with the prior written consent of the Administrative Agent, and no material breach of any term or provision of any Merger Document has occurred and no action has been taken by any competent authority which restrains, prevents or imposes material adverse conditions upon, or seeks to restrain, prevent or impose material adverse conditions upon, the Merger or the funding of any Loans and issuance of any Letters of Credit hereunder; (c) Merger Sub has merged with and into Corcom pursuant to the Merger Agreement in compliance with the Illinois Business Corporation Act of 1983, as amended, and all other applicable laws; (d) The transactions contemplated by the Additional Junior Subordinated Note Documents have been consummated in all material respects in accordance therewith and all applicable laws, Holdings received gross cash proceeds of at least $5,000,000 from the Additional Junior Subordinated Note Investment, and all such proceeds shall have been contributed by Holdings to the equity capital of the Borrower; and (e) The transactions contemplated by the Additional Subordinated Guaranty Documents have been consummated in all material respects in accordance therewith and all applicable laws. 6.27 Year 2000 Compliance. As of the Effective Date, the Borrower is in the process of reviewing and assessing all computer applications which are material to the Borrower's and its Subsidiaries' businesses with respect to the ability of such applications to correctly recognize references to, and abbreviations of, the year 2000 (including, without limitation, references to "00" as the year 2000 and not the year 1900). The Borrower reasonably believes that to the extent one or more of such computer applications of the Borrower or its Subsidiaries is unable to correctly recognize such references to, or abbreviations of, the year 2000, that such deficiencies would be addressed prior to the year 2000 to the extent such deficiencies could reasonably be expected to have a Materially Adversely Effect. -81- ARTICLE VII. AFFIRMATIVE COVENANTS Each of Holdings and the Borrower agrees with the Administrative Agent, each Issuing Lender and each Lender that, until all Commitments and Letters of Credit have terminated and all Obligations (other than indemnities for which no request for payment has been made) have been paid and performed in full: 7.01 Financial Statements. Holdings and the Borrower shall deliver to the Administrative Agent in form and detail reasonably satisfactory to the Administrative Agent and the Majority Lenders: (a) as soon as available, but not later than 90 days after the end of each fiscal year of Holdings, (i) a copy of the audited consolidated balance sheet of Holdings and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of Deloitte & Touche LLP or another nationally-recognized independent public accounting firm reasonably acceptable to the Administrative Agent which report shall state that such consolidated financial statements present fairly, in all material respects, the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes agreed upon by Holdings and such auditors which are disclosed and described in such statements), and (ii) management's discussion and analyses of the material operational and financial developments during such fiscal year. The accountant's opinion referred to above shall not be qualified or limited because of a restricted or limited examination by such accountant of any material portion of the records of Holdings or any of its Subsidiaries; (b) as soon as available, but not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year of Holdings, a copy of the unaudited consolidated balance sheet of Holdings and its consolidated Subsidiaries as of the end of such fiscal quarter and the related consolidated statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such fiscal quarter, and certified by either the Chief Financial Officer, the Vice President-Finance or any other Responsible Officer of Holdings as being complete and correct and fairly presenting in all material respects, in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnote disclosure), the financial position and the results of operations of Holdings and its Subsidiaries; -82- (c) as soon as available, but not later than 30 days following the first day of each fiscal year of Holdings, a budget (including budgeted statements of income and sources and uses of cash and balance sheets) prepared by Holdings for each of the twelve months of such fiscal year prepared in detail; and (d) as soon as available, but in any event not later than 30 days after the end of each calendar month, a Borrowing Base Certificate with respect to such month then ended. 7.02 Certificates; Other Information. Holdings and the Borrower shall furnish to the Administrative Agent: (a) concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), (x) a Compliance Certificate and (y) a certificate executed and delivered by a Responsible Officer of Holdings certifying that the Borrower was in compliance with the provisions of Section 4.12 of the Borrower Senior Subordinated Note Indenture for the period ended as of the date of such financial statements (together with a schedule calculating such compliance in reasonable detail satisfactory to the Administrative Agent); (b) to the extent not previously delivered with respect to any Adjustment Date, concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a Leverage Ratio Certificate duly executed by a Responsible Officer of Holdings; (c) promptly after Holdings' or any of its Subsidiaries' receipt thereof, a copy of any "management letter" received from its certified public accountants and management's response thereto; (d) promptly after the same are sent, copies of all financial statements and reports which Holdings sends to its shareholders generally; and promptly after the same are filed, copies of all financial statements and regular, periodical or special reports which Holdings or any of its Subsidiaries may make to, or file with, the Securities and Exchange Commission; and (e) promptly, such additional business, financial and other information with respect to Holdings or any of its Subsidiaries as the Administrative Agent or any Lender may from time to time reasonably request. 7.03 Notices. Holdings and the Borrower shall, upon any Responsible Officer of Holdings or the Borrower obtaining knowledge thereof, give notice (accompanied by a reasonably detailed explanation with respect thereto) promptly to the Administrative Agent, the Issuing Lender and each Lender of: -83- (a) the occurrence of any Default or Event of Default; (b) any litigation, arbitration or governmental investigation or proceeding which has been instituted or, to the knowledge of a Responsible Officer of Holdings or the Borrower, is threatened against Holdings or any of its Subsidiaries or to which any of their respective properties is subject (i) which could reasonably be expected to result in a Material Adverse Effect or (ii) relates to this Agreement, any other Transaction Document, the Transaction or any of the transactions contemplated hereby; (c) promptly after any Responsible Officer of Holdings or the Borrower obtains knowledge thereof, notice of one or more of the following environmental matters, unless such environmental matters could not, individually or when aggregated with all other such environmental matters, be reasonably expected to have a Material Adverse Effect: (i) any pending or threatened Environmental Claim against Holdings or any of its Subsidiaries or any real property owned or operated by Holdings or any of its Subsidiaries; (ii) any condition or occurrence on or arising from any real property owned or operated by Holdings or any of its Subsidiaries that (a) results in noncompliance by Holdings or any of its Subsidiaries with any applicable Environ mental Law or (b) could be expected to form the basis of an Environmental Claim against Holdings or any of its Subsidiaries or any such real property; (iii) any condition or occurrence on any real property owned or operated by Holdings or any of its Subsidiaries that could be expected to cause such real property to be subject to any restrictions on the ownership, occupancy, use or transferability by Holdings or any of its Subsidiaries of such real property under any Environmental Law; and (iv) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any real property owned or operated by Holdings or any of its Subsidiaries as required by any Environmental Law or any governmental or other administrative agency; provided, that in any event Holdings shall deliver to the Administrative Agent and each Lender all notices received by Holdings or any of its Subsidiaries from any government or governmental agency under, or pursuant to, CERCLA which identify Holdings or any of its Subsidiaries as potentially responsible parties for remediation costs or which otherwise notify Holdings or any of its Subsidiaries of potential liability under CERCLA; and -84- (d) as soon as possible and, in any event, within ten (10) days after any Responsible Officer of Holdings or the Borrower knows or has reason to know of the occurrence of any of the following, Holdings will deliver to the Administrative Agent a certificate of the Chief Financial Officer of Holdings setting forth in reasonable detail information as to such occurrence and the action, if any, that Holdings, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by Holdings, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred (except to the extent that Holdings has previously delivered to the Lenders a certificate and notices (if any) concerning such event pursuant to the next clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to occur with respect to such Plan within the following 30 days; that an accumulated funding deficiency, within the meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or an application may reasonably be expected to be or has been made for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan; that any contribution required to be made with respect to a Plan has not been timely made; that a Plan has been or may reasonably be expected to be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability which, when added to the amount of Unfunded Current Liabilities with respect to all other Plans, exceeds $250,000; that proceedings may be reasonably expected to be or have been instituted to terminate or appoint a trustee to administer a Plan which is subject to Title IV of ERISA; that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that Holdings, any Subsidiary of Holdings or any ERISA Affiliate will or may reasonably be expected to incur any material liability (including any indirect, contingent, or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that Holdings or any Subsidiary of Holdings may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) with respect to providing benefits to retired employees or other former employees (other than as required by Section 601 of ERISA or Section 4980B of the Code) or any Plan in addition to the liability that existed under the terms of such Plan or Plans on the Effective Date. Upon request of the Administrative Agent or any Lender, Holdings will deliver to the Administrative Agent (i) a complete copy of the annual report (on Internal Revenue Service Form 5500-series) of each Plan (including, to the extent required, the related financial and actuarial statements -85- and opinions and other supporting statements, certifications, schedules and information) required to be filed with the Internal Revenue Service and (ii) copies of any records, documents or other information that must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. In addition to any certificates or notices delivered to the Administrative Agent pursuant to the first sentence hereof, copies of annual reports and any records, documents or other information required to be furnished to the PBGC, and any material notices received by Holdings, any Subsidiary of Holdings or any ERISA Affiliate with respect to any Plan shall be delivered to the Administrative Agent no later than ten (10) days after the date such annual report has been filed with the Internal Revenue Service or such records, documents and/or information has been furnished to the PBGC or such notice has been received by Holdings, the Subsidiary or the ERISA Affiliate, as applicable. 7.04 Books, Records and Inspections. Holdings shall, and shall cause each of its Subsidiaries to, keep proper books of record and accounts in which full, true and correct entries in conformity with GAAP and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. Holdings shall, and shall cause each of its Subsidiaries to, permit officers and designated representatives of the Administrative Agent or any Lender to visit and inspect, under guidance of officers of Holdings or such Subsidiary, any of the properties of Holdings or such Subsidiary and, under guidance of officers of Holdings or such Subsidiary, to examine the books of account of Holdings or such Subsidiary and discuss the affairs, finances and accounts of Holdings or such Subsidiary with, and be advised as to the same by, its and their officers and independent accountants, all upon reasonable prior notice and at such reasonable times and intervals and to such reasonable extent as the Administrative Agent or such Lender may reasonably request. 7.05 Maintenance of Property; Insurance. (a) Holdings shall, and shall cause each of its Subsidiaries to, (i) keep all property necessary to the business of Holdings and its Subsidiaries in reasonably good working order and condition, ordinary wear and tear excepted, (ii) maintain insurance on all such property in at least such amounts and against at least such risks as is consistent and in accordance with industry practice for companies similarly situated owning similar properties in the same general areas in which Holdings or any of its Subsidiaries operates, and (iii) furnish to the Administrative Agent, on each date on which financial statements are delivered pursuant to Section 7.01(a), full information as to the insurance carried. (b) Holdings shall, and shall cause each of its Subsidiaries to, at all times keep its property insured in favor of the Collateral Agent, and all policies or certificates (or certified copies thereof) with respect to such insurance (and any other insurance maintained by Holdings and/or such Subsidiaries) (i) shall be endorsed to the Collateral Agent's satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as loss payee and/or additional insured), (ii) shall state that -86- such insurance policies shall not be cancelled without at least 30 days' prior written notice thereof (or 10 days' prior written notice in the case of nonpayment of premium) by the respective insurer to the Collateral Agent (or such shorter period of time as a particular insurance company policy generally provides) and (iii) shall be deposited with the Collateral Agent. (c) If Holdings or any of its Subsidiaries shall fail to insure its property in accordance with this Section 7.05, or if Holdings or any of its Subsidiaries shall fail to so endorse and deposit all policies or certificates with respect thereto, the Collateral Agent shall have the right (but shall be under no obligation) to procure such insurance and Holdings and the Borrower agree to reimburse the Collateral Agent for all reasonable costs and expenses of procuring such insurance. 7.06 Corporate Franchises. Holdings shall, and shall cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses and patents; provided, however, that nothing in this Section 7.06 shall prevent (i) sales of assets and other transactions by Holdings or any of its Subsidiaries in accordance with Section 8.02 or (ii) the withdrawal by Holdings or any of its Subsidiaries of its qualification as a foreign corporation in any jurisdiction where such withdrawal could not reasonably be expected to have a Material Adverse Effect. 7.07 Compliance with Law. Holdings shall, and shall cause each of its Subsidiaries to, comply with all Requirements of Law of any Governmental Authority, except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 7.08 Payment of Taxes. Holdings shall pay and discharge, and shall cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims for sums that have become due and payable which, if unpaid, might become a Lien not otherwise permitted under Section 8.01(i); provided, that neither Holdings nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is immaterial or is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP. 7.09 Contributions. Except as expressly permitted by Section 8.03(vii), Section 8.05(xvi) and the last sentence of Section 8.11, Holdings shall contribute as a common equity contribution to the capital of the Borrower upon its receipt thereof, any cash proceeds received by Holdings after the Effective Date from any asset sale, any incurrence of Indebtedness, any Recovery Event, any sale or issuance of its equity or any cash capital contributions received by Holdings, including, without limitation, the proceeds from the Additional Junior Subordinated Note Investment. -87- 7.10 End of Fiscal Years; Fiscal Quarters. Holdings shall, for financial reporting purposes, cause (i) each of its, and each of its Subsidiaries', fiscal years to end on December 31 of each year and (ii) each of its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30, September 30 and December 31 of each year. 7.11 Cash Management System. Holdings shall maintain, and shall cause each of its Subsidiaries to maintain, their cash management system on a basis consistent with their cash management system as in effect on the Effective Date (although no daily cash sweeps against outstanding Loans shall be required); provided, however, to the extent that any Credit Party maintains any bank account (other than payroll accounts) with an institution other than the Administrative Agent in which more than $250,000 is maintained at any time, such Credit Party shall promptly notify the Administrative Agent thereof, and to the extent requested by Lender of America (or any successor Administrative Agent) or the Majority Lenders, such Credit Party shall cause such other institution to enter into lockbox and blocked account arrangements with the Collateral Agent on terms reasonably acceptable to Bank of America (or any successor Administrative Agent). 7.12 Foreign Subsidiaries Security. (a) Within 30 days following the request therefor by the Administrative Agent at any time after the Effective Date, or immediately upon Holdings' or any of its Subsidiaries acquisition thereof after the Effective Date if requested by the Administrative Agent, in any case in the Administrative Agent's sole discretion, Holdings shall pledge, or cause to be pledged, pursuant to the Pledge Agreement, an amendment thereto, or a similar separate pledge agreement, in any case in form and substance reasonably acceptable to the Administrative Agent, 66% of the issued and outstanding capital stock and other equity interests of each Foreign Subsidiary of Holdings (or such lesser percentage owned by Holdings and its Subsidiaries), as additional security for the Obligations. (b) If following a change in the relevant sections of the Code or the regulations, rules, rulings, notices or other official pronouncements issued or promulgated thereunder, counsel for the Borrower reasonably acceptable to the Administrative Agent does not within 30 days after a request from the Administrative Agent or the Majority Lenders deliver evidence, in form and substance mutually satisfactory to the Agent and the Borrower, with respect to any Foreign Subsidiary which has not already had all of its stock pledged pursuant to the Pledge Agreement that (i) a pledge (x) of 66-2/3% or more of the total combined voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote, or (y) of any promissory note issued by such Foreign Subsidiary to the Borrower or any of its Domestic Subsidiaries, (ii) the entering into by such Foreign Subsidiary of a security agreement in substantially the form of the Security Agreement or (iii) the entering into by such Foreign Subsidiary of a guaranty in substantially the form of the Subsidiary Guaranty, in any such case could reasonably be expected to cause (I) the undistributed earnings of such Foreign Subsidiary as determined for Federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary's United States parent for Federal income tax purposes or (II) other material adverse federal income tax consequences to the Credit Parties, then in the case of a failure to deliver the evidence described in clause (i) above, that -88- portion of such Foreign Subsidiary's outstanding capital stock or any promissory notes so issued by such Foreign Subsidiary, in each case not theretofore pledged pursuant to the Pledge Agreement shall be pledged to the Collateral Agent for the benefit of the Lenders pursuant to the Pledge Agreement or a Guarantor Supplement (or another pledge agreement in substantially similar form, if needed), and in the case of a failure to deliver the evidence described in clause (ii) above, such Foreign Subsidiary shall execute and deliver the Security Agreement or a Guarantor Supplement (or another security agreement in substantially similar form, if needed), granting the Collateral Agent for the benefit of the Lenders a security interest in all of such Foreign Subsidiary's assets and securing the Obligations of the Borrower under the Loan Documents and, in the event the Subsidiary Guaranty shall have been executed by such Foreign Subsidiary, the obligations of such Foreign Subsidiary thereunder, and in the case of a failure to deliver the evidence described in clause (iii) above, such Foreign Subsidiary shall execute and deliver the Subsidiary Guaranty or a Guarantor Supplement (or another guaranty in substantially similar form, if needed), guaranteeing the Obligations of the Borrower under the Loan Documents, in each case to the extent that the entering into such Pledge Agreement, Security Agreement, Subsidiary Guaranty, Guarantor Supplement (or similar instrument) is permitted by the laws of the respective foreign jurisdiction and with all documents delivered pursuant to this Section 7.12 to be in form and substance reasonably satisfactory to the Administrative Agent. (c) The Borrower shall execute and deliver, or cause to be executed and delivered, to the Administrative Agent, concurrently with the execution and delivery of any Collateral Documents pursuant to this Section 7.12, such corporate resolutions, legal opinions, corporate certificates, financing statements, stock certificates, stock powers, and other foreign and domestic perfection documents (as applicable) as the Administrative Agent shall reasonably request in connection with such execution and delivery. 7.13 Future Liens on Real Property. The Borrower shall, and shall cause its Subsidiaries to, execute and deliver to the Collateral Agent, for the benefit of the Lenders, as additional security for the Obligations, within 30 days following the request therefor by the Administrative Agent after the Effective Date, in the Administrative Agent's sole discretion, a mortgage, deed of trust or similar interest in any or all fee simple interests in real property now owned or hereafter acquired by Holdings or any of its Subsidiaries and located in the United States, together with such title insurance policies (mortgagee's form), title insurance endorsements, certified land surveys and local counsel opinions with respect thereto, the same to be in form and substance reasonably acceptable to the Administrative Agent. Each such mortgage, deed of trust or similar instrument shall create a first priority Lien in favor of the Collateral Agent, for the benefit of the Lenders, against such real property, subject only to Liens permitted under Section 8.01. 7.14 Holdings Preferred Stock. Holdings shall pay all Dividends on the Holdings Preferred Stock in additional shares of Holdings Preferred Stock rather than in cash; provided that in lieu of issuing additional shares of Holdings Preferred Stock as Dividends, Holdings may -89- increase the liquidation preference of the shares of the Holdings Preferred Stock in respect of which such Dividends have accrued. 7.15 Use of Proceeds; Margin Regulations. (a) All proceeds of the Revolving Loans shall be used for the working capital and general corporate purposes of the Borrower and its Subsidiaries, including to make Permitted Acquisitions, provided that up to $14,000,000 of Revolving Loans in the aggregate may be incurred on the Effective Date to finance, in part, the Transaction and to pay fees and expenses in connection therewith. All proceeds of the Term Loan shall be used to finance, in part, the Transaction and to pay fees and expenses in connection therewith. (b) Holdings and the Borrower shall ensure that no part of any Loan or Letter of Credit will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock or will violate or be inconsistent with the provisions of Regulations T, U and X of the Federal Reserve Board. ARTICLE VIII. NEGATIVE COVENANTS Each of Holdings and the Borrower agrees with the Administrative Agent, each Issuing Lender and each Lender that, until all Commitments and Letters of Credit have terminated and all Obligations (other than indemnities for which no request for payment has been made) have been paid and performed in full: 8.01 Liens. Holdings will not, and will not permit any of its Subsidiaries to, create, incur, assume, or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to Holdings or any of its Subsidiaries), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 8.01 shall not prevent the creation, incurrence, assumption or existence of the following (Liens described below are herein referred to as "Permitted Liens"): (i) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP or which are immaterial; -90- (ii) Liens in respect of property or assets of Holdings or any of its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of Holdings' or such Subsidiary's property or assets or materially impair the use thereof in the operation of the business of Holdings or such Subsidiary or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iii) Liens in existence on the Effective Date which are listed, and the property subject thereto described, in Schedule 8.01, provided that (x) the aggregate principal amount of the Indebtedness, if any, secured by such Liens does not increase from that amount outstanding at the time of any such renewal, replacement or extension and (y) any such renewal, replacement or extension does not encumber any additional assets or properties (other than proceeds and products of such assets or properties and accessions, replacements and substitutions thereof) of Holdings or any of its Subsidiaries; (iv) Liens created pursuant to the Collateral Documents; (v) licenses, sublicenses, leases or subleases granted to other Persons not materially interfering with the conduct of the business of Holdings or any of its Subsidiaries; (vi) Liens upon assets of the Borrower or any of its Subsidiaries subject to Capital Lease Obligations to the extent such Capital Lease Obligations are permitted by Section 8.04(iv), provided that (x) such Liens only serve to secure the payment of Indebtedness arising under such Capital Lease Obligation and (y) the Lien encumbering the asset giving rise to the Capital Lease Obligation does not encumber any other asset of the Borrower or any Subsidiary of the Borrower; (vii) Liens placed upon property acquired after the Effective Date and used in the ordinary course of business of the Borrower or any of its Subsidiaries at the time of the acquisition thereof by the Borrower or any such Subsidiary or within 90 days thereafter to secure Indebtedness incurred to pay all or a portion of the purchase price thereof or to secure Indebtedness incurred solely for the purpose of financing the acquisition of any such property or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that (x) the aggregate outstanding principal amount of all Indebtedness secured by Liens permitted by this clause (vii), when added to the aggregate outstanding principal of all Indebtedness secured by Liens permitted under clause (vi) of this Section 8.01, shall not at any time outstanding exceed $2,000,000 and (y) in all events, the Lien encumbering the property so acquired does not encumber any -91- other asset (other than proceeds and products of such property and accessions, replacements and substitutions thereof) of the Borrower or such Subsidiary; (viii) easements, rights-of-way, restrictions, zoning rights, encroachments and other similar charges or encumbrances, and minor title deficiencies, in each case not securing Indebtedness and not materially interfering with the conduct of the business of Holdings or any of its Subsidiaries; (ix) Liens arising from precautionary UCC financing statement filings regarding operating leases; (x) Liens arising out of the existence of judgments or awards to the extent not constituting an Event of Default under Section 9.01(i); (xi) statutory and common law landlords' liens under leases to which Holdings or any of its Subsidiaries is a party; (xii) (x) Liens (other than Liens imposed under ERISA) incurred in the ordinary course of business in connection with workers compensation claims, unemployment insurance and social security benefits and (y) Liens securing the performance of bids, tenders, leases and contracts in the ordinary course of business, statutory obligations, surety bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money), provided that the aggregate outstanding amount of obligations secured by Liens permitted by this clause (xii)(y) (and the value of all cash and property encumbered by Liens permitted pursuant to this clause (xii)(y)) shall not at any time exceed $1,000,000; (xiii) Liens on property or assets acquired pursuant to a Permitted Acquisition, or on property or assets of a Subsidiary of the Borrower in existence at the time such Subsidiary is acquired pursuant to a Permitted Acquisition, provided that (i) any Indebted ness that is secured by such Liens is permitted to exist under Section 8.04(xi) and (ii) such Liens are not incurred in connection with or anticipation of such Permitted Acquisition and do not attach to any other asset of Holdings or any of its Subsidiaries; (xiv) Liens securing reimbursement obligations in respect of documentary letters of credit permitted to be issued under Section 8.04, provided that such Liens attach only to the documents, the goods covered thereby and the proceeds thereof; (xv) Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods; -92- (xvi) Liens consisting of rights of set-off of a customary nature or bankers' liens on amounts on deposit, whether arising by contract or operation of law, incurred in the ordinary course of business; and (xvii) Liens on property and assets of any Foreign Subsidiary of the Borrower securing Indebtedness permitted to be incurred by such Foreign Subsidiary pursuant to Section 8.04. In connection with the granting of Liens of the type described in clauses (vi) and (vii) of this Section 8.01 by the Borrower or any of its Subsidiaries, the Administrative Agent and the Collateral Agent shall be authorized to take any actions deemed appropriate by it in connection therewith (including, without limitation, by executing appropriate lien releases or lien subordination agreements in favor of the holder or holders of such Liens, in either case solely with respect to the item or items of equipment or other assets subject to such Liens). 8.02 Consolidation, Merger, Purchase or Sale of Assets, etc. Holdings will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of all or any part of its property or assets, or enter into any sale-leaseback transactions, or, other than pursuant to the Merger Agreement, purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of inventory, materials and equipment in the ordinary course of business) of any Person (or agree to do any of the foregoing at any future time), except that: (i) Capital Expenditures by the Borrower and its Subsidiaries shall be permitted to the extent not in violation of Section 8.07; (ii) each of the Borrower and its Subsidiaries may make sales of inventory in the ordinary course of business; (iii) each of the Borrower and its Subsidiaries may sell obsolete or worn-out equipment or materials; (iv) each of the Borrower and its Subsidiaries may sell other assets, provided that the aggregate sale proceeds from all assets subject to such sales pursuant to this clause (iv) shall not exceed $75,000 in any fiscal year of the Borrower; (v) each of the Borrower and its Subsidiaries may sell assets (other than the capital stock of any Subsidiary Guarantor), so long as (w) no Default or Event of Default then exists or would result therefrom, (x) each such sale is in an arm's-length transaction and the Borrower or the respective Subsidiary receives at least fair market value (as determined in good faith by the Borrower or such Subsidiary, as the case may be), (y) at least 75% of the total consideration received by the Borrower or such Subsidiary is cash -93- and is paid at the time of the closing of such sale, and (z) the aggregate amount of the proceeds received from all assets sold pursuant to this clause (v) shall not exceed $1,000,000 in any fiscal year of the Borrower; (vi) Investments may be made to the extent permitted by Section 8.05; (vii) each of the Borrower and its Subsidiaries may lease (as lessee) or license (as licensee) real or personal property (so long as any such lease or license does not create a Capital Lease Obligation except to the extent permitted by Section 8.04(iv)); (viii) each of the Borrower and its Subsidiaries may sell or discount, in each case without recourse and in the ordinary course of business, accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof; (ix) each of the Borrower and its Subsidiaries may grant licenses, sublicenses, leases or subleases to other Persons in the ordinary course of business and not materially interfering with the conduct of the business of the Borrower or any of its Subsidiaries; (x) the Borrower and its Wholly-Owned Subsidiaries may acquire all or substantially all of the assets of any Person (or all or substantially all of the assets of a product line or division of any Person) or 100% (or at least 75% to the extent provided below) of the capital stock of any Person (any such acquisition permitted by this clause (x), as well as any acquisition permitted by clause (xi) of this Section 8.02, a "Permitted Acquisition", provided, however, that the Merger shall not constitute a Permitted Acquisition), so long as (i) no Default or Event of Default then exists or would result therefrom, (ii) each of the representations and warranties contained in Article VI shall be true and correct in all material respects both before and after giving effect to such Permitted Acquisition, (iii) any Liens or Indebtedness assumed or issued in connection with such acquisition are otherwise permitted under Section 8.01 or 8.04, as the case may be, (iv) at least 10 Business Days prior to the consummation of any Permitted Acquisition, Holdings shall deliver to the Administrative Agent and each of the Lenders a certificate of Holdings' Chief Financial Officer certifying (and showing the calculations therefor in reasonable detail) that Holdings would have been in compliance with the financial covenants set forth in Sections 8.08, 8.09 and 8.10 for the Measurement Period then most recently ended prior to the date of the consummation of such Permitted Acquisition, in each case with such financial covenants to be determined on a pro forma basis as if such Permitted Acquisition had been consummated on the first day of such Measurement Period (and assuming that any Indebtedness incurred, issued or assumed in connection therewith had been incurred, issued or assumed on the first day of, and had remained outstanding throughout, such Measurement Period), (v) the only consideration paid by the Borrower or any of its Wholly-Owned Subsidiaries in connection with any such Permitted Acquisition consists solely of cash (including as a result of any earnout, non-compete or -94- deferred compensation arrangements), Indebtedness assumed to the extent permitted by Section 8.04, Qualified Seller Subordinated Debt, Holdings Common Stock and/or Holdings Preferred Stock, (vi) on or prior to December 31, 1999, the aggregate consideration paid in connection with all such Permitted Acquisitions in any fiscal year of the Borrower (including, without limitation, any earnout, non-compete or deferred compensation arrangements, the aggregate principal amount of any Indebtedness assumed or issued in connection therewith and the fair market value of any Holdings Common Stock or Holdings Preferred Stock issued in connection therewith (as determined in good faith by Holdings)) does not exceed $7,500,000 in each of fiscal years 1998 and 1999, provided, however, if the amount actually expended in respect of all Permitted Acquisitions in fiscal year 1998 is less than the aggregate amount of Permitted Acquisitions permitted to be made in fiscal year 1998, such excess may be carried forward and utilized to make Permitted Acquisitions in fiscal year 1999, (vii) no more than $3,000,000 in the aggregate in any fiscal year of the Borrower may be expended on Permitted Acquisitions in which the Borrower or a Wholly-Owned Subsidiary thereof acquires less than 100% of the capital stock of any Person and (viii) after giving effect to any such Permitted Acquisition, the aggregate unutilized Commitments shall be at least $5,000,000; (xi) in addition to the Permitted Acquisitions permitted by clause (x) of this Section 8.02, the Borrower and its Wholly-Owned Subsidiaries may make additional Permitted Acquisitions (A) with cash equity contributions and the net cash proceeds from the sale of capital stock of Holdings and Holdings Junior Subordinated Notes, in each case which are received by Holdings after the Effective Date and are contributed to the Borrower to the extent that such proceeds are not used (1) to make Capital Expenditures pursuant to Section 8.07(f), (2) to pay Dividends pursuant to Section 8.03(vi), (3) to make Investments pursuant to Section 8.05(xvi), (4) to repurchase or redeem outstanding Borrower Senior Subordinated Notes pursuant to Section 8.11(i) or (5) to prepay the Loans pursuant to Section 2.07(c) and (B) in any fiscal year of the Borrower (commencing on January 1, 1999) in an amount not to exceed 50% of Consolidated Net Income of Holdings for the immediately preceding fiscal year, in each case so long as each of the conditions set forth in Section 8.02(x) (other than clause (vi) thereof) have been satisfied in respect of each such Permitted Acquisition; (xii) any Subsidiary of the Borrower may transfer any of its assets to the Borrower and may be merged, consolidated or liquidated with or into the Borrower so long as the Borrower is the surviving corporation of such merger, consolidation or liquidation; (xiii) any Subsidiary of the Borrower may transfer any of its assets to a Subsidiary Guarantor and may be merged, consolidated or liquidated with or into any other Subsidiary of the Borrower so long as (i) in the case of any such merger, consolidation or liquidation involving a Subsidiary Guarantor, the Subsidiary Guarantor is the surviving corporation of such merger, consolidation or liquidation and (ii) in the case of any such -95- merger, consolidation or liquidation involving a Wholly-Owned Subsidiary of the Borrower, the Wholly-Owned Subsidiary is the surviving corporation of such merger, consolidation or liquidation; (xiv) the Borrower and its Subsidiaries may sell or exchange specific items of equipment, so long as the purpose of each sale or exchange is to acquire (and results within 90 days of such sale or exchange in the acquisition of) replacement items of equipment which are, in the reasonable business judgment of the Borrower and its Subsidiaries, the functional equivalent of the item of equipment so sold or exchanged; (xv) any Foreign Subsidiary of the Borrower may transfer any of its assets to a Wholly-Owned Foreign Subsidiary of the Borrower or to a Subsidiary Guarantor; (xvi) the Borrower and its Subsidiaries may sell inventory to their respective Subsidiaries in the ordinary course of business and consistent with past practices for resale by such Subsidiaries in the ordinary course of their business; (xvii) the Borrower and the Subsidiary Guarantors may sell or otherwise transfer equipment to their Subsidiaries in the ordinary course of business so long as no more than $1,000,000 of equipment is sold or transferred in any fiscal year of the Borrower pursuant to this clause (xvii); and (xviii) any Foreign Subsidiary of the Borrower may enter into factoring arrangements with respect to its receivables in the ordinary course of business and consistent with the practices in the region in which such Foreign Subsidiary operates so long as no more than $500,000 of receivables are subject to such factoring arrangements at any one time outstanding. To the extent the Majority Lenders waive the provisions of this Section 8.02 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 8.02 (other than to Holdings or a Subsidiary thereof), such Collateral shall be sold free and clear of the Liens created by the Collateral Documents, and the Administrative Agent and the Collateral Agent shall be authorized to take any actions deemed appropriate in order to effect the foregoing. 8.03 Dividends. Holdings will not, and will not permit any of its Subsidiaries to, authorize, declare or pay any Dividends with respect to Holdings or any of its Subsidiaries, except that: (i) (x) any Subsidiary of the Borrower may pay cash Dividends to the Borrower or any Wholly-Owned Subsidiary of the Borrower and (y) so long as no Default or Event of Default then exists or would result therefrom, any non-Wholly-Owned Subsidiary of the Borrower may pay cash Dividends to its shareholders generally so long as the Borrower or its respective Subsidiary which owns the equity interest or interests in the Subsidiary -96- paying such Dividends receives at least its proportionate share thereof (based upon its relative holdings of equity in interests in the Subsidiary paying such Dividends and taking into account the relative preferences, if any, of the various classes of equity interests in such Subsidiary); (ii) so long as there shall exist no Default or Event of Default (both before and after giving effect to the payment thereof), Holdings may repurchase outstanding shares of its stock (or options to purchase such stock) following the death, disability, retirement or termination of employment of employees of Holdings or any of its Subsidiaries, provided that (x) the only consideration paid by Holdings in respect of such repurchases shall be cash, forgiveness of debt owed by such employee to Holdings and/or Holdings Shareholder Subordinated Notes and (y) the sum of (1) the aggregate amount of cash paid by Holdings in respect of all such repurchases plus (2) the aggregate amount of all payments made on all Holdings Shareholder Subordinated Notes pursuant to Section 8.11(iv) plus (3) the aggregate amount of all repurchases of all Holdings Junior Subordinated Notes pursuant to Section 8.11(iii)(x) shall not exceed $350,000 in any fiscal year of Holdings, provided that any unused amount thereof may be carried forward and utilized for such purposes in the immediately succeeding fiscal year of Holdings; (iii) so long as no Default or Event of Default then exists or would result there from, the Borrower may pay cash Dividends to Holdings (x) so long as Holdings promptly uses such proceeds for the purposes described in clause (ii) of this Section 8.03, Section 8.11(iii)(x) or Section 8.11(iv) and (y) at times, and in the amounts, necessary to allow Holdings to make payments in respect of Holdings Junior Subordinated Notes (other than in respect of principal) to the extent permitted by Section 8.11(iii)(y), provided that the aggregate amount of cash Dividends paid pursuant to this clause (iii)(y), when added to the aggregate amount of cash Dividends paid pursuant to clause (iv) of this Section 8.03, shall not exceed $1,250,000 in any fiscal year of Holdings; (iv) the Borrower may pay cash Dividends to Holdings so long as the proceeds thereof are promptly used by Holdings to pay operating expenses in the ordinary course of business (including, without limitation, outside directors and professional fees, expenses and indemnities) and other similar corporate overhead costs and expenses, provided that the aggregate amount of cash Dividends paid pursuant to this clause (iv), when added to the aggregate amount of cash Dividends paid pursuant to clause (iii)(y) of this Section 8.03, shall not exceed $1,250,000 in any fiscal year of Holdings; (v) Holdings may pay regularly scheduled Dividends on the Holdings Preferred Stock pursuant to the terms thereof solely through the issuance of additional shares of Holdings Preferred Stock, provided that in lieu of issuing additional shares of Holdings Preferred Stock as Dividends, Holdings may increase the liquidation preference of the shares of the Holdings Preferred Stock in respect of which such Dividends have accrued; -97- (vi) so long as there shall exist no Default or Event of Default (both before and after giving effect to the payment thereof), Holdings may repurchase outstanding shares of its stock (or options to purchase such stock) with the net cash proceeds received by Holdings from the substantially concurrent sale of Holdings Common Stock, Holdings Preferred Stock and/or Holdings Junior Subordinated Notes to the extent that such proceeds are not used to redeem or repurchase outstanding Holdings Junior Subordinated Notes pursuant to the last sentence of Section 8.11; and (vii) the Borrower may pay cash Dividends to Holdings in connection with amounts owing by it under the Tax Sharing Agreement. 8.04 Indebtedness. Holdings will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness incurred pursuant to this Agreement and the other Loan Documents; (ii) existing Indebtedness (other than the Holdings Junior Subordinated Notes and the Borrower Senior Subordinated Notes) outstanding on the Effective Date and listed on Schedule 8.04, without giving effect to any subsequent extension, renewal or refinancing thereof except to the extent set forth on Schedule 8.04, provided that the aggregate principal amount of the Indebtedness to be extended, renewed or refinanced does not increase from that amount outstanding at the time of any such extension, renewal or refinancing; (iii) Indebtedness under Interest Rate Protection Agreements entered into with respect to other Indebtedness permitted under this Section 8.04; (iv) Indebtedness of the Borrower and its Subsidiaries evidenced by Capital Lease Obligations to the extent permitted pursuant to Section 8.07, provided that in no event shall the aggregate principal amount of Capital Lease Obligations permitted by this clause (iv), when added to the aggregate principal amount of Indebtedness outstanding under clause (v) of this Section 8.04, exceed $2,000,000 at any time outstanding; (v) Indebtedness subject to Liens permitted under Sections 8.01(vii); (vi) (x) intercompany Indebtedness among the Borrower and its Subsidiaries to the extent permitted by Sections 8.05(xi) and 8.05(xii) and (y) Indebtedness of Holdings to the Borrower to the extent permitted by Section 8.05(xv); (vii) Indebtedness of the Borrower and the Subsidiary Guarantors incurred under the Borrower Senior Subordinated Note Documents in an aggregate principal amount not to exceed $95,000,000 (as reduced by any repayments of principal thereof); provided, -98- however, from and after a Qualified Public Equity Offering, the Borrower Senior Subordinated Notes may be guaranteed on an unsecured senior subordinated basis by Holdings so long as (x) the subordination provisions are no less favorable to the Lenders than the subordination provisions applicable to the Subsidiary Guarantors and (y) the giving of such guaranty would allow Holdings and the Borrower to report one set of consolidated financial statements to the holders of the Borrower Senior Subordinated Notes and the Securities and Exchange Commission; (viii) unsecured subordinated Indebtedness of the Borrower and the Subsidiary Guarantors ("Refinancing Subordinated Indebtedness") the proceeds of which are used at the time of the incurrence thereof to refinance or redeem outstanding Borrower Senior Subordinated Notes so long as (i) no Default or Event of Default then exists or would result therefrom, (ii) all of the terms and conditions of such Refinancing Subordinated Indebtedness (including, without limitation, subordination provisions, covenants, events of default, interest rates, remedies, amortizations and maturities) are reasonably acceptable to the Majority Lenders, it being understood that any such Refinancing Subordinated Indebtedness with terms no more restrictive than the Borrower Senior Subordinated Note Documents or less favorable to the Lenders than the Borrower Senior Subordinated Note Documents shall be deemed satisfactory to the Majority Lenders and that in any event such Refinancing Subordinated Indebtedness shall not have any scheduled maturity, amortization or sinking fund payment earlier than the final maturity of the Borrower Senior Subordinated Notes and (iii) the aggregate principal amount of such Refinancing Subordinated Indebtedness does not exceed the aggregate principal amount of the Borrower Senior Subordinated Notes to be redeemed or refinanced, together with any prepayment premium associated therewith and all costs and expenses incurred in connection therewith; provided, however, from and after a Qualified Public Equity Offering, the Refinancing Subordinated Indebtedness may be guaranteed on an unsecured senior subordinated basis by Holdings so long as (x) the subordination provisions are no less favorable to the Lenders than the subordination provisions applicable to the Subsidiary Guarantors and (y) the giving of such guaranty would allow Holdings and the Borrower to report one set of consolidated financial statements to the holders of the Refinancing Subordinated Indebtedness and the Securities and Exchange Commission; (ix) Indebtedness of Holdings under the Holdings Junior Subordinated Notes, provided that issuances of Holdings Junior Subordinated Notes after the Effective Date may not be made other than in connection with a sale of equity made by Holdings in an aggregate principal amount not to exceed 150% of the cash price paid for such related equity and no such additional Holdings Junior Subordinated Notes may be issued after a Qualified Public Equity Offering; (x) Indebtedness consisting of guaranties by the Borrower and its Subsidiaries of each other's Indebtedness and lease and other obligations permitted under this Agreement; -99- (xi) Indebtedness of a Subsidiary acquired pursuant to a Permitted Acquisition or Indebtedness of the Borrower or a Subsidiary thereof assumed at the time of a Permitted Acquisition of an asset securing such Indebtedness, provided that (i) such Indebtedness was not incurred in connection with or anticipation of such Permitted Acquisition, and (ii) such Indebtedness does not constitute debt for borrowed money (other than in connection with industrial revenue or industrial development bond financing), it being understood and agreed that Capital Lease Obligations and purchase money Indebtedness shall not constitute debt for borrowed money for purposes of this clause (xi); (xii) Qualified Seller Subordinated Debt issued as consideration pursuant to a Permitted Acquisition so long as such Qualified Seller Subordinated Debt is permitted to be issued at such time pursuant to Section 8.02(x) or (xi) and the aggregate principal amount of all Qualified Seller Subordinated Debt does not exceed $10,000,000 at any time outstanding; (xiii) obligations of the Borrower or any of its Subsidiaries under incentive, earn-out or other similar arrangements incurred by it in connection with a Permitted Acquisition to the extent permitted under Sections 8.02(x) and (xi); (xiv) Indebtedness of Holdings under Holdings Shareholder Subordinated Notes in an aggregate principal amount not to exceed $2,500,000 at any time outstanding; (xv) Indebtedness in respect of Other Hedging Agreements to the extent permitted by Section 8.05(xiii); (xvi) Indebtedness subject to Liens permitted under Section 8.01(xii); and (xvii) additional Indebtedness incurred by the Borrower or any of its Subsidiaries in an aggregate principal amount not to exceed $5,000,000 at any one time outstanding. 8.05 Advances, Investments and Loans. Holdings will not, and will not permit any of its Subsidiaries to, directly or indirectly, lend money or credit or make advances to any Per son, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash or Cash Equivalents (each of the foregoing an "Investment" and, collectively, "Investments"), except that the following shall be permitted: (i) the Borrower and its Subsidiaries may acquire and hold accounts receivables owing to any of them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms of the Borrower or such Subsidiary; -100- (ii) the Borrower and its Subsidiaries may acquire and hold cash and Cash Equivalents, provided that during any time that Loans are outstanding the aggregate amount of cash and Cash Equivalents permitted to be held by the Borrower and its Subsidiaries shall not exceed $3,000,000 for any period of fifteen consecutive Business Days, it being understood and agreed, however, that so long as no Event of Default shall exist, the Borrower shall not be required to repay any Eurodollar Loan in the middle of an Interest Period as a result of complying with this clause (ii) and the failure to make such a payment will not give rise to an Event of Default; (iii) the Borrower and its Subsidiaries may hold the Investments held by them on the Effective Date and described on Schedule 8.05, provided that any additional Investments made with respect thereto shall be permitted only if independently justified under the other provisions of this Section 8.05; (iv) the Borrower and its Subsidiaries may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in good faith settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (v) the Borrower and its Subsidiaries may make loans and advances in the ordinary course of business to their respective employees so long as the aggregate principal amount thereof at any time outstanding (determined without regard to any write-downs or write-offs of such loans and advances) shall not exceed $500,000; (vi) Holdings may acquire and hold obligations of one or more officers or other employees of Holdings or any of its Subsidiaries in connection with such officers' or employees' acquisition of shares of capital stock of Holdings and/or Holdings Junior Subordinated Notes so long as no cash is paid by Holdings or any of its Subsidiaries to such officers or employees in connection with the acquisition of any such obligations; (vii) the Borrower and its Subsidiaries may acquire and hold promissory notes issued by the purchaser of assets in connection with a sale of such assets to the extent permitted by Section 8.02; (viii) the Borrower and its Wholly-Owned Subsidiaries may make Permitted Acquisitions to the extent permitted by Sections 8.02(x) and (xi); (ix) the Borrower and its Subsidiaries may enter into Interest Protection Agreements to the extent permitted by Section 8.04(iii); (x) Holdings may make cash contributions to the capital of the Borrower and the Borrower and the Subsidiary Guarantors may make cash contributions to the capital of their respective Subsidiaries which are Subsidiary Guarantors; -101- (xi) the Borrower and the Subsidiary Guarantors may make intercompany loans and advances between or among one another (collectively, "Intercompany Loans"), so long as each Intercompany Loan shall be evidenced by an Intercompany Note that is pledged to the Collateral Agent pursuant to the Pledge Agreement; (xii) the Borrower and the Subsidiary Guarantors may make additional loans and cash contributions to their respective Subsidiaries which are not Subsidiary Guarantors in an aggregate amount not to exceed $2,000,000 at any time outstanding (determined without regard to any write-downs or write-offs thereof); (xiii) the Borrower and its Subsidiaries may enter into Other Hedging Agreements providing protection against fluctuations in currency values in connection with the Borrower's or any of its Subsidiaries' operations so long as management of the Borrower or such Subsidiary, as the case may be, has determined that the entering into of such Other Hedging Agreements are bona fide hedging activities; (xiv) Holdings and its Subsidiaries may hold additional investments in their respective Subsidiaries to the extent that such investments reflect an increase in the value of such Subsidiaries; (xv) to the extent that the Borrower may pay cash Dividends to Holdings pursuant to Sections 8.03(iii) and (iv), the Borrower may, in lieu of paying such cash Dividends, make an Intercompany Loan to Holdings for the purposes, and subject to the limitations, set forth in such Sections 8.03(iii) and (iv), in each case so long as each Intercompany Loan shall be evidenced by an Intercompany Note that is pledged to the Collateral Agent pursuant to the Pledge Agreement; and (xvi) the Borrower and its Subsidiaries may make additional Investments in an aggregate amount not to exceed $1,000,000 in any fiscal year of the Borrower (determined without regard to any write-downs or write-offs thereof) plus the aggregate amount of such Investments made with cash equity contributions and the net cash proceeds from the sale of capital stock of Holdings and Holdings Junior Subordinated Notes, in each case which are received by Holdings after the Effective Date and are contributed to the Borrower to the extent that such proceeds are not used (1) to make Permitted Acquisitions pursuant to Section 8.02(xi), (2) to make Capital Expenditures pursuant to Section 8.07(f), (3) to pay Dividends pursuant to Section 8.03(viii), (4) to repurchase or redeem outstanding Borrower Senior Subordinated Notes pursuant to Section 8.11(i) or (5) to prepay the Loans pursuant to Section 2.07(c), it being understood and agreed, however, that Holdings may concurrently (or within one Business Day thereafter) make any Investment pursuant to this clause (xvi) with the proceeds received from any such equity contribution or sale of capital stock or Holdings Junior Subordinated Notes without any requirement to contribute the same to the Borrower. -102- 8.06 Transactions with Affiliates. Holdings will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of Holdings or any of its Subsidiaries, other than in the ordinary course of business and on terms and conditions substantially as favorable to Holdings or such Subsidiary as would reasonably be obtained by Holdings or such Subsidiary at that time in a comparable arm's-length transaction with a Person other than an Affiliate, except that the following in any event shall be permitted: (i) Dividends may be paid to the extent provided in Section 8.03; (ii) loans may be made and other transactions may be entered into by Holdings and its Subsidiaries to the extent permitted by Sections 8.02, 8.04 and 8.05; (iii) customary fees may be paid to non-officer directors of Holdings and its Subsidiaries; (iv) so long as no Default under Section 7.01, 7.02(a), 9.01(a), 9.01(f) or 9.01(g) shall exist and no Event of Default shall exist, the Borrower may pay management fees to CHS Management and its Affiliates monthly in arrears pursuant to, and in accordance with, the terms of the CHS Management Agreement (as in effect on the Effective Date) in an aggregate amount for all such Persons taken together not to exceed $62,500 per month plus the reasonable out-of-pocket expenses incurred by CHS Management and its Affiliates in performing management services for the Borrower pursuant to the CHS Management Agreement (it being understood and agreed that the reimbursement of such reasonable out-of-pocket expenses may be made whether or not any Default or Event of Default exists); (v) the Borrower may pay a transaction fee to CHS and its Affiliates on the Effective Date in the aggregate amount of up to $500,000 for all such Persons taken together plus the reasonable out-of-pocket expenses incurred by CHS and its Affiliates in connection with the Transaction; (vi) the Borrower may pay, in connection with any Permitted Acquisition, a transaction fee to CHS Management and its Affiliates in an aggregate amount for all such Persons taken together not to exceed 1% of the aggregate value of any such Permitted Acquisition; (vii) Holdings and its Subsidiaries may enter into and perform their obligations under the Holdings Tax Sharing Agreement; (viii) transactions entered into between or among the Borrower and its Subsidiaries to the extent otherwise expressly permitted by this Agreement; -103- (ix) Holdings and its Subsidiaries may enter into employment arrangements (including benefit compensation, bonuses and stock option and plans) with respect to the procurement of services with their respective officers and employees in the ordinary course of business; and (x) Holdings may issue and sell shares of its capital stock to its stockholders to the extent otherwise permitted by this Agreement. 8.07 Capital Expenditures. (a) Holdings will not, and will not permit any of its Subsidiaries to, make any Capital Expenditures, except that during any fiscal year of the Borrower set forth below (taken as one accounting period), the Borrower and its Subsidiaries may make Capital Expenditures so long as the aggregate amount of all such Capital Expenditures does not exceed in any period set forth below the amount set forth opposite such period:
Period Amount ------ ------ Effective Date through December 31, 1998 $2,800,000 January 1, 1999 through December 31, 1999 $4,000,000 January 1, 2000 through December 31, 2000 $4,000,000 January 1, 2001 through December 31, 2001 $4,000,000 January 1, 2002 through December 31, 2002 $4,000,000 January 1, 2003 through December 31, 2003 $4,000,000
(b) In addition to the foregoing, in the event that the amount of Capital Expenditures permitted to be made by the Borrower and its Subsidiaries pursuant to clause (a) above in any period (before giving effect to any increase in such permitted Capital Expenditure amount pursuant to this clause (b)) is greater than the amount of Capital Expenditures actually made by the Borrower and its Subsidiaries during such period, such excess may be carried forward and utilized to make Capital Expenditures in the immediately succeeding fiscal year, provided that no amounts once carried forward pursuant to this Section 8.07(b) may be carried forward to any period thereafter and such amounts may only be utilized after the Borrower and its Subsidiaries have utilized in full the permitted Capital Expenditure amount for such period as set forth in the table in clause (a) above (without giving effect to any increase in such amount by operation of this clause (b)). (c) In addition to the foregoing, the Borrower and it Subsidiaries may make Capital Expenditures with the amount of Net Cash Proceeds received by the Borrower or any of its Subsidiaries from any Asset Sale so long as such Net Cash Proceeds are reinvested in replacement assets within 270 days following the date of such Asset Sale to -104- the extent such Net Cash Proceeds are not otherwise required to be applied to prepay the Loans pursuant to Section 2.07(d). (d) In addition to the foregoing, the Borrower and its Subsidiaries may make Capital Expenditures with the amount of Net Insurance Proceeds received by the Borrower or any of its Subsidiaries from any Recovery Event so long as such Net Insurance Proceeds are used to replace or restore any properties or assets in respect of which such Net Insurance Proceeds were paid within 365 days following the date of receipt of such Net Insurance Proceeds from such Recovery Event to the extent such Net Insurance Proceeds are not otherwise required to be applied to prepay the Loans pursuant to Section 2.07(e). (e) In addition to the foregoing, the Borrower and its Wholly-Owned Subsidiaries may consummate Permitted Acquisitions in accordance with Sections 8.02(x) and (xi). (f) In addition to the foregoing, the Borrower and its Subsidiaries may make additional Capital Expenditures with cash equity contributions and the net cash proceeds from the sale of capital stock of Holdings and Holdings Junior Subordinated Notes, in each case which are received by Holdings after the Effective Date and are contributed to the Borrower to the extent that such proceeds are not used (1) to make Permitted Acquisitions pursuant to Section 8.02(xi), (2) to pay Dividends pursuant to Section 8.03(vii), (3) to make Investments pursuant to Section 8.05(xvi), (4) to repurchase or redeem Borrower Senior Subordinated Notes pursuant to Section 8.11(i) or (5) to prepay the Loans pursuant to Section 2.07(c). 8.08 Consolidated Coverage Ratios. (a) Holdings and the Borrower will not permit the Consolidated Interest Coverage Ratio for any Measurement Period ending on the last day of any fiscal quarter ending after October 1, 1998 to be less than 2.00 to 1.00. (b) Holdings and the Borrower will not permit the Consolidated Fixed Charge Coverage Ratio for any Measurement Period ending during any period set forth below to be less than the ratio set forth below opposite such period: Period Ratio ------ ----- July 1, 1998 through September 30, 1998 1.20:1.00 October 1, 1998 through June 30, 1999 1.25:1.00 -105- July 1, 1999 through December 31, 2000 1.35:1.00 January 1, 2001 through December 31, 2001 1.40:1.00 January 1, 2002 and thereafter 1.50:1.00. 8.09 Maximum Leverage Ratio. Holdings and the Borrower will not permit the Consolidated Leverage Ratio at any time during any period set forth below to be greater than the ratio set forth opposite such period below: Period Ratio ------ ----- July 1, 1998 through March 31, 1999 5.50:1.00 April 1, 1999 thorough December 31, 1999 5.25:1.00 January 1, 2000 through December 31, 2000 4.50:1.00 January 1, 2001 through December 31, 2001 4.00:1.00 January 1, 2002 through December 31, 2002 3.50:1.00 January 1, 2003 and thereafter 3.00:1.00. 8.10 Minimum Consolidated EBITDA. Holdings and the Borrower will not permit Consolidated EBITDA for any Measurement Period ending on any of the dates set forth below to be less than the amount set forth below opposite such date: Measurement Period Ending Amount ------------------------- ------ December 31, 1998 $25,000,000 December 31, 1999 $27,000,000 -106- December 31, 2000 $29,000,000 December 31, 2001 $30,000,000 December 31, 2002 and thereafter $32,000,000. 8.11 Limitation on Voluntary Payments and Modification of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc. Holdings will not, and will not permit any of its Subsidiaries to: (i) make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due) any Borrower Senior Subordinated Note, provided that so long as no Default or Event of Default then exists or would result therefrom, the Borrower may refinance or redeem outstanding Borrower Senior Subordinated Notes with the proceeds of Refinancing Subordinated Indebtedness and with cash equity contributions and the net cash proceeds from the sale of capital stock of Holdings and Holdings Junior Subordinated Notes, in each case which are received by Holdings after the Effective Date and are contributed to the Borrower to the extent that such proceeds are not used (1) to make Permitted Acquisitions pursuant to Section 8.02(xi), (2) to make Capital Expenditures pursuant to Section 8.07(f), (3) to pay Dividends pursuant to Section 8.03(vii), (4) to make Investments pursuant to Section 8.05(xvi) or (5) to prepay the Loans pursuant to Section 2.07(c); (ii) make (or give any notice in respect of) any prepayment or redemption of any Borrower Senior Subordinated Note as a result of any asset sale, change of control or similar event (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due any Borrower Senior Subordinated Note); (iii) make (or give any notice in respect of) any payment, prepayment, redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due) any Holdings Junior Subordinated Note (whether in respect of principal, interest or otherwise), provided that so long as no Default or Event of Default then exists or would result therefrom, (x) Holdings may purchase or redeem Holdings Junior Subordinated Notes held by employees of Holdings or any of its Subsidiaries following their death, disability, retirement or termination of employment so long as the aggregate amount expended pursuant to this clause (iii)(x), when added to the sum of the aggregate amount of all Dividends paid or made pursuant to Section 8.03(ii) and the aggregate amount of all payments made in respect of all Holdings Shareholder -107- Subordinated Notes pursuant to Section 8.11(iv), shall not exceed $350,000 in any fiscal year of Holdings, provided that any unused amount thereof may be carried forward and utilized for such purposes in the immediately succeeding fiscal year of Holdings, and (y) Holdings may make interest payments in respect of outstanding Holdings Junior Subordinated Notes so long as (A) such payments are only made on or after March 15 of each year and before March 31 of such year to pay income taxes of the holders thereof which are payable as a result of interest income earned in the immediately preceding year in respect of such Holdings Junior Subordinated Notes (it being understood, however, that such payment may not be made in any year until the Compliance Certificate in respect of the Measurement Period ending on December 31 of the immediately preceding fiscal year has been delivered pursuant to Section 7.02(a)) and (B) the aggregate amount paid pursuant to this clause (iii)(y), when added to the aggregate amount of Dividends paid pursuant to Section 8.03(iv), shall not exceed $1,250,000 in any fiscal year of Holdings; (iv) make (or give any notice in respect of) any payment, prepayment, redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due) any Holdings Shareholder Subordinated Note (whether in respect of principal, interest or otherwise), provided that so long as no Default or Event of Default then exists or would result therefrom, Holdings may make payments on Holdings Shareholder Subordinated Notes to the extent permitted by Section 8.03(ii); (v) make (or give any notice in respect of) any payment, prepayment, redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due) any Qualified Seller Subordinated Debt (whether in respect of principal, interest or otherwise) at a time when any Default or Event of Default then exists; (vi) amend or modify, or permit the amendment or modification of, any provision of any Borrower Senior Subordinated Note Document, any Refinancing Subordinated Indebtedness, any Holdings Junior Subordinated Note, any Holdings Shareholder Subordinated Notes, any Qualified Seller Subordinated Debt or any Transaction Document; (vii) amend, modify or change its certificate of incorporation (including, without limitation, by the filing or modification of any certificate of designation) or by-laws (or the equivalent organizational documents) or any agreement entered into by it with respect to its capital stock, or enter into any new agreement with respect to its capital stock, unless such amendment, modification, change or other action contemplated by this clause (vii) could not reasonably be adverse to the interests of the Lenders in any material respect; or -108- (viii) amend, modify or change any provision of the CHS Management Agreement or the Holdings Tax Sharing Agreement in a manner which is adverse to the Lenders. In addition to the payments permitted by clause (iv) of this Section 8.11, so long as there shall exist no Default of Event of Default (both before and after giving effect to the payment thereof), Holdings may redeem or repurchase outstanding Holdings Junior Subordinated Notes with the net cash proceeds received by Holdings from the substantially concurrent sale of Holdings Common Stock, Holdings Preferred Stock and/or new Holdings Junior Subordinated Notes to the extent that such proceeds are not used to repurchase outstanding shares of capital stock of Holdings (or options to purchase such stock) pursuant to Section 8.03(vii). 8.12 Limitation on Certain Restrictions on Subsidiaries. Holdings will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by Holdings or any Subsidiary of Holdings, or pay any Indebtedness owed to Holdings or any Subsidiary of Holdings, (b) make loans or advances to Holdings or any Subsidiary of Holdings or (c) transfer any of its properties or assets to Holdings or any Subsidiary of Holdings, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Loan Documents, (iii) the Borrower Senior Subordinated Note Documents and any Refinancing Subordinated Indebtedness, (iv) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of Holdings or any Subsidiary of Holdings, (v) customary provisions restricting assignment of any licensing agreement entered into by Holdings or any Subsidiary of Holdings in the ordinary course of business, (vi) restrictions on the transfer of any asset subject to a Lien permitted by Sections 8.01(vi), (vii) and (xiii), (vii) restrictions which are imposed on any Subsidiary of the Borrower acquired pursuant to a Permitted Acquisition to the extent such restrictions are set forth in any Indebtedness assumed in connection with such Permitted Acquisition so long as such restrictions are not applicable to any Subsidiary of the Borrower other than the Subsidiary being acquired, such restrictions were not created or imposed in connection with or in contemplation of such Permitted Acquisition, (viii) restrictions on the transfer of any asset pending the close of the sale of such asset, (ix) restrictions which are imposed on any Foreign Subsidiary of the Borrower to the extent such restrictions are set forth in any Indebtedness incurred by such Foreign Subsidiary pursuant to Section 8.04(xvii) so long as such restrictions are not applicable to any Subsidiary of the Borrower other than the Foreign Subsidiary that has incurred such Indebtedness and (x) customary restrictions set forth in any joint venture agreement entered in connection with an Investment made pursuant to Section 8.05(xvi). -109- 8.13 Limitation on Issuance of Capital Stock. (a) Holdings will not, and will not permit any of its Subsidiaries to, issue (i) any preferred stock other than Holdings Preferred Stock issued by Holdings or (ii) any redeemable common stock (other than common stock that is redeemable at the sole option of Holdings or such Subsidiary). (b) Holdings will not permit any of its Subsidiaries to issue any capital stock (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, capital stock, except (i) for transfers and replacements of then outstanding shares of capital stock, (ii) for stock splits, stock dividends and issuances which do not decrease the percentage ownership of Holdings or any of its Subsidiaries in any class of the capital stock of such Subsidiary, (iii) to qualify directors to the extent required by applicable law or (iv) for issuances by newly created or acquired Subsidiaries in accordance with the terms of this Agreement. 8.14 Business. (a) Holdings and its Subsidiaries will not engage in any business other than the businesses engaged in by the Borrower and its Subsidiaries as of the Effective Date and reasonable extensions thereof and activities incidental thereto. (b) Notwithstanding the foregoing, Holdings will not engage in any business and will not own any significant assets or have any material liabilities other than its ownership of the capital stock of the Borrower and having those liabilities which it is responsible for under this Agreement and the other Transaction Documents to which it is a party, provided that Holdings may engage in those activities that are incidental to (x) the maintenance of its corporate existence in compliance with applicable law, (y) legal, tax and accounting matters in connection with any of the foregoing activities and (z) the entering into, and performing its obligations under, this Agreement and the other Transaction Documents to which it is a party. 8.15 Limitation on Creation of Subsidiaries. Notwithstanding anything to the contrary contained in this Agreement, Holdings will not, and will not permit any of its Subsidiaries to, establish, create or acquire after the Effective Date any Subsidiary, provided that the Borrower and its Wholly-Owned Subsidiaries shall be permitted to establish or create Wholly-Owned Subsidiaries and, to the extent permitted by Sections 8.02(x), 8.02(xi) and 8.05(xvi), non-Wholly-Owned Subsidiaries, so long as (i) the capital stock of each such new Domestic Subsidiary (and to the extent required by Section 7.12, each new Foreign Subsidiary) is pledged pursuant to, and to the extent required by, the Pledge Agreement and the certificates representing such stock, together with stock powers duly executed in blank, are delivered to the Collateral Agent for the benefit of the Lenders, and (ii) each such new Domestic Subsidiary, and to the extent required by Section 7.12, each such new Foreign Subsidiary, executes a Guarantor Supplement. In addition, -110- each new Domestic Subsidiary, and to the extent required by Section 7.12, each such new Foreign Subsidiary, shall execute and deliver, or cause to be executed and delivered, all other relevant documentation of the type described in Article V as such new Subsidiary would have had to deliver if such new Subsidiary were a Credit Party on the Effective Date. ARTICLE IX EVENTS OF DEFAULT 9.01 Event of Default. Any of the following shall constitute an "Event of Default": (a) Non-Payment. The Borrower fails to pay, (i) when and as required to be paid herein, any amount of principal of any Loan or any amount of any Letter of Credit Obligation, or (ii) within three Business Days after the same shall become due, any inter est, fee or any other amount payable hereunder or pursuant to any other Loan Document; or (b) Representation or Warranty. Any representation or warranty by Holdings or any of its Subsidiaries made or deemed made herein or in any other Loan Document, or which is contained in any certificate, document or financial or other statement furnished by Holdings or any of its Subsidiaries at any time under this Agreement or under any other Loan Document, shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Specific Defaults. Holdings or any of its Subsidiaries fails to perform or observe any term, covenant or agreement contained in Sections 7.03(a), 7.10, 7.14, 7.15 or Article VIII; or (d) Other Defaults. Holdings or any of its Subsidiaries fails to perform or observe any other term or covenant contained in this Agreement or in any other Loan Document, and such default shall continue unremedied for a period of 30 days after the date upon which written notice thereof is given to the Borrower by the Administrative Agent or any Lender; or (e) Cross-Default. Holdings or any of its Subsidiaries (i) fails to make any payment in respect of any Indebtedness having an aggregate principal amount of $2,500,000 or more when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the document relating thereto on the date of such failure; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such -111- Indebtedness, and such failure continues after the applicable grace or notice period, if any, specified in the document relating thereto on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity; or (f) Insolvency; Voluntary Proceedings. Holdings or any of its Subsidiaries (i) generally fails to pay its debts as they become due; (ii) commences any Insolvency Proceeding with respect to itself; or (iii) takes any action to effectuate or authorize any of the foregoing; or (g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against Holdings or any of its Subsidiaries, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of Holdings' or any of its Subsidiaries' properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) Holdings or any of its Subsidiaries admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) Holdings or any of its Subsidiaries acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (h) ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(i) thereof) and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following 30 days, any Plan shall have had or is likely to have a trustee appointed to administer such Plan, any Plan is, shall have been or is likely to be terminated or the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made to a Plan has not been timely made, Holdings or any Subsidiary of Holdings or any ERISA Affiliate has incurred or is likely to incur a liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, or 4975 of the Code, or on account of a group health plan (as defined in Section 607(i) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or Holdings or any -112- Subsidiary of Holdings has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) with respect to providing benefits to retired employees or other former employees (other than as required by Section 601 of ERISA or Section 4980B of the Code) or employee pension benefit plans (as defined in Section 3(2) of ERISA); (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (c) which lien, security interest or liability, individually, and/or in the aggregate, which arises from such event or events could reasonably be expected to have a Material Adverse Effect; or (i) Judgments. One or more judgments or decrees shall be entered against Holdings or any of its Subsidiaries involving a liability (not paid or not covered by a reputable and solvent insurance company) of $2,500,000 or more for all such judgments and decrees and all such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 30 days from the entry thereof; or (j) Change of Control. Any Change of Control shall occur; or (k) Collateral; Guaranties. (i) Except in each case to the extent resulting from the failure of the Collateral Agent to retain possession of the applicable Pledged Securities, any Collateral Document (other than the Guaranties) shall cease to be in full force and effect, or shall cease to give the Collateral Agent the Liens, rights, powers and privileges purported to be created thereby in favor of the Collateral Agent; or (ii) any Guaranty or any provision thereof shall cease to be in full force and effect, or any Guarantor or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under its Guaranty. 9.02 Remedies. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Majority Lenders, (a) declare the Commitment of each Lender and any obligation of the Issuing Lenders to issue Letters of Credit to be terminated, whereupon such Commitments and obligation shall forthwith be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower and Holdings; -113- (c) demand that the Borrower Cash Collateralize Letter of Credit Obligations to the extent of outstanding and wholly or partially undrawn Letters of Credit, whereupon the Borrower shall so Cash Collateralize; (d) exercise on behalf of itself, the Issuing Lenders and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law; and (e) apply any cash collateral as provided in Section 3.07 to the payment of outstanding Obligations; provided, however, that upon the occurrence of any event specified above in paragraph (f) or (g) of Section 9.01 with respect to the Borrower, the obligation of each Lender to make Loans and any obligation of the Issuing Lender to issue Letters of Credit shall automatically terminate, and all reimbursement obligations under Letters of Credit and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act or notice by the Administrative Agent, the Issuing Lenders or any Lender, which are hereby expressly waived by the Borrower and Holdings. 9.03 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE X. THE GUARANTY 10.01 Guaranty from Holdings. (a) In order to induce the Lenders to make Loans to the Borrower under this Agreement and to induce the Issuing Lenders to issue Letters of Credit and to induce the Guaranteed Creditors to enter into the Interest Rate Protection Agreements and Other Hedging Agreements, Holdings hereby unconditionally and irrevocably guarantees the prompt payment and performance in full by the Borrower when due (whether at stated maturity, by acceleration or otherwise) of all Guaranteed Obligations of the Borrower. The obligations of Holdings hereunder are those of a primary obligor, and not merely a surety, and are independent of the Guaranteed Obligations of the Borrower. A separate action or actions may be brought against Holdings whether or not an action is brought against the Borrower, any other guarantor or other obligor in respect of the Guaranteed Obligations or whether the Borrower, any other guarantor or any other obligor in respect of the Guaranteed Obligations is joined in any such action or actions. Holdings waives, to the fullest extent permitted by applicable law, the benefit of any statute of limitation -114- affecting its liability hereunder and agrees that its liability hereunder shall not be subject to any right of set-off, counterclaim or recoupment (each of which rights is hereby waived to the fullest extent permitted by applicable law). (b) Holdings guarantees that the obligations guaranteed by it hereby will be paid and performed strictly in accordance with the terms of this Agreement, the other Loan Documents and the applicable Interest Rate Protection Agreements and Other Hedging Agreements regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent, the Collateral Agent, the Issuing Lenders, the Lenders or the other Guaranteed Creditors with respect thereto. The liability of Holdings under this guaranty shall be absolute and unconditional irrespective of, and Holdings hereby irrevocably waives (to the fullest extent permitted by applicable law) any defenses it may now or hereafter have in any way relating to, any and all of the following: (i) any lack of genuineness, validity, legality or enforceability against the Borrower or any other guarantor of this Agreement, any other Loan Document, any Interest Rate Protection Agreement or Other Hedging Agreement or any document, agreement or instrument relating hereto or any assignment or transfer of this Agreement, any other Loan Document or any Interest Rate Protection Agreement or Other Hedging Agreement or any defense that the Borrower may have with respect to its liability hereunder or thereunder; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any waiver, indulgence, compromise, renewal, extension, assignment, amendment, modification of, or addition, consent, supplement to, or consent to departure from, or any other action or inaction under or in respect of, this Agreement, any other Loan Document, any Interest Rate Protection Agreement or Other Hedging Agreement or any document, instrument or agreement relating to the Guaranteed Obligations or any other instrument or agreement referred to herein or any assignment or transfer of this Agreement or any Interest Rate Protection Agreement or Other Hedging Agreement; (iii) any release or partial release of any other guarantor or other obligor in respect of the Guaranteed Obligations; (iv) any exchange, impairment, release or non-perfection of any collateral for all or any of the Guaranteed Obligations, or any release, or amendment or waiver of, or consent to departure from, any guaranty or security, for any or all of the Guaranteed Obligations; -115- (v) any furnishing of any additional security for any of the Guaranteed Obligations; (vi) the liquidation, bankruptcy, insolvency or reorganization of the Borrower, any other guarantor or other obligor in respect of the Guaranteed Obligations or any action taken with respect to this guaranty or otherwise by any trustee or receiver, or by any court, in any such proceeding; (vii) any modification or termination of any intercreditor or subordination agreement pursuant to which the claims of other creditors of the Borrower or any guarantor are subordinated to those of the Lenders, the Issuing Lender, the Administrative Agent, the Collateral Agent or the other Guaranteed Creditors; or (viii) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower or Holdings. (c) This guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment or performance of the Guaranteed Obligations, or any part thereof, is, upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise pursuant to applicable law, rescinded or reduced in amount or must otherwise be restored or returned by any of the Administrative Agent, the Issuing Lender, any Lender, the Collateral Agent or the other Guaranteed Creditors, all as though such payment or performance had not been made. (d) If an event permitting the acceleration of any of the Guaranteed Obligations shall at any time have occurred and be continuing and such acceleration shall at such time be prevented by reason of the pendency against the Borrower of a case or proceeding under any bankruptcy or insolvency law, Holdings agrees that, for purposes of this guaranty and its obligations hereunder, the Guaranteed Obligations shall be deemed to have been accelerated and Holdings shall forthwith pay such Guaranteed Obligations (including interest which but for the filing of a petition in bankruptcy with respect to the Borrower would accrue on such Guaranteed Obligations, whether or not interest is an allowed claim under applicable law), and the other obligations hereunder, forthwith upon demand. (e) Holdings hereby waives (i) promptness, diligence, presentment, notice of nonperformance, protest or dishonor, notice of acceptance and any and all other notices with respect to any of the Guaranteed Obligations or this Agreement, any other Loan Document or any Interest Rate Protection Agreement or Other Hedging Agreement, and (ii) to the extent permitted by applicable law, any right to require that any Administrative Agent, the Collateral Agent, the Issuing Lender, any Lender or any other Guaranteed Creditor protect, secure, perfect or insure any Lien in or any Lien on any property subject thereto or exhaust any right or pursue any remedy or take any action against the -116- Borrower, any other guarantor or any other Person or any collateral or security or to any balance of any deposit accounts or credit on the books of the Administrative Agent, the Collateral Agent, the Issuing Lender, any Lender or any other Guaranteed Creditor in favor of the Borrower. (f) Holdings expressly waives until the Guaranteed Obligations are irrevocably paid in full in cash any and all rights of subrogation, reimbursement, contribution and indemnity (contractual, statutory or otherwise), including any claim or right of subrogation under the Bankruptcy Code or any successor statute, arising from the existence or performance of this guaranty and Holdings irrevocably waives until the Guaranteed Obligations are irrevocably paid in full in cash any right to enforce any remedy which the Administrative Agent, the Collateral Agent, the Issuing Lender, the Lenders or the other Guaranteed Creditors now have or may hereafter have against the Borrower, and waives, to the fullest extent permitted by law, until the Guaranteed Obligations are irrevocably paid in full in cash any benefit of, and any right to participate in, any security now or hereafter held by the Administrative Agent, the Collateral Agent, the Issuing Lender, any Lender or any other Guaranteed Creditor. (g) If, in the exercise of any of its rights and remedies, the Administrative Agent, the Collateral Agent, the Issuing Lender, any Lender or any other Guaranteed Creditor shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against the Borrower or any other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, Holdings hereby consents to such action and waives any claim based upon such action (to the extent permitted by applicable law). Any election of remedies which results in the denial or impairment of the right of the Administrative Agent, the Collateral Agent, the Issuing Lender, any Lender or any other Guaranteed Creditor to seek a deficiency judgment against any Credit Party shall not impair Holdings' obligation to pay the full amount of the Guaranteed Obligations. (h) This guaranty is a continuing guaranty and shall (i) remain in full force and effect until payment in full of the Guaranteed Obligations and all other amounts payable under this guaranty and the termination of the Commitments; (ii) be binding upon Holdings, its successors and assigns; and (iii) inure, together with the rights and remedies hereunder, to the benefit of the Guaranteed Creditors and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Guaranteed Creditor may, subject to the terms of this Agreement or the applicable Interest Rate Protection Agreement or Other Hedging Agreement, assign or otherwise transfer its rights and obligations under this Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect hereof granted to such Lender pursuant to this guaranty or otherwise, all as provided in, and to the extent set forth in, this Agreement. -117- (i) Any obligations of the Borrower to Holdings, now or hereafter existing, are hereby subordinated to the Guaranteed Obligations. Such obligations of the Borrower to Holdings, if the Administrative Agent or the Majority Lenders so request, shall be enforced and amounts recovered shall be received by Holdings as trustee for the Guaranteed Creditors and the proceeds thereof shall be paid over to the Lenders on account of the Guaranteed Obligations, but without reducing or affecting in any manner the liability of Holdings under the provisions of this guaranty. (j) Upon failure of the Borrower to pay any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration or otherwise, Holdings hereby agrees immediately on demand by any of the Guaranteed Creditors to pay or cause to be paid in accordance with the terms hereof an amount equal to the full unpaid amount of the Guaranteed Obligations then due in Dollars. (k) All payments by Holdings hereunder shall be made free and clear of, and without deduction or withholding for or on account of, any Taxes, unless such deduction or withholding is required by law. If Holdings shall be required by law to make any such deduction or withholding, then Holdings shall pay such additional amounts as may be necessary in order that the net amount received by the applicable Lenders, the Issuing Lenders or the Administrative Agent, as the case may be, after all deductions and withholdings, shall be equal to the full amount that such Person would have received, after all deductions and withholdings, had the Borrower discharged its obligations (including its tax gross-up obligations) pursuant to Section 4.01. Any amounts deducted or withheld by Holdings for or on account of Taxes shall be paid over to the government or taxing authority imposing such Taxes on a timely basis, and Holdings shall provide the applicable Lender, the Issuing Lenders or the Administrative Agent, as the case may be, as soon as practicable with such tax receipts or other official documentation (and such other certificates, receipts and other documents as may reasonably be requested by such Person) with respect to the payment of such Taxes as may be available. ARTICLE XI. THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE ISSUING LENDERS AND THE ARRANGER 11.01 Appointment and Authorization. (a) Each of the Lenders, the Issuing Lenders and the Swingline Lender hereby irrevocably appoints, designates and authorizes Lender of America as Administrative Agent and as Collateral Agent (for purposes of this Article XI, the term "Agent" shall -118- mean Bank of America in its capacity as Administrative Agent and as Collateral Agent) to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender, the Issuing Lenders or the Swingline Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. (b) Each Issuing Lender shall have all of the benefits and immunities (i) provided to the Agent in this Article XI with respect to any acts taken or omissions suffered by such Issuing Lender in connection with Letters of Credit issued by it or proposed to be issued by it and the Letter of Credit Applications pertaining to the Letters of Credit as fully as if the term "Agent", as used in this Article XI, included such Issuing Lender with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to such Issuing Lender. 11.02 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 11.03 Liability of Agent. None of the Agent, its Affiliates or any of their officers, directors, employees, agents or attorneys-in-fact (collectively, the "Agent-Related Persons") shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document (except for their own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by Holdings, the Borrower or any Subsidiary or Affiliate thereof, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Borrower, Holdings or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower, Holdings or any of their respective Subsidiaries or Affiliates. -119- 11.04 Reliance by Agent. (a) The Lenders agree that the Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrower, Holdings or any Subsidiary Guarantor), independent accountants and other experts selected by the Agent. The Lenders agree that the Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders or, as required by Section 12.01, all the Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Lenders or, as required by Section 12.01 all the Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. (b) For purposes of determining compliance with the conditions specified in Section 5.01 as it relates to the initial Borrowing and issuances of Letters of Credit on the Effective Date, each Lender that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter either sent by the Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender, unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the initial Borrowing and issuances of Letters of Credit on the Effective Date specifying in reasonable detail its objection thereto and either such objection shall not have been withdrawn by notice to the Agent to that effect or such Lender shall not have made available to the Agent such Lender's ratable portion of such Borrowing. 11.05 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Lenders or the Issuing Lenders, unless the Agent shall have received written notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Lenders and the Issuing Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be requested by the Majority Lenders in accordance with Article IX; provided, however, that unless and until the Agent shall have received any such request, the Agent may (but shall not be obligated to) take such action, or -120- refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Lenders. 11.06 Credit Decision. Each Lender expressly acknowledges that none of the Agent-Related Persons has made any representation or warranty to it and that no act by the Agent hereinafter taken, including any review of the affairs of Holdings and its Subsidiaries, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Holdings and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated thereby, and made its own decision to enter into this Agreement and extend credit to the Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon the Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Holdings and its Subsidiaries. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Agent, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Borrower, Holdings and their Subsidiaries which may come into the possession of any of the Agent-Related Persons. 11.07 Indemnification. Whether or not the transactions contemplated hereby shall be consummated, the Lenders shall indemnify, upon demand, each of the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Borrower and without limiting the obligation of the Borrower to do so), ratably from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind whatsoever which may at any time (including at any time following the expiration of the Letters of Credit and the repayment of the Loans and the termination or resignation of the Agent) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement, any other Loan Document or any document contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any such Person under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the payment to any of the Agent-Related Persons of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any -121- document contemplated by or referred to herein to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Borrower. Without limiting the generality of the foregoing, if the Internal Revenue Service or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify the Agent fully for all amounts paid as a result thereof, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section 11.07, together with all costs and expenses (including Attorney Costs). The obligation of the Lenders in this Section shall survive the payment of all Obligations hereunder. 11.08 Agent in Individual Capacity. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory or other business with Holdings and its Subsidiaries and Affiliates as though Bank of America were not the Agent or an Issuing Lender hereunder and without notice to or consent of the Lenders. With respect to its Loans and participation in Letters of Credit, Bank of America shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not the Agent or an Issuing Lender, and the terms "Lender" and "Lenders" shall include Bank of America in its individual capacity. 11.09 Successor Agent. The Agent may resign as Agent upon 30 days' notice to the Lenders and the Borrower. If the Agent shall resign as Agent under this Agreement, the Majority Lenders shall appoint from among the Lenders a successor agent for the Lenders which successor agent shall be subject to the approval of the Borrower if no Event of Default has occurred and is continuing, such approval not to be unreasonably withheld or delayed. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Lenders and subject to the approval of the Borrower if no Event of Default has occurred and is continuing, such approval not to be unreasonably withheld or delayed, a successor agent from among the Lenders or any Lender Affiliate. Any successor Agent appointed under this Section 11.09 shall be a commercial bank organized under the laws of the United States or any State thereof, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XI and Sections 12.04 and 12.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon -122- become effective and the Lenders shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Lenders appoint a successor agent as provided for above. 11.10 The Arranger. The Arranger, in such capacity, shall have no duties or responsibilities, and shall incur no obligations or liabilities, under this Agreement. Each Lender acknowledges that it has not relied, and will not rely, on the Arranger in deciding to enter into this Agreement. ARTICLE XII. MISCELLANEOUS 12.01 Amendments and Waivers. (a) No amendment or waiver of any provision of this Agreement or any other Loan Document and no consent with respect to any departure by the Borrower, Holdings or any Subsidiary Guarantor therefrom, shall be effective unless the same shall be in writing and signed by Holdings, the Borrower and the Majority Lenders and acknowledged by the Agent, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment or consent shall, unless in writing and signed by all the Lenders directly affected thereby and acknowledged by the Agent, do any of the following: (i) increase or extend the Revolving Commitment or Term Commitment of such Lender (or reinstate any such Commitment terminated pursuant to Section 9.02(a)) (except as provided in Section 12.07); (ii) postpone or delay any date for any scheduled Term Loan principal payment provided in Section 2.08(c), or any payment of interest or fees due to the Lenders (or any of them) hereunder or under any other Loan Document, or extend the Termination Date; (iii) reduce the principal of, or the rate of interest specified herein on any Loan or Letter of Credit Borrowing (other than with respect to post-default rates), or of any fees or other amounts payable hereunder or under any other Loan Document or reduce the Applicable Margin provided for herein (it being understood that any amendment or modification to the financial definitions in this Agreement shall not constitute a reduction in the rate of interest or fees for the purposes of this clause (iii)); -123- (iv) reduce the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which shall be required for the Lenders or any of them to take any action hereunder; (v) amend this Section 12.01, the definition of the term "Majority Lenders" or any provision of this Agreement expressly requiring the consent of all the Lenders in order to take or refrain from taking any action; or (vi) release the guaranty of Holdings under its guaranty pursuant to Article X or discharge any Subsidiary Guarantor from its obligations under any Subsidiary Guaranty, or release all or substantially all of the Collateral except, in all such cases, in accordance with the express provisions thereof; and, provided further, that (A) no amendment, waiver or consent shall, unless in writing and signed by each Issuing Lender in addition to the Majority Lenders or all the Lenders, as the case may be, affect the rights or duties of the Issuing Lenders under this Agreement or any Letter of Credit Related Document to which such Issuing Lender is a party, (B) no amendment, waiver or consent shall, unless in writing and signed by the Swingline Lender in addition to the Majority Lenders or all the Lenders, as the case may be, affect the rights and duties of the Swingline Lender under this Agreement and (C) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Majority Lenders or all the Lenders, as the case may be, affect the rights or duties of the Agent under this Agreement or any other Loan Document. (b) If, in connection with any proposed change, waiver, discharge or any termination to any of the provisions of this Agreement as contemplated by clauses (ii) through (vi), inclusive, of the first proviso to Section 12.01(a), the consent of the Majority Lenders is obtained but the consent of one or more other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all nonconsenting Lenders whose individual consent is required are treated the same, to replace each such non-consenting Lender or Lenders with one or more Replacement Lenders pursuant to Section 4.08(b) so long as at such time of such replacement, each such Replacement Lender consents to the proposed change, waiver, discharge or termination. 12.02 Notices. (a) All notices, requests and other communications provided for hereunder shall be in writing (including, unless the context expressly otherwise provides, facsimile trans mission) and mailed, transmitted by facsimile or delivered, (A) if to the Borrower, Holdings, the Agent, an Issuing Lender or the Swingline Lender, to the address or facsimile number specified for notices on the applicable signature page hereof; (B) if to any Lender, to the notice address of such Lender set forth on Schedule 1.01(a); or (C) as directed to the Borrower or the Agent, to such other address as shall be designated by -124- such party in a written notice to the other parties, and as directed to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. (b) All such notices, requests and communications shall be effective when delivered or transmitted by facsimile machine, respectively, provided that any matter transmitted by the Borrower by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on the applicable signature page hereof or on Schedule 1.01(a), and (ii) shall be followed promptly by a hard copy original thereof; except that notices to the Agent shall not be effective until actually received by the Agent, notices to the Swingline Lender pursuant to Section 2.03 shall not be effective until received by the Swingline Lender, and notices pursuant to Article III to the Issuing Lender shall not be effective until actually received by the Issuing Lender. (c) The Borrower acknowledges and agrees that any agreement of the Agent, the Issuing Lenders, the Swingline Lender and the Lenders in Articles II and III herein to receive certain notices by telephone and facsimile is solely for the convenience and at the request of the Borrower. The Agent, the Issuing Lenders, the Swingline Lender and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Agent, the Issuing Lenders, the Swingline Lender and the Lenders shall not have any liability to such Borrower or any other Person on account of any action taken or not taken by the Agent, the Issuing Lenders, the Swingline Lender or the Lenders in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and drawings under Letters of Credit shall not be affected in any way or to any extent by any failure by the Agent, the Issuing Lenders, the Swingline Lender and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent, the Issuing Lenders, the Swingline Lender and the Lenders of a confirmation which is at variance with the terms understood by the Agent, the Issuing Lenders, the Swingline Lender or the Lenders to be contained in the telephonic or facsimile notice. 12.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent, any Issuing Lender, the Swingline Lender or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 12.04 Costs and Expenses. The Borrower shall, whether or not the transactions contemplated hereby shall be consummated: (a) pay or reimburse on demand for all reasonable costs and expenses incurred by the Agent, in connection with the development, preparation, delivery, administration, syndication of the Commitments under and execution of, and any amendment, supplement, -125- waiver or modification to (in each case, whether or not consummated), this Agreement, any other Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including the Attorney Costs incurred by the Agent with respect thereto; (b) pay or reimburse each Lender, each Issuing Lender and the Agent on demand for all reasonable costs and expenses incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding) under this Agreement (including the guaranty contained in Article X), any other Loan Document, and any such other documents, including Attorney Costs incurred by the Agent and any Lender and any cost of any consultants retained by the Agent; and (c) pay or reimburse the Agent and each Issuing Lender on demand for all appraisal (including, without duplication, the allocated cost of internal appraisal services), audit, environmental inspection and review (but, in the case of any such environmental inspection or review, only to the extent that a notice has been delivered pursuant to Section 7.03(c) or Holdings or any of its Subsidiaries shall be in violation of Section 7.07 to the extent that such violation relates to any Environmental Law or Environmental Claim) (including, without duplication, the allocated cost of such internal services), search and filing costs, fees and expenses, incurred or sustained by the Agent in connection with the matters referred to under paragraph (b) of this Section 12.04. 12.05 Indemnity. Whether or not the transactions contemplated hereby shall be consummated, the Borrower shall pay, indemnify, and hold each Lender, each Issuing Lender, the Swingline Lender, the Agent and each of their respective officers, directors, employees, counsel, agents and attorneys- in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs) of any kind or nature whatsoever with respect to (a) any investigation, litigation or proceeding (including any Insolvency Proceeding) related to this Agreement or the Loan Documents or the Loans or the Letters of Credit, or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto and (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any property owned or at any time operated by Holdings or any of its Subsidiaries, the generation, storage, transportation, handling or disposal of Hazardous Materials at any location by Holdings or any of its Subsidiaries, whether or not owned or operated by Holdings or any of its Subsidiaries, the noncompliance of any property owned or operated by Holdings or any of its Subsidiaries with Environmental Laws (including applicable permits there under) applicable to any such property, or any Environmental Claim asserted against Holdings, any of its Subsidiaries or any property owned or at any time operated by Holdings or any of its Subsidiaries, (all the foregoing described in (a) and (b) above, collectively, the "Indemnified Liabilities"); provided, however, that the Borrower shall have no obligation hereunder to any -126- Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person as the same is determined by a final judgment of a court of competent jurisdiction. The obligations in this Section 12.05 shall survive payment of all other Obligations. 12.06 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that neither the Borrower nor Holdings may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Lender. 12.07 Assignments, Participations, etc. (a) Any Lender may, with the written consent of the Borrower, the Agent, the Swingline Lender and each Issuing Lender, which consents shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Borrower shall be required either in connection with any assignment and delegation by a Lender to an Eligible Assignee that is a Lender Affiliate of such Lender or at any time that an Event of Default shall exist) (each an "Assignee") all, or any ratable part of all, of the Loans, Revolving Commitment and Term Commitment and the other rights and obligations of such Lender hereunder; provided, however, that any such assignment to an Eligible Assignee which is not a Lender shall be in a minimum amount equal to the lesser of $5,000,000 or the full amount of the assignor Lender's Commitment; and provided, still further, that the Borrower, the Issuing Lenders, the Swingline Lender and the Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Borrower and the Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to the Borrower and the Agent an Assignment and Acceptance in the form of Exhibit L ("Assignment and Acceptance"); and (iii) in the case of any assignment to an Assignee which is not already a Lender, the assignor Lender or Assignee has paid to the Agent a processing fee in the amount of $3,500; and provided, still further, that any assignment hereunder must include an equal percentage of the assignor Lender's Revolving Commitment, Term Commitment, Revolving Loans, Letter of Credit Obligations and Term Loans. (b) From and after the date that the Agent notifies the assignor Lender that the requirements of paragraph (a) above are satisfied, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released -127- from its obligations under the Loan Documents. Anything herein to the contrary notwithstanding, any Lender assigning all of its Loans, Commitments and other rights and obligations hereunder to an Assignee shall continue to have the benefit of all indemnities hereunder following such assignment. (c) Immediately upon each Assignee's making its payment under the Assignment and Acceptance, this Agreement, shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Aggregate Commitment, the Aggregate Revolving Commitment and Aggregate Term Commitment arising therefrom. The Revolving Commitment and Term Commitment allocated to an Assignee shall reduce the Revolving Commitment of the assigning Lender pro tanto. (d) Any Lender may at any time sell to one or more banks or other Persons not Affiliates of the Borrower (a "Participant") participating interests in any Loans, the Commitment of such Lender and the other interests of such Lender (the "Originating Lender") hereunder and under the other Loan Documents; provided, however, that (i) the Originating Lender's obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Borrower, the Issuing Lenders, the Swingline Lender and the Agent shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant shall have rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, provided that such Participant shall have the right to approve any amendment, consent or waiver described in clauses (ii) and (iii) of the first proviso to Section 12.01. In the case of any such participation, the Participant shall be entitled to the benefit of Sections 4.01, 4.03 and 12.05, subject to the same limitations, as though it were also a Lender hereunder, subject to clause (f) below, and if amounts out standing under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the extent permitted under applicable law, be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. (e) Notwithstanding any other provision contained in this Agreement or any other Loan Document to the contrary, any Lender may assign all or any portion of the Loans held by it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Federal Reserve Board and any Operating Circular issued by such Federal Reserve Bank, provided that any payment in respect of such assigned Loans made by the Borrower or Holdings to or for the account of the assigning or pledging Lender in accordance with the terms of this Agreement shall satisfy the Borrower's -128- or Holdings' obligations hereunder in respect to such assigned Loans to the extent of such payment. No such assignment shall release the assigning Lender from its obligations hereunder. (f) No Participant shall be entitled to receive any greater payment under Sections 4.01 or 4.03 than such Originating Lender would have been entitled to receive with respect to the rights transferred unless such transfer is made with the Borrower's prior written consent. 12.08 Confidentiality. Each Lender agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information provided to it by Holdings, the Borrower or any Subsidiary of Holdings, or by the Agent on Holdings', the Borrower's or such Subsidiary's behalf, in connection with this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement; except to the extent such information (a) was or becomes generally available to the public other than as a result of a disclosure by the Lender, or (b) was or becomes available on a non-confidential basis from a source other than the Borrower or Holdings, provided that such source is not bound by a confidentiality agreement with the Borrower or Holdings, known to the Lender; provided further, however, that any Lender may disclose such information (i) at the request or pursuant to any requirement of any Governmental Authority to which the Lender is subject or in connection with an examination of such Lender by any such authority; (ii) pursuant to subpoena or other court process; (iii) when required to do so in accordance with the provisions of any applicable Requirement of Law; (iv) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, such Lender or their respective Affiliates may be party; (v) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; and (vi) to such Lender's independent auditors, other professional advisors and employees of such Lender's Lender Affiliates (or any Affiliate of such Lender engaged in capital market transactions generally) retained by such Lender in connection with this Agreement so long as such Persons agree to maintain the confidentiality of all such information disclosed to them. Notwithstanding the foregoing, the Borrower authorizes each Lender to disclose to any Participant or Assignee (each, a "Transferee") and to any prospective Transferee, such financial and other information in such Lender's possession concerning the Borrower or its Subsidiaries or Holdings which has been delivered to Agent or the Lenders pursuant to this Agreement or which has been delivered to the Agent or the Lenders by the Borrower or Holdings in connection with the Lenders' credit evaluation of the Borrower prior to entering into this Agreement; provided that, unless otherwise agreed by the Borrower or Holdings, such Transferee agrees in writing to such Lender to keep such information confidential to the same extent required of the Lenders hereunder. 12.09 Set-off. In addition to any rights and remedies of the Lenders provided by law, if an Event of Default occurs and is continuing, each Lender is authorized at any time and from time to time, without prior notice to the Borrower or Holdings, any such notice being -129- waived by the Borrower and Holdings to the fullest extent permitted by law, to set off and apply, to the extent permitted by applicable law, any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing to, such Lender to or for the credit or the account of the Borrower or Holdings against any and all Obligations owing to such Lender, now or hereafter existing, irrespective of whether or not the Agent or such Lender shall have made demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured. Each Lender agrees promptly to notify the Borrower or Holdings and the Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 12.09 are in addition to the other rights and remedies (including other rights of set-off) which the Lender may have. 12.10 Notification of Addresses, Lending Offices, etc. Each Lender shall notify the Agent in writing of any changes in the address to which notices to the Lender should be directed, of addresses of its Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 12.11 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Agent. 12.12 Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 12.13 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and legal benefit of the parties hereto and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. None of the Agent, any Issuing Lender, the Swingline Lender or any Lender shall have any obligation to any Person not a party to this Agreement or any other Loan Document. 12.14 Governing Law and Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS (INCLUDING, WITHOUT LIMITATION, S.H.A. 735 ILCS 105/5-1 et. seq., BUT WITHOUT GIVING EFFECT TO ANY OTHER CONFLICTS OF LAW PROVISIONS). -130- (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND ANY OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THOSE COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE PARTIES HERETO EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW. 12.15 Waiver of Jury Trial. THE PARTIES HERETO EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE PARTIES HERETO EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION 12.15 AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 12.16 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any office, Subsidiary or Affiliate of such Lender. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Loans pursuant to this Section 12.16 would, at the time of such transfer, result in increased costs under Sections 4.01, 4.03 or 4.06 from those being charged by the respective Lender prior to such transfer, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective transfer). * * * * -131- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. CII TECHNOLOGIES, INC. By: /s/ David Henning --------------------------------- Name: David Henning ---------------------------- Title: CFO --------------------------- Address for notices: 1396 Charlotte Highway Fairview, North Carolina 29730 Attn: David Henning Facsimile: (704) 628-1439 Tel: (704) 628-1711 COMMUNICATIONS INSTRUMENTS, INC. By: /s/ David Henning --------------------------------- Name: David Henning ---------------------------- Title: CFO --------------------------- Address for notices: 1396 Charlotte Highway Fairview, North Carolina 29730 Attn: David Henning Facsimile: (704) 628-1439 Tel: (704) 628-1711 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the Administrative Agent By: /s/ David A. Johanson --------------------------------- Name: David A. Johanson ---------------------------- Title: Vice President --------------------------- Address for notices of borrowing, prepayments and other administrative matters and notices: 231 South LaSalle Street 8th Floor, Agency Management Services Chicago, Illinois 60697 Attn: Senior Agency Officer Facsimile: 312-974-9102 Tel: 312-828-7933 S-2 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as an Issuing Lender By: /s/ Peter Gates, Jr. --------------------------------- Name: Peter Gates, Jr. ---------------------------- Title: Vice President --------------------------- Address for notices: 231 South LaSalle Street 8th Floor, Agency Management Services Chicago, Illinois 60697 Attn: Senior Agency Officer Facsimile: 312-974-9102 Tel: 312-828-7933 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the Swingline Lender By: /s/ Peter Gates, Jr. --------------------------------- Name: Peter Gates, Jr. ---------------------------- Title: Vice President --------------------------- Address for notices: 231 South LaSalle Street 8th Floor, Agency Management Services Chicago, Illinois 60697 Attn: Senior Agency Officer Facsimile: 312-974-9102 Tel: 312-828-7933 S-3 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Lender By: /s/ Peter Gates, Jr. --------------------------------- Name: Peter Gates, Jr. ---------------------------- Title: Vice President --------------------------- Address for notices: 231 South LaSalle Street Chicago, Illinois 60697 Attn: Peter J. Gates, Jr. Facsimile: 312-828-1974 Tel: 312-828-5893 S-4 ANTARES LEVERAGED CAPITAL CORP., as a Lender By: /s/ Daniel L. Barry --------------------------------- Name: Daniel L. Barry ---------------------------- Title: Director --------------------------- Address for notices: 311 South Wacker Drive Suite 2725 Chicago, Illinois 60606 Attn: Stefano Robertson Facsimile: 312-697-3998 Tel: 312-697-3967 S-5 FIRST SOURCE FINANCIAL LLP By: FIRST SOURCE FINANCIAL, INC., its Agent/Manager By: /s/ James W. Wilson --------------------------------- Name: James W. Wilson ---------------------------- Title: Senior Vice President --------------------------- Addresses for notices: 2850 West Golf Road 5th Floor Rolling Meadows, Illinois 60008 Attn: Robert Mangers Facsimile: 847-734-7910 Tel: 847-734-2068 S-6 PNC BANK, NATIONAL ASSOCIATION By: /s/ Rose M. Crump --------------------------------- Name: Rose M. Crump ---------------------------- Title: Vice President --------------------------- Addresses for notices: 249 Fifth Avenue Pittsburgh, Pennsylvania 15222 Attn: Rose M. Crump Facsimile: 412-762-6484 Tel: 412-762-2539 S-7 SCHEDULE 1.01(a) LENDING OFFICES Bank of America National Trust and Savings Association 231 South LaSalle Street Chicago, IL 60697 Attn: Peter J. Gates, Jr. Facsimile: 312-828-1974 Tel: 312-828-5893 Antares Leveraged Capital Corp. 311 South Wacker Drive Suite 2725 Chicago, Illinois 60606 Attn: Stefano Robertson Facsimile: 312-697-3998 Tel: 312-697-3967 First Source Financial LLP 2850 West Golf Road 5th Floor Rolling Meadows, Illinois 60008 Attn: Robert Mangers Facsimile: 847-734-7910 Tel: 847-734-2068 PNC Bank, National Association 249 Fifth Avenue Pittsburgh, Pennsylvania 15222 Attn: Rosa M. Crump Facsimile: 412-762-6484 Tel: 412-762-2539 S-1 SCHEDULE 1.01(b) COMMITMENTS
Revolving Term Total Lender Commitment Commitment Commitment ------ ---------- ---------- ---------- Bank of America National $8,333,333.33 $11,666,666.67 $20,000,000.00 Trust and Savings Association Antares Leveraged Capital Corp. $6,250,000.00 $ 8,750,000.00 $15,000,000.00 First Source Financial LLP $6,250,000.00 $ 8,750,000.00 $15,000,000.00 PNC Bank, National Association $4,166,666.67 $ 5,833,333.33 $10,000,000.00 - -------------------------------------------------------------------------------------- $25,000,000.00 $35,000,000.00 $60,000,000.00
S-2 SCHEDULE 3.10 EXISTING L/Cs
Expiration Issuing Lender L/C Beneficiary Amount Date -------------- --- ----------- ------ ---- Bank of America National 7338360 First Union National Bank US$850,000.00 11/21/99 Trust and Savings Association Bank of America National 7354610 City of Mansfield, OH US$100,000.00 5/22/02 Trust and Savings Association
S-3 EX-10.32 10 PLEDGE AGREEMENT DATED 6/19/98 Exhibit 10.32 EXECUTION COPY PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of June 19, 1998 (as amended, restated, modified or supplemented from time to time, this "Agreement"), made by each of the undersigned pledgors (each, a "Pledgor" and, together with any other entity that becomes a party hereto pursuant to Section 22 hereof, the "Pledgors"), in favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent (the "Pledgee"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, CII Technologies, Inc. ("Holdings"), Communications Instruments, Inc. (the "Borrower"), the several financial institutions from time to time party thereto (the "Lenders"), Bank of America National Trust and Savings Association, as an Issuing Lender and Swingline Lender, Bank of America National Trust and Savings Association, as Administrative Agent (together with any successor agent, the "Administrative Agent", and together with the Pledgee, the Issuing Lenders, the Swingline Lender and the Lenders, the "Lender Creditors"), have entered into a Credit Agreement, dated as of June 19, 1998 (as amended, restated, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to the Borrower and the issuance of, and participation in, Letters of Credit for the account of the Borrower, all as contemplated therein; WHEREAS, the Borrower may from time to time be party to one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Lenders or with an affiliate of a Lender (each such Lender or affiliate, even if the respective Lender subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender's or affiliate's successors and assigns, collectively, the "Other Creditors," and together with Lender Creditors, the "Secured Creditors"); WHEREAS, pursuant to Article X of the Credit Agreement, Holdings has guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of the Borrower under or with respect to the Loan Documents and the Interest Rate Protection Agreements or Other Hedging Agreements; WHEREAS, pursuant to the Subsidiary Guaranty, each Pledgor (other than Holdings and the Borrower) has jointly and severally guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of the Borrower under or with respect to the Loan Documents and the Interest Rate Protection Agreements or Other Hedging Agreements; WHEREAS, it is a condition precedent to the making of Loans to the Borrower and the issuance of Letters of Credit for the account of the Borrower under the Credit Agreement that each Pledgor shall have executed and delivered to the Pledgee this Agreement; and WHEREAS, each Pledgor desires to execute this Agreement to satisfy the conditions described in the preceding paragraph; NOW, THEREFORE, in consideration of the benefits accruing to each Pledgor, the receipt and sufficiency of which are hereby acknowledged, each Pledgor hereby makes the following representations and warranties to the Pledgee and hereby covenants and agrees with the Pledgee as follows: 1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor for the benefit of the Secured Creditors to secure: (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations and liabilities (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) of such Pledgor, now existing or hereafter incurred under, arising out of or in connection with any Loan Document to which such Pledgor is a party and the due performance and compliance by such Pledgor with the terms of each such Loan Document, including, without limitation, in the case of the Borrower, all "Obligations" under and as defined in the Credit Agreement, and in the case of each other Pledgor, all "Guaranteed Obligations" under and as defined in the Credit Agreement or the Subsidiary Guaranty, as applicable (all such obligations and liabilities under this clause (i), except to the extent consisting of obligations or indebtedness with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Loan Document Obligations"); (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of such Pledgor, now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement or Other Hedging Agreement including, in the case of the Pledgors other than the Borrower, all obligations of such Pledgor under Article X of the Credit Agreement or the Subsidiary Guaranty, as the case may be, in respect of Interest Rate Protection Agreements or Other Hedging Agreements (all such obligations and liabilities under this clause (ii) being herein collectively called the "Other Obligations"); (iii) any and all sums advanced by the Pledgee in order to preserve the Collateral (as hereinafter defined) or preserve its security interest in the Collateral; -2- (iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i), (ii) and (iii) above, after an Event of Default (such term, as used in this Agreement, shall mean any Event of Default under, and as defined in, the Credit Agreement, or any payment default by the Borrower under any Interest Rate Protection Agreement or Other Hedging Agreement and shall in any event include, without limitation, any payment default (after the expiration of any applicable grace period) on any of the Obligations (as hereinafter defined)) shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral, or of any exercise by the Pledgee of its rights hereunder, together with reasonable attorneys' fees and court costs; and (v) all amounts paid by any Secured Creditor as to which such Secured Creditor has the right to reimbursement under Section 11 of this Agreement; all such obligations, liabilities, sums and expenses set forth in clauses (i) through (v) of this Section 1 being herein collectively called the "Obligations". 2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used herein: (i) the term "Stock" shall mean (x) with respect to corporations incorporated under the laws of the United States or any State or territory thereof (each, a "Domestic Corporation"), all of the issued and outstanding shares of capital stock of any Domestic Corporation at any time owned by each Pledgor, and (y) with respect to corporations not Domestic Corporations (each, a "Foreign Corporation"), all of the issued and outstanding shares of capital stock at any time directly owned by any Pledgor of any Foreign Corporation, provided that, except as provided in the last sentence of this Section 2, such Pledgor shall not be required to pledge hereunder more than 66% of the total combined voting power of all classes of capital stock of any Foreign Corporation entitled to vote; (ii) the term "Notes" shall mean (x) all Intercompany Notes at any time issued to each Pledgor and (y) all other promissory notes from time to time issued to, or held by, each Pledgor; provided, that, except as provided in the last sentence of this Section 2, no Pledgor shall be required to pledge hereunder any promissory notes (including Intercompany Notes) issued to such Pledgor by any Subsidiary of such Pledgor which is a Foreign Corporation and (iii) the term "Securities" shall mean all of the Stock and Notes. Each Pledgor represents and warrants that on the date hereof (i) the Stock held by such Pledgor consists of the number and type of shares of the stock of the corporations as described in Annex A hereto; (ii) such Stock constitutes that percentage of the issued and outstanding capital stock of the issuing corporation as is set forth in Annex A hereto; (iii) the Notes held by such Pledgor consist of the promissory notes described in Annex B hereto where such Pledgor is listed as the Lender; and (iv) on the date hereof, such Pledgor owns no other Securities. In the circumstances and to the extent provided in Section 7.12(b) of the Credit Agreement, the 66% limitation set forth in the proviso of clause (i)(y) of this Section 2, the limitation set forth in the proviso of clause (ii)(y) of this Section 2, and the limitations set forth in the last sentence in Section 3.2 hereof, in each case shall no longer be -3- applicable and such Pledgor shall duly pledge and deliver to the Pledgee such of the Securities not theretofore required to be pledged hereunder. 3. PLEDGE OF SECURITIES, ETC. 3.1. Pledge. To secure the Obligations and for the purposes set forth in Section 1 hereof, each Pledgor hereby: (i) grants to the Pledgee a security interest in all of the "Collateral" (as defined in Section 3.4 hereof) now or hereafter owned by such Pledgor; (ii) pledges and deposits as security with the Pledgee the Securities now or hereafter owned by such Pledgor, and delivers to the Pledgee certificates or instruments with respect to such Securities owned by such Pledgor on the date hereof, duly endorsed in blank in the case of Notes and accompanied by undated stock powers duly executed in blank by such Pledgor in the case of Stock, or such other instruments of transfer as are acceptable to the Pledgee; and (iii) assigns, transfers, hypothecates, mortgages, charges and sets over to the Pledgee all of such Pledgor's right, title and interest in and to the Securities now or hereafter owned by such Pledgor (and in and to all certificates or instruments evidencing such Securities), upon the terms and conditions set forth in this Agreement. 3.2. Subsequently Acquired Securities. If any Pledgor shall acquire (by purchase, stock dividend or otherwise) any additional Securities at any time or from time to time after the date hereof, such Pledgor will forthwith pledge such Securities (or certificates or instruments representing such Securities) as security for the Obligations, deposit such Securities with the Pledgee and deliver to the Pledgee certificates therefor or instruments thereof, duly endorsed in blank in the case of Notes and accompanied by undated stock powers duly executed in blank in the case of Stock, or such other instruments of transfer as are acceptable to the Pledgee, and will promptly thereafter deliver to the Pledgee a certificate executed by any Responsible Officer of such Pledgor describing such Securities and certifying that the same have been duly pledged with the Pledgee hereunder. Subject to the last sentence of Section 2 hereof, no Pledgor shall be required at any time to pledge hereunder (x) any Stock which is more than 66% of the total combined voting power of all classes of capital stock of any Foreign Corporation entitled to vote or (y) any promissory notes (including Intercompany Notes) issued to such Pledgor by any Subsidiary of such Pledgor which is a Foreign Corporation. 3.3. Uncertificated Securities. Notwithstanding anything to the contrary contained in Sections 3.1 and 3.2 hereof, if any Securities (whether now owned or hereafter acquired) are uncertificated securities, the respective Pledgor shall promptly notify the Pledgee in writing thereof, and, if after such notification, the Pledgee so requests, such Pledgor shall promptly take all actions required to perfect the security interest of the Pledgee under applicable law. Each Pledgor further agrees to take such actions as the Pledgee deems reasonably necessary or desirable to effect the foregoing and to permit the Pledgee to exercise any of its rights and remedies hereunder, and agrees to provide an opinion of counsel reasonably satisfactory to the Pledgee with respect to any such pledge of uncertificated Securities promptly upon request of the Pledgee. -4- 3.4 Definition of Pledged Stock, Pledged Notes, Pledged Securities and Collateral. All Stock at any time pledged or required to be pledged hereunder is hereinafter called the "Pledged Stock," all Notes at any time pledged or required to be pledged hereunder are hereinafter called the "Pledged Notes," all of the Pledged Stock and Pledged Notes together are hereinafter called the "Pledged Securities," which together with all dividends and interest thereon, as the case may be, and all proceeds thereof, including any securities and moneys received and at the time held by the Pledgee hereunder, is hereinafter called the "Collateral." 4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall have the right to appoint one or more sub-agents for the purpose of retaining physical possession of the Pledged Securities, which may be held (in the discretion of the Pledgee) in the name of such Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent appointed by the Pledgee. The Pledgee agrees to promptly notify the relevant Pledgor after the appointment of any sub-agent; provided, however, that the failure to give such notice shall not affect the validity of such appointment. 5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until (i) an Event of Default shall have occurred and be continuing and (ii) written notice thereof shall have been given by the Pledgee to the relevant Pledgor (provided, that if an Event of Default specified in Sections 9.01(f) and (g) of the Credit Agreement shall occur, no such notice shall be required), each Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Securities and to give all consents, waivers or ratifications in respect thereof; provided, that no vote shall be cast or any consent, waiver or ratification given or any action taken which would violate or be inconsistent with any of the terms of this Agreement, any other Loan Document or any Interest Rate Protection Agreement or Other Hedging Agreement (collectively, the "Secured Debt Agreements"), or which would have the effect of impairing the position or interests of the Pledgee or any other Secured Creditor, except to the extent such violation, inconsistency or impairment is waived in accordance with the terms of Section 20 hereof. All such rights of such Pledgor to vote and to give consents, waivers and ratifications shall cease if an Event of Default shall have occurred and be continuing, and Section 7 hereof shall become applicable. 6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default shall have occurred and be continuing, all cash dividends payable in respect of the Pledged Stock and all payments in respect of the Pledged Notes shall be paid to the respective Pledgor; provided, that all cash dividends payable in respect of the Pledged Stock which are determined by the Pledgee to represent in whole or in part an extraordinary, liquidating or other distribution in return of capital shall be paid, to the extent so determined to represent an extraordinary, liquidating or other distribution in return of capital, to the Pledgee and retained by it as part of the Collateral. Subject to the last sentence of Section 3.2 hereof, the Pledgee shall also be entitled to receive directly, and to retain as part of the Collateral: -5- (i) all other or additional stock or other securities or property (other than cash) paid or distributed by way of dividend or otherwise in respect of the Pledged Stock; (ii) all other or additional stock or other securities or property (including cash) paid or distributed in respect of the Pledged Stock by way of stock-split, spin-off, split-up, reclassification, combination of shares or similar rearrangement; and (iii) all other or additional stock or other securities or property (including cash) which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange of stock, conveyance of assets, liquidation or similar corporate reorganization. 7. REMEDIES IN CASE OF EVENT OF DEFAULT. If an Event of Default shall have occurred and be continuing, the Pledgee shall be entitled to exercise all of the rights, powers and remedies (whether vested in it by this Agreement or by any other Secured Debt Agreement or by law) for the protection and enforcement of its rights in respect of the Collateral, and the Pledgee shall be entitled, without limitation, to exercise the following rights, which each Pledgor hereby agrees to be commercially reasonable: (i) to receive all amounts payable in respect of the Collateral payable to such Pledgor under Section 6 hereof; (ii) to transfer all or any part of the Pledged Securities into the Pledgee's name or the name of its nominee or nominees (the Pledgee agrees to promptly notify the relevant Pledgor after such transfer; provided, however, that the failure to give such notice shall not affect the validity of such transfer); (iii) to accelerate any Pledged Note which may be accelerated in accordance with its terms, and take any other action to collect upon any Pledged Note (including, without limitation, to make any demand for payment thereon); (iv) subject to the giving of written notice to the relevant Pledgor in accordance with clause (ii) of Section 5 hereof (to the extent such notice is required by such Section 5), to vote all or any part of the Pledged Stock (whether or not transferred into the name of the Pledgee) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (each Pledgor hereby irrevocably constituting and appointing the Pledgee the proxy and attorney-in-fact of such Pledgor, with full power of substitution to do so); and (v) at any time or from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by each Pledgor), for cash, on credit or for other property, for immediate -6- or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Pledgee in its absolute discretion may determine; provided, that at least 10 days' written notice of the time and place of any such sale shall be given to such Pledgor. Each Pledgor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Pledgee on behalf of the Secured Creditors may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Neither the Pledgee nor any other Secured Creditor shall be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto. 8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the Pledgee provided for in this Agreement or any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee or any other Secured Creditor of any one or more of the rights, powers or remedies provided for in this Agreement or in any other Secured Debt Agreement or now or here after existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee or any other Secured Creditor of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee or any other Secured Creditor to exercise any such right, power or remedy shall operate as a waiver thereof. The Secured Creditors agree that this Agreement may be enforced only by the action of the Administrative Agent or the Pledgee, in each case acting upon the instructions of, or with the consent of, the Majority Lenders (or, after the date on which all Loan Document Obligations have been paid in full and the Aggregate Commitment has been terminated, the holders of at least the majority of the outstanding Other Obligations) and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent or the Pledgee or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors upon the terms of this Agreement. 9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Pledgee upon any sale or other disposition of the Collateral pursuant to the terms of this Agreement, together with all other moneys received by the Pledgee hereunder, shall be applied in the manner provided in the Security Agreement. (b) It is understood and agreed that the Pledgors shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Collateral hereunder and the aggregate amount of the Obligations. -7- 10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the Pledgee hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt of the Pledgee or the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way for the misapplication or nonapplication thereof. 11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to indemnify and hold harmless the Pledgee in such capacity and each other Secured Creditor from and against any and all claims, demands, losses, judgments and liabilities of whatsoever kind or nature, and (ii) to reimburse the Pledgee and each other Secured Creditor for all costs and expenses, including reasonable attorneys' fees, arising or resulting from this Agreement or the exercise by the Pledgee of any right or remedy granted to it hereunder or under any other Secured Debt Agreement except, with respect to clauses (i) and (ii) above, for those arising from the Pledgee's or such other Secured Creditor's gross negligence or willful misconduct. In no event shall the Pledgee be liable, in the absence of gross negligence or willful misconduct on its part, for any matter or thing in connection with this Agreement other than to account for moneys actually received by it in accordance with the terms hereof. If and to the extent that the obligations of the Pledgors under this Section 11 are unenforceable for any reason, each Pledgor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 12. FURTHER ASSURANCES. Each Pledgor agrees that it will join with the Pledgee in executing and, at such Pledgor's own expense, file and refile under the applicable UCC or appropriate local equivalent, such financing statements, continuation statements and other documents in such offices as the Pledgee may deem reasonably necessary or appropriate and wherever required or permitted by law in order to perfect and preserve the Pledgee's security interest in the Collateral and hereby authorizes the Pledgee to file financing statements and amendments thereto relative to all or any part of the Collateral without the signature of such Pledgor where permitted by law, and agrees to do such further acts and things and to execute and deliver to the Pledgee such additional conveyances, assignments, agreements and instruments as the Pledgee may reasonably require or deem advisable to carry into effect the purposes of this Agreement or to further assure and confirm unto the Pledgee its rights, powers and remedies hereunder. 13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Pledgee as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. The Pledgee shall act hereunder on the terms and conditions set forth herein and in Article XI of the Credit Agreement. -8- 14. TRANSFER BY PLEDGORS. Except for sales or dispositions of Collateral permitted pursuant to the Credit Agreement, no Pledgor will sell or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber any of the Collateral or any interest therein (except in accordance with the terms of this Agreement). 15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Each Pledgor represents, warrants and covenants that (i) it is the legal, record and beneficial owner of, and has good and marketable title to, all Securities pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation, security interest, participation, charge, option or other encumbrance whatsoever, except the liens and security interests created by this Agreement and liens permitted under clauses (i) and (x) of Section 8.01 of the Credit Agreement, and subject to no restrictions upon the voting rights associated with, or upon the transfer or encumbrance of, any of the Securities; (ii) it has full power, authority and legal right to vote and pledge all the Securities pledged by it pursuant to this Agreement; (iii) this Agreement has been duly authorized, executed and delivered by such Pledgor and constitutes a legal, valid and binding obligation of such Pledgor enforceable in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law); (iv) no consent of any other party (including, without limitation, any stockholder or creditor of such Pledgor or any of its Subsidiaries) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required to be obtained by such Pledgor in connection with the execution, delivery or performance of this Agreement, or in connection with the exercise of its rights and remedies pursuant to this Agreement, except as may be required in connection with the disposition of the Securities by laws affecting the offering and sale of securities generally; (v) the execution, delivery and performance of this Agreement by such Pledgor does not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of the certificate of incorporation or by-laws of such Pledgor or of any securities issued by such Pledgor or any of its Subsidiaries, or of any mortgage, indenture, deed of trust, loan agreement, credit agreement or any other material agreement or material instrument to which such Pledgor or any of its Subsidiaries is a party or which purports to be binding upon such Pledgor or any of its Subsidiaries or upon any of their respective assets and will not result in the creation or imposition of any lien or encumbrance on any of the assets of such Pledgor or any of its Subsidiaries except as contemplated by this Agreement; (vi) all the shares of Stock of Subsidiaries of Holding have been duly and validly issued, are fully paid and non assessable; (vii) each of the Pledged Notes constituting Intercompany Notes, when executed by the obligor thereof, will be the legal, valid and binding obligation of such obligor, enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law); and (viii) the pledge and assignment of the Securities pursuant to this Agree ment, together with the delivery of the Securities pursuant to this Agreement (which delivery has -9- been made), creates a valid and perfected first security interest in such Securities and the proceeds thereof, subject to no prior lien or encumbrance or to any agreement purporting to grant to any third party a lien or encumbrance on the property or assets of such Pledgor which would include the Securities other than liens permitted under clauses (i) and (x) of Section 8.01 of the Credit Agreement. Each Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Securities and the proceeds thereof against the claims and demands of all persons whomsoever; and such Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the right thereto and security interest therein of the Pledgee and the other Secured Creditors. 16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each Pledgor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including, without limitation: (i) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Secured Debt Agreement or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof; (ii) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument or this Agreement; (iii) any furnishing of any additional security to the Pledgee or its assignee or any acceptance thereof or any release of any security by the Pledgee or its assignee; (iv) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; or (v) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to such Pledgor or any Subsidiary of such Pledgor, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not such Pledgor shall have notice or knowledge of any of the foregoing. 17. REGISTRATION, ETC. (a) If an Event of Default shall have occurred and be continuing and any Pledgor shall have received from the Pledgee a written request or requests that such Pledgor cause any registration, qualification or compliance under any Federal or state securities law or laws to be effected with respect to all or any part of the Pledged Stock, such Pledgor as soon as practicable and at its expense will use its reasonable efforts to cause such registration to be effected (and be kept effective) and will use its reasonable efforts to cause such qualification and compliance to be effected (and be kept effective) as may be so requested and as would permit or facilitate the sale and distribution of such Pledged Stock, including, without limitation, registration under the Securities Act of 1933 as then in effect (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with any other government requirements; provided, that the Pledgee shall furnish to such Pledgor such information regarding the Pledgee as such Pledgor may request in writing and as shall be required in connection with any such registration, qualification or compliance. Such Pledgor will cause the Pledgee to be kept reasonably advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, -10- will furnish to the Pledgee such number of prospectuses, offering circulars or other documents incident thereto as the Pledgee from time to time may reasonably request, and will indemnify the Pledgee, each other Secured Creditor and all others participating in the distribution of the Pledged Stock against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been caused by an untrue statement or omission based upon information furnished in writing to such Pledgor by the Pledgee or such other Secured Creditor expressly for use therein. (b) If at any time when the Pledgee shall determine to exercise its right to sell all or any part of the Pledged Securities pursuant to Section 7 hereof, such Pledged Securities or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as then in effect, the Pledgee may, in its sole and absolute discretion, sell such Pledged Securities or part thereof by private sale in such manner and under such circumstances as the Pledgee may deem necessary or advisable in order that such sale may legally be effected without such registration; provided, that at least 10 days' notice of the time and place of any such sale shall be given to such Pledgor. Without limiting the generality of the foregoing, in any such event the Pledgee, in its sole and absolute discretion: (i) may proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under such Securities Act; (ii) may approach and negotiate with a single possible purchaser to effect such sale; and (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Pledged Securities or part thereof. In the event of any such sale, the Pledgee shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price which the Pledgee, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might be realized if the sale were deferred until after registration as aforesaid. 18. TERMINATION, RELEASE. (a) After the Termination Date (as defined below), this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 11 hereof shall survive any such termination) and the Pledgee, at the request and expense of the respective Pledgor, will promptly execute and deliver to such Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly release from the security interest created hereby and assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Pledgee and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which the Aggregate Commitment and all Interest Rate Protection Agreements or Other Hedging Agreements have been terminated, no promissory note or Letter of Credit under the Credit Agreement is outstanding (other than Letters of Credit, -11- together with all fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, which have been secured in a manner satisfactory to the applicable Issuing Lenders in their sole and absolute discretion) and all other Obligations (other than indemnities described in Section 11 hereof and in Section 12.05 of the Credit Agreement which are not then due and payable) have been paid in full. (b) In the event that any part of the Collateral is sold or otherwise disposed of in connection with a sale or other disposition permitted by Section 8.02 of the Credit Agreement or is otherwise released at the direction of the Majority Lenders (or all the Lenders if required by Section 12.01 of the Credit Agreement), the Pledgee, at the request and expense of such Pledgor will duly release from the security interest created hereby and assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or released and as may be in possession of the Pledgee and has not theretofore been released pursuant to this Agreement. (c) At any time that a Pledgor desires that Collateral be released as provided in the foregoing Section 18(a) or (b), it shall deliver to the Pledgee a certificate signed by an Responsible Officer of such Pledgor stating that the release of the respective Collateral is permitted pursuant to Section 18(a) or (b). 19. NOTICES, ETC. All notices and other communications hereunder shall be in writing and shall be delivered or mailed by first class mail, postage prepaid, addressed: (a) if to any Pledgor, at; c/o CII Technologies, Inc. 1396 Charlotte Highway Fairview, N.C. 29730 Attention: David Henning Telephone No.: (704) 628-1711 Telecopier No.: (704) 628-1439 (b) if to the Pledgee, at: Bank of America National Trust and Savings Association 231 South LaSalle Street Chicago, Illinois 60697 Attention: Agency Management - 8th Floor David A. Johanson, Vice President Telephone No.:(312) 828-7933 Telecopier No.: (312) 705-0573 -12- (c) if to any Lender (other than the Pledgee), at such address as such Lender shall have specified in the Credit Agreement; (d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to each Pledgor and the Pledgee; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. 20. WAIVER; AMENDMENT. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Pledgor directly affected thereby and the Pledgee (with the written consent of either (x) the Majority Lenders (or all the Lenders if required by Section 12.01 of the Credit Agreement) at all times prior to the time on which all Loan Document Obligations have been paid in full and the Aggregate Commitment has been terminated or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Loan Document Obligations have been paid in full and the Aggregate Commitment has been terminated); provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below) of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors (as defined below) of such Class. For the purpose of this Agreement, the term "Class" shall mean each class of Secured Creditors, i.e., whether (i) the Lender Creditors as holders of the Loan Document Obligations or (ii) the Other Creditors as holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (i) with respect to the Loan Document Obligations, the Majority Lenders and (ii) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. 21. MISCELLANEOUS. This Agreement shall be binding upon the successors and assigns of each Pledgor and shall inure to the benefit of and be enforceable by the Pledgee and its successors and assigns; provided that no Pledgor may transfer or assign any or all of its rights and obligations hereunder without the prior written consent of the Pledgee. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF ILLINOIS (INCLUDING, WITHOUT LIMITATION, S.H.A. 135 ILCS 105/5-1, ET. SEQ., BUT WITHOUT GIVING EFFECT TO ANY OTHER CONFLICTS OF LAW PROVISIONS). The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. 22. ADDITIONAL PLEDGORS. It is understood and agreed that any Subsidiary of the Borrower that is required to execute a counterpart of this Agreement after the date hereof -13- pursuant to Sections 7.12 and/or 8.15 of the Credit Agreement shall automatically become a Pledgor hereunder by executing a counterpart hereof and delivering the same to the Pledgee. * * * -14- IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written. CII TECHNOLOGIES, INC., as a Pledgor By: /s/ David Henning ---------------------------------- Name: David Henning -------------------------- Title: CFO ------------------------- COMMUNICATIONS INSTRUMENTS, INC., as a Pledgor By: /s/ David Henning ---------------------------------- Name: David Henning -------------------------- Title: CFO ------------------------- KILOVAC CORPORATION, as a Pledgor By: /s/ David Henning ---------------------------------- Name: David Henning -------------------------- Title: CFO ------------------------- KILOVAC INTERNATIONAL, INC., as a Pledgor By: /s/ David Henning ---------------------------------- Name: David Henning -------------------------- Title: CFO ------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Pledgee and Collateral Agent By: /s/ David A. Johanson ---------------------------------- Name: David A. Johanson -------------------------- Title: Vice President ------------------------- ANNEX A to PLEDGE AGREEMENT LIST OF STOCK 1. Certificate No. CII-1 dated May 11, 1993 representing 1,000 shares of common stock of Communications Instruments, Inc. issued to Communications Instruments, Holdings, Inc. (n/k/a CII Technologies, Inc.). 2. Certificate No. 71 dated September 18, 1997 representing 124,785 shares of Class A Common Stock of Kilovac Corporation issued to Communications Instruments, Inc. 3. Certificate No. 1 dated December 15, 1977 representing 2,500 shares of capital stock of Kilovac International, Inc. issued to Kilovac Corporation. 4. Certificate No. C1 dated June 19, 1998 representing 1,000 issued and outstanding Common Shares of Corcom, Inc., issued to Communications Instruments, Inc. E - 17 Corcom, Inc. ANNEX B to PLEDGE AGREEMENT LIST OF NOTES 1. Executive Promissory Notes Executive Amount of Executive Promissory Note Michael A. Steinback $ 152,000.00 David Henning 53,500.00 Kirsten L. Byrd 5,000.00 Theodore H. Anderson 34,000.00 Raymond McClinton 12,000.00 Gary L. McGill 34,000.00 Jeffrey W. Boyce 17,000.00 Richard J. Lisdero, Jr. 5,000.00 Rennard A. Madrazo 10,000.00 Bascombe Ray 5,000.00 Carl R. Freas 15,000.00 George L. Sutton 5,000.00 Timothy B. Hasenour 5,000.00 Douglas D. Wagenknecht 5,000.00 Daniel R. McAllister 49,000.00 Patrick J. McPherson 24,500.00 Robert A. Helman 17,000.00 Michael J. Moschitto 14,000.00 Michael H. Molyneux 7,000.00 Mary Lynn Papador 6,000.00 Joseph R. Murach 10,000.00 Rick Danchuk 7,000.00 Mike Adams 8,000.00 2. Intercompany Notes Payor: Communications Instruments, Inc. Payee: Kilovac International, Inc. Kilovac Corporation CII Technologies Inc. E - 1 ANNEX B Corcom, Inc. Payor: Kilovac International, Inc. Payee: Kilovac Corporation CII Technologies Inc. Corcom, Inc. Communications Instruments, Inc. Payor: Kilovac Corporation Payee: CII Technologies Inc. Corcom, Inc. Communications Instruments, Inc. Kilovac International, Inc. Payor: CII Technologies Inc. Payee: Corcom, Inc. Communications Instruments, Inc. Kilovac International, Inc. Kilovac Corporation Payor: Corcom, Inc. Payee: Communications Instruments, Inc. Kilovac International, Inc. Kilovac Corporation CII Technologies Inc. Master Intercompany Note dated June 19, 1998 executed by each of CII Technologies, Inc., Communications Instruments, Inc., Kilovac Corporation, Kilovac International, Inc. and Corcom, Inc. E - 2 ANNEX B Page 3 Corcom, Inc. EXHIBIT A to PLEDGE AGREEMENT dated as of June 19, 1998 Form of Stock Power STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to _____________________________ _____ Shares of Common Stock of ____________, a __________ corporation, represented by Certificate No. __ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint ___________________________________ as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated: _______________ [--------------------] By: Name: Title: E - 3 EX-10.33 11 SUBSIDIARY GUARANTEE DATED 6/19/98 Exhibit 10.33 EXECUTION COPY SUBSIDIARY GUARANTY GUARANTY, dated as of June 19, 1998 (as amended, restated, modified or supplemented from time to time, this "Guaranty"), made by each of the undersigned guarantors (each, a "Guarantor" and, together with any other entity that becomes a party hereto pursuant to Section 27 hereof, the "Guarantors"). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, CII Technologies, Inc., Communications Instruments, Inc. (the "Borrower"), the several financial institutions from time to time party thereto (the "Lenders"), Bank of America National Trust and Savings Association, as an Issuing Lender and Swingline Lender, Bank of America National Trust and Savings Association, as Administrative Agent (together with any successor agent, the "Administrative Agent"), have entered into a Credit Agreement, dated as of June 19, 1998 (as amended, modified or supplemented from time to time, the "Credit Agree ment"), providing for the making of Loans to the Borrower and the issuance of, and participation in, Letters of Credit for the account of the Borrower, all as contemplated therein (the Lenders, the Issuing Lenders, the Swingline Lender, the Administrative Agent and the Collateral Agent are herein called the "Lender Creditors"); WHEREAS, the Borrower may from time to time be party to one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Lenders or an affiliate of a Lender (each such Lender or affiliate, even if the respective Lender subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender's or affiliate's successors and assigns, collectively, the "Other Creditors," and together with the Lender Creditors, are herein called the "Creditors"); WHEREAS, each Guarantor is a Subsidiary of the Borrower; WHEREAS, it is a condition to the making of Loans and the issuance of Letters of Credit for the account of the Borrower under the Credit Agreement that each Guarantor shall have executed and delivered this Guaranty; and WHEREAS, each Guarantor will obtain benefits from the incurrence of Loans by, and the issuance of Letter of Credit for account of, the Borrower under the Credit Agreement and the entering into of Interest Rate Protection Agreements or Other Hedging Agreements and, accordingly, desires to execute this Guaranty in order to satisfy the condition described in the preceding paragraph and to induce the Lenders to make Loans to, and issue (and/or participate in) Letters of Credit for the account of, the Borrower and Other Creditors to enter into Interest Rate Protection Agreements or Other Hedging Agreements with the Borrower; NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to each Guarantor, the receipt and sufficiency of which are hereby acknowledged, each Guarantor hereby makes the following representations and warranties to the Creditors and hereby covenants and agrees with each Creditor as follows: 1. Each Guarantor, jointly and severally, irrevocably and unconditionally guarantees: (i) to the Lender Creditors the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of (x) the principal of and interest on the promissory notes issued by, and the Loans made to, the Borrower under the Credit Agreement and all reimbursement obligations and unpaid drawings with respect to Letters of Credit and (y) all other obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing by the Borrower to the Lender Creditors under the Credit Agreement (including, without limitation, indemnities, fees, interest and other "Obligations" under and as defined in the Credit Agreement) and the other Loan Documents to which the Borrower is a party, whether now existing or hereafter incurred under, arising out of or in connection with the Credit Agreement or any such other Loan Document and the due performance and compliance by the Borrower with the terms of the Loan Documents (all such principal, interest, liabilities and obligations under this clause (i), except to the extent consisting of obligations or liabilities with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Loan Document Obligations"); and (ii) to each Other Creditor the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing by the Borrower under any Interest Rate Protection Agreements or Other Hedging Agreements, whether now in existence or hereafter arising, and the due performance and compliance by the Borrower with all terms, conditions and agreements contained therein (all such obligations and liabilities being herein collectively called the "Other Obligations", and together with the Loan Document Obligations are herein collectively called the "Guaranteed Obligations"). Each Guarantor understands, agrees and confirms that the Creditors may enforce this Guaranty up to the full amount of the Guaranteed Obligations against each Guarantor without proceeding against any other Guarantor, the Borrower, against any security for the Guaranteed Obligations, or under any other guaranty covering all or a portion of the Guaranteed Obligations. All payments by each Guarantor under this Guaranty shall be made on the same basis as payments by the Borrower are made under the Credit Agreement. 2. Additionally, each Guarantor, jointly and severally, unconditionally and irrevocably, guarantees the payment of any and all Guaranteed Obligations of the Borrower to the Creditors whether or not due or payable by the Borrower upon the occurrence in respect of the Borrower of any of the events specified in Sections 9.01(f) and 9.01(g) of the Credit Agreement, and unconditionally and irrevocably, jointly and severally, promises to pay such Guaranteed Obligations to the Creditors, or order, on demand, in lawful money of the United States. -2- 3. The liability of each Guarantor hereunder is exclusive and independent of any security for or other guaranty of the Guaranteed Obligations of the Borrower whether executed by such Guarantor, any other Guarantor, any other guarantor or by any other party, and the liability of each Guarantor hereunder shall not be affected or impaired by (a) any direction as to application of payment by the Borrower or by any other party, (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the Guaranteed Obligations of the Borrower, (c) any payment on or in reduction of any such other guaranty or undertaking, (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower or (e) any payment made to any Creditor on the Guaranteed Obligations which any Creditor repays to the Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and each Guarantor waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding. 4. The obligations of each Guarantor hereunder are independent of the obligations of any other Guarantor, any other guarantor or the Borrower, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not action is brought against any other Guarantor, any other guarantor or the Borrower and whether or not any other Guarantor, any other guarantor of the Borrower or the Borrower be joined in any such action or actions. Each Guarantor waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the Borrower or other circumstance which operates to toll any statute of limitations as to the Borrower shall operate to toll the statute of limitations as to each Guarantor. 5. Each Guarantor hereby waives (to the fullest extent permitted by applicable law) notice of acceptance of this Guaranty and notice of any liability to which it may apply, and waives promptness, diligence, presentment, demand of payment, protest, notice of dishonor or nonpayment of any such liabilities, suit or taking of other action by the Administrative Agent or any other Creditor against, and any other notice to, any party liable thereon (including such Guarantor or any other guarantor or the Borrower). 6. Any Creditor may (except as shall be required by applicable statute and cannot be waived) at any time and from time to time without the consent of, or notice to, any Guarantor, without incurring responsibility to such Guarantor, without impairing or releasing the obligations of such Guarantor hereunder, upon or without any terms or conditions and in whole or in part: (a) change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew, increase, accelerate, alter, sell, assign or participate any of the Guaranteed Obligations, any security therefor, or any liability incurred directly or indirectly in respect thereof, and the guaranty herein made shall apply to the Guaranteed Obligations as so changed, extended, renewed, altered, sold, assigned or participated; -3- (b) sell, exchange, release, impair, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Guaranteed Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset thereagainst; (c) exercise or refrain from exercising any rights against the Borrower or others or otherwise act or refrain from acting; (d) settle or compromise any of the Guaranteed Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of the Borrower to creditors of the Borrower; (e) apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of the Borrower to the Creditors regardless of what liabilities of the Borrower remain unpaid; (f) consent to or waive any breach of, or any act, omission or default under, any of the Interest Rate Protection Agreements or Other Hedging Agreements, the Loan Documents or any of the instruments or agreements referred to therein, or otherwise amend, modify or supplement any of the Interest Rate Protection Agreements or Other Hedging Agreements, the Loan Documents or any of such other instruments or agree ments; and/or (g) act or fail to act in any manner referred to in this Guaranty which may deprive such Guarantor of its right to subrogation against the Borrower to recover full indemnity for any payments made pursuant to this Guaranty. 7. No invalidity, irregularity or unenforceability of all or any part of the Guaranteed Obligations or of any security therefor shall affect, impair or be a defense to this Guaranty, and this Guaranty shall be primary, absolute and unconditional notwithstanding the occurrence of any event or the existence of any other circumstances which might constitute a legal or equitable discharge of a surety or guarantor except payment in full of the Guaranteed Obligations. 8. This Guaranty is a continuing one and all liabilities to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. No failure or delay on the part of any Creditor in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly specified are cumulative -4- and not exclusive of any rights or remedies which any Creditor would otherwise have. No notice to or demand on any Guarantor in any case shall entitle such Guarantor to any other further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Creditor to any other or further action in any circumstances without notice or demand. It is not necessary for any Creditor to inquire into the capacity or powers of the Borrower or any of its Subsidiaries or the officers, directors, partners or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 9. Any indebtedness of the Borrower now or hereafter held by any Guarantor is hereby subordinated to the indebtedness of the Borrower to the Creditors; and such indebtedness of the Borrower to any Guarantor, if the Administrative Agent, after an Event of Default has occurred and is continuing, so requests, shall be collected, enforced and received by such Guarantor as trustee for the Creditors and be paid over to the Creditors on account of the indebtedness of the Borrower to the Creditors, but without affecting or impairing in any manner the liability of such Guarantor under the other provisions of this Guaranty. Prior to the transfer by any Guarantor of any note or negotiable instrument evidencing any indebtedness of the Borrower to such Guarantor, such Guarantor shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. Without limiting the generality of the foregoing, each Guarantor hereby agrees with the Guaranteed Creditors that it will not exercise any right of subrogation which it may at any time otherwise have as a result of this Guaranty (whether contractual, under Section 509 of the Bankruptcy Code or otherwise) until all Guaranteed Obligations have been irrevocably paid in full in cash. 10. (a) Each Guarantor waives any right (except as shall be required by applicable statute or law and cannot be waived) to require the Creditors to: (i) proceed against the Borrower, any other Guarantor, any other guarantor of the Borrower or any other party; (ii) proceed against or exhaust any security held from the Borrower, any other Guarantor, any other guarantor of the Borrower or any other party; or (iii) pursue any other remedy in the Creditors' power whatsoever. Each Guarantor waives (to the fullest extent permitted by applicable law) any defense based on or arising out of any defense of the Borrower, any other Guarantor, any other guarantor of the Borrower or any other party other than payment in full of the Guaranteed Obligations, including, without limitation, any defense based on or arising out of the disability of the Borrower, any other Guarantor, any other guarantor of the Borrower or any other party, or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of the Guaranteed Obligations. The Creditors may, at their election, foreclose on any security held by the Administrative Agent, the Collateral Agent or the other Creditors by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Creditors may have against the Borrower or any other party, or any security, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Guaranteed Obligations have been paid in full. Each Guarantor waives any defense arising out of any such -5- election by the Creditors, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against the Borrower or any other party or any security. (b) Each Guarantor waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional indebtedness. Each Guarantor assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks which such Guarantor assumes and incurs hereunder, and agrees that the Creditors shall have no duty to advise any Guarantor of information known to them regarding such circumstances or risks. 11. The Creditors agree that this Guaranty may be enforced only by the action of the Administrative Agent or the Collateral Agent, in each case acting upon the instructions, or with the consent, of the Majority Lenders (or, after the date on which all Loan Document Obligations have been paid in full and the Aggregate Commitment has been terminated, the holders of at least a majority of the outstanding Other Obligations) and that no other Creditor shall have any right individually to seek to enforce or to enforce this Guaranty or to realize upon the security to be granted by the Collateral Documents, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent or the Collateral Agent or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Creditors upon the terms of this Guaranty and the Collateral Documents. The Creditors further agree that this Guaranty may not be enforced against any director, officer, employee, or stockholder of any Guarantor (except to the extent such stockholder is also a Guarantor hereunder). 12. In order to induce the Lenders to make Loans and issue Letters of Credit pursuant to the Credit Agreement, and in order to induce the Other Creditors to execute, deliver and perform the Interest Rate Protection Agreements or Other Hedging Agreements, each Guarantor represents, warrants and covenants that: (a) Such Guarantor (i) is a duly organized and validly existing corporation and is in good standing (to the extent such concept is relevant in such jurisdiction) under the laws of the jurisdiction of its organization, and has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (ii) is duly qualified and is authorized to do business and is in good standing in all jurisdictions where it is required to be so qualified and where the failure to be so qualified could reasonably be expected to have a Material Adverse Effect. (b) Such Guarantor has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Guaranty and each other Loan Document to -6- which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each such Loan Document. Such Guarantor has duly executed and delivered this Guaranty and each other Loan Document to which it is a party and each such Loan Document constitutes the legal, valid and binding obligation of such Guarantor enforceable in accordance with its terms, except to the extent that the enforceability hereof or thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law). (c) Neither the execution, delivery or performance by such Guarantor of this Guaranty or any other Loan Document to which it is a party, nor compliance by it with the terms and provisions hereof or thereof (i) will contravene any applicable provision of any law, or any order, writ, injunction or decree of any court or Governmental Authority, (ii) will conflict or be inconsistent with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or (other than pursuant to the Collateral Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of such Guarantor or any of its Subsidiaries pursuant to the terms of any Contractual Obligation to which such Guarantor or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the articles or certificate of incorporation, by-laws or any other organizational document of such Guarantor or any of its Subsidiaries. (d) No order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any Governmental Authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of this Guaranty or any other Loan Document to which such Guarantor is a party, or (ii) the legality, validity, binding effect or enforceability of this Guaranty or any other Loan Document to which such Guarantor is a party. (e) There are no actions, suits or proceedings pending or to the knowledge of such Guarantor, threatened with respect to such Guarantor (i) that could reasonably be expected to have a Material Adverse Effect or (ii) that could reasonably be expected to have a material adverse effect on the rights or remedies of the Creditors or on the ability of such Guarantor to perform its respective obligations to the Creditors hereunder and under the other Loan Documents to which it is a party. 13. Each Guarantor covenants and agrees that on and after the date hereof and until the termination of the Aggregate Commitment and all Interest Rate Protection Agreements or Other Hedging Agreements and when no promissory note or Letter of Credit under the Credit Agreement remains outstanding (other than Letters of Credit, together with all fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, -7- which have been secured in a manner satisfactory to the Issuing Lender in its sole and absolute discretion) and all Guaranteed Obligations have been paid in full (other than indemnities described in Section 12.05 of the Credit Agreement and analogous provisions in the Collateral Documents which are not then due and payable), such Guarantor shall take, or will refrain from taking, as the case may be, all actions that are necessary to be taken or not taken so that no violation of any provision, covenant or agreement contained in Article VII or VIII of the Credit Agreement, and so that no Default or Event of Default, is caused by the actions of such Guarantor or any of its Subsidiaries. 14. The Guarantors hereby jointly and severally agree to pay all reasonable out-of-pocket costs and expenses of each Creditor in connection with the enforcement of this Guaranty and any amendment, waiver or consent relating hereto (including, without limitation, the reasonable fees and disbursements of counsel (including in-house counsel) employed by any of the Creditors). 15. This Guaranty shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the Creditors and their successors and assigns. 16. Neither this Guaranty nor any provision hereof may be changed, waived, discharged or terminated except with the written consent of each Guarantor directly affected thereby and either (x) the Majority Lenders (or to the extent required by Section 12.01 of the Credit Agreement, with the written consent of each Lender) at all times prior to the time on which all Loan Document Obligations have been paid in full and the Aggregate Commitment has been terminated or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Loan Document Obligations have been paid in full and the Aggregate Commitment has been terminated; provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below) of Creditors (and not all Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors (as defined below) of such Class of Creditors (it being understood that the addition or release of any Guarantor hereunder shall not constitute a change, waiver, discharge or termination affecting any Guarantor other than the Guarantor so added or released). For the purpose of this Guaranty the term "Class" shall mean each class of Creditors, i.e., whether (x) the Lender Creditors as holders of the Loan Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Guaranty, the term "Requisite Creditors" of any Class shall mean each of (x) with respect to the Loan Document Obligations, the Majority Lenders and (y) with respect to the Other Obligations, the holders of at least a majority of the Other Obligations. 17. Each Guarantor acknowledges that an executed (or conformed) copy of each of the Loan Documents and Interest Rate Protection Agreements or Other Hedging Agreements has been made available to its principal executive officers and such officers are familiar with the contents thereof. -8- 18. In addition to any rights now or hereafter granted under applicable law, and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (such term to mean and include any "Event of Default" as defined in the Credit Agreement or any payment default under any Interest Rate Protection Agreement or Other Hedging Agreement continuing after any applicable grace period), each Creditor is hereby authorized at any time or from time to time, without notice to any Guarantor or to any other Person, any such notice being expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Creditor to or for the credit or the account of such Guarantor, against and on account of the obligations and liabilities of such Guarantor to such Creditor under this Guaranty, irrespective of whether or not such Creditor shall have made any demand hereunder and although said obligations, liabilities, deposits or claims, or any of them, shall be contingent or unmatured. 19. All notices, requests, demands or other communications pursuant hereto shall be deemed to have been duly given or made when delivered to the Person to which such notice, request, demand or other communication is required or permitted to be given or made under this Guaranty, addressed to such party at (i) in the case of any Lender Creditor, as provided in the Credit Agreement, (ii) in the case of any Guarantor, at: c/o CII Technologies, Inc., 1396 Charlotte Highway, Fairview, N.C. 29730, Attention: David Henning, Telephone No.: (704) 628- 1711, Telecopier No.: (704) 628-1439, and (iii) in the case of any Other Creditor, at such address as such Other Creditor shall have specified in writing to the Guarantor; or in any case at such other address as any of the Persons listed above may hereafter notify the others in writing. 20. If claim is ever made upon any Creditor for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations and any of the aforesaid payees repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (ii) any settlement or compromise of any such claim effected by such payee with any such claimant (including, without limitation, the Borrower or any Guarantor), then and in such event each Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon such Guarantor, notwithstanding any revocation hereof or other instrument evidencing any liability of the Borrower, and such Guarantor shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee. 21. (a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF ILLINOIS (INCLUDING, WITHOUT LIMITATION, S.H.A. 135 ILCS 105/5- 1, ET. SEQ. , BUT WITHOUT GIVING EFFECT TO ANY OTHER CONFLICTS OF LAW PROVISIONS). -9- (b) Any legal action or proceeding with respect to this Guaranty or any other Loan Document to which such Guarantor is a party may be brought in the courts of the State of Illinois or of the United States of America for the Northern District of Illinois, and, by execution and deli very of this Guaranty, each Guarantor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby further irrevocably waives any claim that any such courts lack jurisdiction over such Guarantor, and agrees not to plead or claim, in any legal action or proceeding with respect to this Guaranty or any other Loan Document to which such Guarantor is a party brought in any of the aforesaid courts, that any such court lacks jurisdiction over such Guarantor. Each Guarantor further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to each Guarantor at its address set forth opposite its signature below, such service to become effective 30 days after such mailing. Each Guarantor hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any other Loan Document to which such Guarantor is a party that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of any of the Creditors to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against each Guarantor in any other jurisdiction. (c) Each Guarantor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Guaranty or any other credit document brought in the courts referred to in clause (b) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that such action or proceeding brought in any such court has been brought in an inconvenient forum. 22. In the event that all of the capital stock of one or more Guarantors is sold or otherwise disposed of or liquidated in compliance with the requirements of Section 8.02 of the Credit Agreement (or such sale or other disposition or liquidation has been approved in writing by the Majority Lenders (or all Lenders if required by Section 12.01 of the Credit Agreement)) and the proceeds of such sale, disposition or liquidation are applied in accordance with the provisions of the Credit Agreement, to the extent applicable, such Guarantor shall be released from this Guaranty and this Guaranty shall, as to each such Guarantor or Guarantors, terminate, and have no further force or effect (it being understood and agreed that the sale of one or more Persons that own, directly or indirectly, all of the capital stock or partnership interests of any Guarantor shall be deemed to be a sale of such Guarantor for the purposes of this Section 22). 23. This Guaranty may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agent. -10- 24. EACH GUARANTOR AND EACH OF THE CREDITORS HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 25. All payments made by any Guarantor hereunder will be made without setoff, counterclaim or other defense. 26. Each Guarantor and each Creditor (by its acceptance of the benefits of this Guaranty) hereby confirms that it is its intention that this Guaranty not constitute fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act of any similar Federal or state law. To effectuate the foregoing intention, each Guarantor and each Creditor (by its acceptance of the benefits of this Guaranty) hereby irrevocably agrees that the Guaranteed Obligations guaranteed by such Guarantor shall be limited to such amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws, and after giving effect to any rights to contribution pursuant to any agreement providing for an equitable contribution among such Guarantor and the other Guarantors, result in the Guaranteed Obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent transfer or conveyance. 27. It is understood and agreed that any Subsidiary of the Borrower that is required to execute a counterpart of this Guaranty after the date hereof pursuant to Sections 7.12 and/or 8.15 of the Credit Agreement shall automatically become a Guarantor hereunder by executing a counterpart hereof and delivering the same to the Administrative Agent. * * * -11- IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed and delivered as of the date first above written. KILOVAC CORPORATION, as a Guarantor By: /s/ David Henning --------------------------------- Name: David Henning ---------------------------- Title: CFO --------------------------- KILOVAC INTERNATIONAL, INC., as a Guarantor By: /s/ David Henning --------------------------------- Name: David Henning ---------------------------- Title: CFO --------------------------- CORCOM, INC., as a Guarantor By: /s/ David Henning --------------------------------- Name: David Henning ---------------------------- Title: CFO --------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent for the Lenders By: /s/ David A. Johanson --------------------------------- Name: David A. Johanson ---------------------------- Title: Vice President --------------------------- EX-10.34 12 SECURITY AGREEMENT DATED 6/19/98 Exhibit 10.34 EXECUTION COPY SECURITY AGREEMENT among CII TECHNOLOGIES, INC., COMMUNICATIONS INSTRUMENTS, INC., CERTAIN SUBSIDIARIES OF COMMUNICATIONS INSTRUMENTS, INC. and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent Dated as of June 19, 1998 TABLE OF CONTENTS ----------------- Page ---- ARTICLE I SECURITY INTERESTS...........................................................2 1.1. Grant of Security Interests...................................2 1.2. Power of Attorney.............................................2 ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS...................3 2.1. Necessary Filings.............................................3 2.2. No Liens......................................................3 2.3. Other Financing Statements....................................3 2.4. Chief Executive Office; Records...............................4 2.5. Location of Inventory and Equipment...........................4 2.6. Recourse......................................................5 2.7. Trade Names; Change of Name...................................5 ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS...........................5 3.1. Additional Representations and Warranties.....................5 3.2. Maintenance of Records........................................5 3.3. Direction to Account Debtors; Contracting Parties; etc........6 3.4. Modification of Terms; etc....................................6 3.5. Collection....................................................7 3.6. Instruments...................................................7 3.7. Further Actions...............................................7 ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS............................7 4.1. Additional Representations and Warranties.....................7 4.2. Licenses and Assignments......................................8 4.3. Infringements.................................................8 4.4. Preservation of Marks.........................................8 4.5. Maintenance of Registration...................................9 4.6. Future Registered Marks.......................................9 4.7. Remedies......................................................9 ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS..............................10 5.1. Additional Representations and Warranties....................10 5.2. Licenses and Assignments.....................................11 5.3. Infringements................................................11 5.4. Maintenance of Patents.......................................11 5.5. Prosecution of Patent Application............................11 5.6. Other Patents and Copyrights.................................11 5.7. Remedies.....................................................11 ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL...............................12 6.1. Protection of Collateral Agent's Security....................12 6.2. Warehouse Receipts Non-Negotiable............................12 6.3. Further Actions..............................................13 6.4. Financing Statements.........................................13 ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT.......................14 7.1. Remedies; Obtaining the Collateral Upon Default..............14 7.2. Remedies; Disposition of the Collateral......................15 7.3. Waiver of Claims.............................................16 7.4. Application of Proceeds......................................17 7.5. Remedies Cumulative..........................................19 7.6. Discontinuance of Proceedings................................19 ARTICLE VIII INDEMNITY..........................................................19 8.1. Indemnity....................................................19 8.2. Indemnity Obligations Secured by Collateral; Survival........21 ARTICLE IX DEFINITIONS........................................................21 -ii- ARTICLE X MISCELLANEOUS......................................................25 10.1. Notices.....................................................25 10.2. Waiver; Amendment...........................................26 10.3. Obligations Absolute........................................27 10.4. Successors and Assigns......................................27 10.5. Headings Descriptive........................................27 10.6. Governing Law...............................................27 10.7. Assignor's Duties...........................................27 10.8. Termination; Release........................................28 10.9. Counterparts................................................28 10.10. The Collateral Agent.......................................28 10.11. Additional Assignors.......................................29 ANNEX A Schedule of Chief Executive Offices and other Record Locations ANNEX B Schedule of Inventory and Equipment Locations ANNEX C Trade and Fictitious Names ANNEX D List of Marks ANNEX E List of Patents and Applications ANNEX F List of Copyrights and Applications ANNEX G Grant of Security Interest in United States Trademarks and Patents ANNEX H Grant of Security Interest in United States Copyrights -iii- SECURITY AGREEMENT ------------------ SECURITY AGREEMENT, dated as of June 19, 1998, among each of the undersigned assignors (each, an "Assignor" and, together with any other entity that becomes a party hereto pursuant to Section 10.11 hereof, the "Assignors") and Bank of America National Trust and Savings Association, as Collateral Agent (the "Collateral Agent"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, CII Technologies, Inc. ("Holdings"), Communications Instruments, Inc. (the "Borrower"), the several financial institutions from time to time party thereto (the "Lenders"), Bank of America National Trust and Savings Association, as an Issuing Lender and Swingline Lender, Bank of America National Trust and Savings Association, as Administrative Agent together with any successor agent, (the "Administrative Agent," and together with the Collateral Agent, the Issuing Lenders, the Swingline Lender and the Lenders, the "Lender Creditors"), have entered into a Credit Agreement, dated as of June 19, 1998 (as amended, restated, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to the Borrower and the issuance of, and participation in, Letters of Credit for the account of the Borrower, all as contemplated therein; WHEREAS, the Borrower may from time to time be party to one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Lenders or an affiliate of a Lender (each such Lender or affiliate, even if the respective Lender subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender's or affiliate's successors and assigns, collectively, the "Other Creditors", and together with the Lender Creditors, the "Secured Creditors"); WHEREAS, pursuant to Article X of the Credit Agreement, Holdings has guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of the Borrower under or with respect to the Loan Documents and the Interest Rate Protection Agreements or Other Hedging Agreements; WHEREAS, pursuant to the Subsidiary Guaranty, each Assignor (other than Holdings and the Borrower) has jointly and severally guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of the Borrower under or with respect to the Loan Documents and the Interest Rate Protection Agreements or Other Hedging Agreements; WHEREAS, it is a condition precedent to the making of Loans to the Borrower and the issuance of Letters of Credit for the account of the Borrower under the Credit Agreement that the Assignors shall have executed and delivered to the Collateral Agent this Agreement; and WHEREAS, each Assignor desires to execute this Agreement to satisfy the condition described in the preceding paragraph; NOW, THEREFORE, in consideration of the benefits accruing to each Assignor, the receipt and sufficiency of which are hereby acknowledged, each Assignor hereby makes the following representations and warranties to the Collateral Agent and hereby covenants and agrees with the Collateral Agent as follows: ARTICLE I SECURITY INTERESTS 1.1. Grant of Security Interests. (a) As security for the prompt and complete payment and performance when due of all of its Obligations, each Assignor does hereby assign and transfer unto the Collateral Agent, and does hereby pledge and grant to the Collateral Agent for the benefit of the Secured Creditors, a continuing security interest of first priority in, all of the right, title and interest of such Assignor in, to and under all of the following, whether now existing or hereafter from time to time acquired: (i) each and every Receivable, (ii) all Contracts, together with all Contract Rights arising thereunder (other than Contracts which by their terms cannot be pledged (although the right to receive payments of money due or to become due thereunder shall not be excluded from the security interest created hereunder)), (iii) all Inventory, (iv) all Equipment, (v) all Marks, together with the registrations and right to all renewals thereof, and the goodwill of the business of such Assignor symbolized by the Marks, (vi) all Patents and Copyrights, (vii) all computer programs of such Assignor and all intellectual property rights therein (other than such programs and rights which by their terms cannot be pledged) and all other proprietary information of such Assignor, including, but not limited to, trade secrets, (viii) all other Goods, General Intangibles, Chattel Paper, Documents and Instruments, (ix) the Cash Collateral Account and all monies, securities and instruments deposited or required to be deposited in such Cash Collateral Account, and (x) all Proceeds and products of any and all of the foregoing (all of the above, collectively, the "Collateral"). Notwithstanding anything to the contrary contained in the immediately preceding sentence, the term Collateral shall not include motor vehicles. (b) The security interest of the Collateral Agent under this Agreement extends to all Collateral of the kind which is the subject of this Agreement which any Assignor may acquire at any time during the continuation of this Agreement. 1.2. Power of Attorney. Each Assignor hereby constitutes and appoints the Collateral Agent its true and lawful attorney, irrevocably, with full power after the occurrence of and during the continuance of an Event of Default (in the name of such Assignor or otherwise) to act, require, demand, receive, compound and give acquittance for any and all monies and claims for monies due or to become due to such Assignor under or arising out of the Collateral, to -2- endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Collateral Agent may deem to be reasonably necessary or advisable to protect the interests of the Secured Creditors, which appoint ment as attorney is coupled with an interest. ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS Each Assignor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows: 2.1. Necessary Filings. All filings, registrations and recordings necessary or appropriate to create, preserve and perfect the security interest granted by such Assignor to the Collateral Agent hereby in respect of the Collateral have been accomplished (or will have been accomplished on the Business Day immediately following the Effective Date) and the security in terest granted to the Collateral Agent pursuant to this Agreement in and to the Collateral creates a perfected security interest therein prior to the rights of all other Persons therein and subject to no other Liens (other than Permitted Liens) and is entitled to all the rights, priorities and benefits afforded by the Uniform Commercial Code or other relevant law as enacted in any relevant juris diction to perfected security interests, in each case to the extent that the Collateral consists of the type of property in which a security interest may be perfected by filing a financing statement under the Uniform Commercial Code as enacted in any relevant jurisdiction or by filing a security agreement in the United States Patent and Trademark Office or United States Copyright Office or, to the extent provided in Section 6.3(b) hereof, in any foreign equivalent office of the United States Patent and Trademark or United States Copyright Office. 2.2. No Liens. Such Assignor is, and as to Collateral acquired by it from time to time after the date hereof such Assignor will be, the owner of, or has rights in, all Collateral free from any Lien, security interest, encumbrance or other right, title or interest of any Person (other than Permitted Liens), and such Assignor shall defend the Collateral to the extent of its rights therein against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Collateral Agent. 2.3. Other Financing Statements. As of the date hereof, there is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral (other than financing statements filed in respect of Permitted Liens), and so long as the Aggregate Commitment has not been terminated or any promissory note issued under the Credit Agreement remains unpaid or any of the Obligations remain unpaid or any Interest Rate Protection Agreement or Other Hedging Agreement or Letter of Credit remains in effect (other than Letters of Credit, together with all fees that have accrued and will accrue thereon through the stated termination date of such Letters -3- of Credit, which have been secured in a manner satisfactory to the applicable Issuing Lenders in their sole and absolute discretion) or any Obligations are owed with respect thereto, such Assignor will not execute or authorize to be filed in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Collateral, except (a) financing statements and other perfection instruments filed or to be filed in respect of and covering the security interests granted hereby by such Assignor or as permitted by the Credit Agreement and (b) financing statements with respect to Permitted Liens. 2.4. Chief Executive Office; Records. The chief executive office of such Assignor is located at the address or addresses indicated on Annex A hereto for such Assignor. Such Assignor will not move its chief executive office except to such new location as such Assignor may establish in accordance with the last sentence of this Section 2.4. The originals of all documents evidencing all Receivables and Contract Rights of such Assignor and the only original books of account and records of such Assignor relating thereto are, and will continue to be, kept at such chief executive office, at one or more of the locations set forth on Annex A hereto or at such new locations as such Assignor may establish in accordance with the last sentence of this Section 2.4. All Receivables and Contract Rights of such Assignor are, and will continue to be, maintained at, and controlled and directed (including, without limitation, for general accounting purposes) from, the office locations described above or such new location established in accordance with the last sentence of this Section 2.4. No Assignor shall establish new locations for such offices until it shall have given to the Collateral Agent notice of its intention to do so unless (i) such Assignor shall give to the Collateral Agent written notice of any such relocation of its chief executive office within 10 days following such relocation, clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new location, it shall take all action, reasonably satisfactory to the Collateral Agent, to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 2.5. Location of Inventory and Equipment. All Inventory and Equipment held on the date hereof by each Assignor is located at one of the locations shown on Annex B hereto for such Assignor (other than (i) immaterial portions of Inventory (x) sold on consignment or held on display for demonstration purposes or (y) transferred to another location in connection with a sale of such Inventory in the ordinary course of business, so long as such sale occurs within 60 days from the date of such transfer and (ii) various spare parts held for maintenance or repair of Equipment). Each Assignor agrees that all Inventory and Equipment now held or subsequently acquired by it shall be kept at (or shall be in transport to) any one of the locations shown on Annex B hereto, or such new location as such Assignor may establish in accordance with the last sentence of this Section 2.5 (other than (i) immaterial portions of Inventory (x) sold on consignment or held on display for demonstration purposes or (y) may be transferred to another location in connection with a sale of such Inventory in the ordinary course of business, so long as such sale occurs within 60 days from the date of such transfer and (ii) various spare parts held for maintenance or repair of Equipment). Any Assignor may establish a new location for Inventory -4- and Equipment only if (i) it shall have given to the Collateral Agent written notice within 10 days following any such relocation clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may request and (ii) with respect to such new location, it shall have taken all action reasonably satisfactory to the Collateral Agent to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 2.6. Recourse. This Agreement is made with full recourse to each Assignor and pursuant to and upon all the warranties, representations, covenants and agreements on the part of such Assignor contained herein, in the other Loan Documents, in the Interest Rate Protection Agreements or Other Hedging Agreements and otherwise in writing in connection herewith or therewith. 2.7. Trade Names; Change of Name. No Assignor has or operates in any jurisdiction under, or in the preceding 12 months has had or has operated in any jurisdiction under, any trade names, fictitious names or other names except its legal name and such other trade or fictitious names as are listed on Annex C hereto. No Assignor shall change its legal name or assume or operate in any jurisdiction under any trade, fictitious or other name except those names listed on Annex C hereto and new names established in accordance with the last sentence of this Section 2.7. No Assignor shall assume or operate in any jurisdiction under any new trade, fictitious or other name unless (i) it shall have given to the Collateral Agent written notice within 10 days following any assumption of, or operation under, such new name clearly describing such new name and the jurisdictions in which such new name shall be used and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new name, it shall have taken all action requested by the Collateral Agent, to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS 3.1. Additional Representations and Warranties. As of the time when each of its Receivables arises, each Assignor shall be deemed to have represented and warranted that such Receivable, and all records, papers and documents relating thereto (if any) are what they purport to be, and that all papers and documents (if any) relating thereto will be the only original writings evidencing and embodying such obligation of the account debtor named therein (other than copies created for general accounting purposes). 3.2. Maintenance of Records. Each Assignor will keep and maintain at its own cost and expense accurate records of its Receivables and Contracts, records of all payments -5- received, all credits granted thereon, all merchandise returned and all other dealings therewith, and such Assignor will make the same available on such Assignor's premises to the Collateral Agent for inspection, at such Assignor's own cost and expense, at any and all reasonable times upon prior notice to a Responsible Officer of such Assignor. Upon the occurrence and during the continuance of an Event of Default and at the request of the Collateral Agent, such Assignor shall, at its own cost and expense, deliver all tangible evidence of its Receivables and Contract Rights (including, without limitation, all documents evidencing the Receivables and all Contracts) and such books and records to the Collateral Agent or to its representatives (copies of which evidence and books and records may be retained by such Assignor). Upon the occurrence and during the continuance of an Event of Default and if the Collateral Agent so directs, such Assignor shall legend, in form and manner reasonably satisfactory to the Collateral Agent, the Receivables and the Contracts, as well as books, records and documents (if any) of such Assignor evidencing or pertaining to such Receivables and Contracts with an appropriate reference to the fact that such Receivables and Contracts have been assigned to the Collateral Agent and that the Collateral Agent has a security interest therein. 3.3. Direction to Account Debtors; Contracting Parties; etc. Upon the occurrence and during the continuance of an Event of Default, and if the Collateral Agent so directs any Assignor, such Assignor agrees (x) to cause all payments on account of the Receivables and Contracts to be made directly to the Cash Collateral Account, (y) that the Collateral Agent may, at its option, directly notify the obligors with respect to any Receivables and/or under any Contracts to make payments with respect thereto as provided in the preceding clause (x) and (z) that the Collateral Agent may enforce collection of any such Receivables and Contracts and may adjust, settle or compromise the amount of payment thereof, in the same manner and to the same extent as such Assignor. Without notice to or assent by any Assignor, the Collateral Agent may apply any or all amounts then in, or thereafter deposited in, the Cash Collateral Account which application shall be effected in the manner provided in Section 7.4 of this Agreement. The costs and expenses (including reasonable attorneys' fees) of collection, whether incurred by the relevant Assignor or the Collateral Agent, shall be borne by the relevant Assignor. The Collateral Agent shall deliver a copy of each notice referred to in the preceding clause (y) to the relevant Assignor; provided, that the failure by the Collateral Agent to so notify such Assignor shall not affect the effectiveness of such notice or the other rights of the Collateral Agent created by this Section 3.3. The Collateral Agent's rights and the Assignor's Obligations under this Section 3.3 shall be in addition to, and not in lieu of, their respective rights and obligations under Section 7.11 of the Credit Agreement. 3.4. Modification of Terms; etc. No Assignor shall rescind or cancel any indebtedness evidenced by any Receivable or under any Contract, or modify in any material respect any term thereof or make any material adjustment with respect thereto, or extend or renew the same, or compromise or settle any material dispute, claim, suit or legal proceeding relating thereto, or sell any Receivable or Contract, or interest therein, without the prior written consent of the Collateral Agent, except as permitted by Section 3.5 hereof or in the Credit Agreement. Each Assignor will duly fulfill all obligations on its part to be fulfilled under or in -6- connection with the Receivables and Contracts and will do nothing to impair the rights of the Collateral Agent in the Receivables or Contracts. 3.5. Collection. Each Assignor shall endeavor in accordance with reasonable business practices to cause to be collected from the account debtor named in each of its Receivables or obligor under any Contract, as and when due (including, without limitation, amounts which are delinquent, such amounts to be collected in accordance with generally accepted lawful collection procedures) any and all amounts owing under or on account of such Receivable or Contract, and apply forthwith upon receipt thereof all such amounts as are so col lected to the outstanding balance of such Receivable or under such Contract, except that, prior to the occurrence of an Event of Default, any Assignor may allow in the ordinary course of business as adjustments to amounts owing under its Receivables and Contracts (i) an extension or renewal of the time or times of payment, or settlement for less than the total unpaid balance, which such Assignor finds appropriate in accordance with reasonable business judgment and (ii) a refund or credit due as a result of returned or damaged merchandise or improperly performed services or for other reasons which such Assignor finds appropriate in accordance with reasonable business judgment. The reasonable costs and expenses (including, without limitation, attorneys' fees) of collection, whether incurred by an Assignor or the Collateral Agent, shall be borne by the relevant Assignor. 3.6. Instruments. If any Assignor owns or acquires any Instrument constituting Collateral, such Assignor will within 10 Business Days notify the Collateral Agent thereof, and upon request by the Collateral Agent will promptly deliver such Instrument to the Collateral Agent appropriately endorsed to the order of the Collateral Agent as further security hereunder. 3.7. Further Actions. Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to its Receivables, Contracts, Instruments and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require. ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS 4.1. Additional Representations and Warranties. Each Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use the registered Marks listed in Annex D hereto for such Assignor and that said listed Marks constitute all the marks and applications for marks registered in the United States Patent and Trademark Office or the equivalent thereof in any foreign country that such Assignor owns or uses in connection with -7- its business as of the Effective Date. Each Assignor represents and warrants that it owns, is licensed to use or otherwise has the right to use all Marks that it uses. Each Assignor further warrants that it has no knowledge of any third party claim that any aspect of such Assignor's pre sent or contemplated business operations infringes or will infringe any trademark, service mark or trade name. Each Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use all trademark registrations and applications listed in Annex D hereto and that said registrations are valid, subsisting, have not been canceled and that such Assignor is not aware of any third-party claim that any of said registrations is invalid or unenforceable, or is not aware that there is any reason that any of said registrations is invalid or unenforceable, or is not aware that there is any reason that any of said applications will not pass to registration. Each Assignor represents and warrants that upon the recordation of a Grant of Security Interest in United States Trademarks and Patents in the form of Annex G hereto in the United States Patent and Trademark Office, together with filings on Form UCC-1 pursuant to this Agreement, all filings, registrations and recordings necessary or appropriate to perfect the security interest granted to the Collateral Agent in the United States Marks covered by this Agreement under federal law will have been accomplished. Each Assignor agrees to execute such a Grant of Security Interest in United States Trademark and Patents covering all right, title and interest in each United States Mark, and the associated goodwill, of such Assignor, and to record the same. Each Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of an Event of Default, any document which may be required by the United States Patent and Trademark Office or the equivalent thereof in any foreign country in order to effect an absolute assignment of the Assignor's right, title and interest in each Mark, and record the same. 4.2. Licenses and Assignments. Except as otherwise permitted by the Credit Agreement or this Agreement, each Assignor hereby agrees not to divest itself of any right under any Mark absent prior written approval of the Collateral Agent. 4.3. Infringements. Each Assignor agrees, promptly upon learning thereof, to notify the Collateral Agent in writing of the name and address of, and to furnish such pertinent information that may be available with respect to, any party who such Assignor believes is infringing or diluting or otherwise violating in any material respect any of such Assignor's rights in and to any Mark, or with respect to any party claiming that such Assignor's use of any Mark violates in any material respect any property right of that party. Each Assignor further agrees, unless otherwise agreed by the Collateral Agent, to prosecute any Person infringing any Mark in accordance with commercially reasonable business practices. 4.4. Preservation of Marks. Each Assignor agrees to use its Marks in interstate commerce (or the equivalent thereof in any foreign jurisdiction) during the time in which this Agreement is in effect, sufficiently to preserve such Marks as trademarks or service marks under the laws of the United States or under the laws of the applicable foreign country, as the case may be; provided, that, to the extent permitted by the Credit Agreement, no Assignor shall be -8- obligated to preserve any Mark in the event such Assignor determines, in its reasonable business judgment, that the preservation of such Mark is no longer desirable in the conduct of its business. 4.5. Maintenance of Registration. Each Assignor shall, at its own expense, diligently process all documents required by the Trademark Act of 1946, 15 U.S.C. Sections 1051 et seq. (or the equivalent thereof in any foreign jurisdiction) to maintain trademark registrations, including but not limited to affidavits of use and applications for renewals of registration in the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction) for all of its registered Marks pursuant to 15 U.S.C. Sections 1058(a), 1059 and 1065 (or the equivalent thereof in any foreign jurisdiction), and shall pay all fees and disbursements in connection therewith and shall not abandon any such filing of affidavit of use or any such application of renewal prior to the exhaustion of all administrative and judicial remedies without prior written consent of the Collateral Agent; provided, that no Assignor shall be obligated to maintain registration of any Mark in the event that such Assignor determines, in its reasonable business judgment, that such maintenance of such Mark is no longer necessary or desirable in the conduct of its business. Each Assignor agrees to notify the Collateral Agent three (3) months prior to the dates on which the affidavits of use or the applications for renewal registration are due with respect to any registered Mark that the affidavits of use or the renewal is being processed or being abandoned, as the case may be. 4.6. Future Registered Marks. If any registration for a Mark issues hereafter to any Assignor as a result of any application now or hereafter pending before the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction), within 30 days of receipt of such certificate, such Assignor shall deliver to the Collateral Agent a copy of such certificate, and a grant of security in such Mark, to the Collateral Agent and at the expense of such Assignor, confirming the grant of security in such Mark to the Collateral Agent hereunder, the form of such security to be substantially the same as the form hereof or in such other form as may be reasonably satisfactory to the Collateral Agent. 4.7. Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may, by written notice to the relevant Assignor, take any or all of the following actions: (i) declare the entire right, title and interest of such Assignor in and to each of the Marks, together with all trademark rights and rights of protection to the same, vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such rights, title and interest shall immediately vest, in the Collateral Agent for the benefit of the Secured Creditors, and the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 4.1 hereof to execute, cause to be acknowledged and notarized and record said absolute assignment with the applicable agency; (ii) take and use or sell the Marks and the goodwill of such Assignor's business symbolized by the Marks and the right to carry on the business and use the assets of such Assignor in connection with which the Marks have been used; and (iii) direct such Assignor to re frain, in which event such Assignor shall refrain, from using the Marks in any manner whatsoever, directly or indirectly, and, if requested by the Collateral Agent, change such Assignor's corporate name to eliminate therefrom any use of any Mark and execute such other and further documents -9- that the Collateral Agent may request to further confirm this and to transfer ownership of the Marks and registrations and any pending trademark application in the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction) to the Collateral Agent. ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS 5.1. Additional Representations and Warranties. Each Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use (i) all material United States and foreign trade secrets and proprietary information necessary to operate the business of the Assignor (the "Trade Secret Rights"), (ii) the Patents listed in Annex E hereto for such Assignor and that said Patents constitute all the patents and applications for patents that such Assignor owns or uses as of the Effective Date and (iii) the Copyrights listed in Annex F hereto for such Assignor and that said Copyrights constitutes all registrations of copyrights and applications for copyright registrations that such Assignor owns or uses as of the Effective Date. Each Assignor further warrants that it has no knowledge of any third party claim that any aspect of such Assignor's present or contemplated business operations infringes or will infringe any patent or any copyright or such Assignor has misappropriated any trade secret or proprietary information, except those claims which in the aggregate could not be reasonably expected to have a Material Adverse Effect. Each Assignor represents and warrants that upon the recordation of a Grant of Security Interest in United States Trademarks and Patents in the form of Annex G hereto in the United States Patent and Trademark Office and the recordation of a Grant of Security Interest in United States Copyrights in the form of Annex H hereto in the United States Copyright Office, together with filings on Form UCC-1 pursuant to this Agreement, all filings, registrations and recordings necessary or appropriate to perfect the security interest granted to the Collateral Agent in the United States Patents and United States Copyrights covered by this Agreement under federal law will have been accomplished. Each Assignor agrees to execute such a Grant of Security Interest in United States Trademarks and Patents covering all right, title and interest in each United States Patent of such Assignor and to record the same, and to execute such a Grant of Security Interest in United States Copyrights covering all right, title and interest in each United States Copyright of such Assignor and to record the same. Each Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of any Event of Default, any document which may be required by the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction) or the United States Copyright Office (or the equivalent thereof in any foreign jurisdiction) in order to effect an absolute assignment of all right, title and interest in each Patent and Copyright, and to record the same. -10- 5.2. Licenses and Assignments. Except as otherwise permitted by the Credit Agreement or this Agreement, each Assignor hereby agrees not to divest itself of any right under any Patent or Copyright absent prior written approval of the Collateral Agent. 5.3. Infringements. Each Assignor agrees, promptly upon learning thereof, to furnish the Collateral Agent in writing with all pertinent information available to such Assignor with respect to any infringement, contributing infringement or active inducement to infringe any of such Assignor's rights in and to in any Patent or Copyright or to any claim that such Assignor's practice of any Patent or use of any Copyright violates any property right of a third party, or with respect to any misappropriation of any Trade Secret Right or any claim that such Assignor's practice of any Trade Secret Right violates any property right of a third party. Each Assignor further agrees, absent direction of the Collateral Agent to the contrary, diligently to prosecute any Person infringing any Patent or Copyright or any Person misappropriating any Trade Secret Right in accordance with commercially reasonable business practices. 5.4. Maintenance of Patents. At its own expense, each Assignor shall make timely payment of all post-issuance fees required pursuant to 35 U.S.C. Section 41 (or the equivalent thereof in any foreign jurisdiction) to maintain in force rights under each Patent, absent prior written consent of the Collateral Agent; provided, that, to the extent permitted by the Credit Agreement, no Assignor shall be obligated to maintain any Patent in the event such Assignor determines, in its reasonable business judgment, that the maintenance of such Patent is no longer necessary or desirable in the conduct of its business. 5.5. Prosecution of Patent Application. At its own expense, each Assignor shall diligently prosecute all applications for Patents listed in Annex E hereto for such Assignor and shall not abandon any such application prior to exhaustion of all administrative and judicial remedies, absent written consent of the Collateral Agent; provided, that, to the extent permitted by the Credit Agreement, no Assignor shall be obligated to prosecute any application in the event such Assignor determines, in its reasonable business judgment, that the prosecuting of such application is no longer necessary or desirable in the conduct of its business. 5.6. Other Patents and Copyrights. Within 30 days of the acquisition or issuance of a Patent, registration of a Copyright, or acquisition of a registered Copyright, or of filing of an application for a Patent or registration of Copyright, the relevant Assignor shall deliver to the Collateral Agent a copy of said Copyright or certificate or registration of, or application therefor, said Patents, as the case may be, with an assignment for security as to such Patent or Copyright, as the case may be, to the Collateral Agent and at the expense of such Assignor, confirming the assignment for security, the form of such assignment for security to be substantially the same as the form hereof or in such other form as may be reasonably satisfactory to the Collateral Agent. 5.7. Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may by written notice to the relevant Assignor, take any or all of the following actions: (i) declare the entire right, title, and interest of such Assignor in each of the Patents and Copyrights -11- vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such right, title, and interest shall immediately vest in the Collateral Agent for the benefit of the Secured Creditors, in which case the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 5.1 hereof to execute, cause to be acknowledged and notarized and to record said absolute assignment with the applicable agency; (ii) take and practice or sell the Patents and Copyrights; and (iii) direct such Assignor to refrain, in which event such Assignor shall refrain, from practicing the Patents and using the Copyrights directly or indirectly, and such Assignor shall execute such other and further documents as the Collateral Agent may request fur ther to confirm this and to transfer ownership of the Patents and Copyrights to the Collateral Agent for the benefit of the Secured Creditors. ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL 6.1. Protection of Collateral Agent's Security. Each Assignor will do nothing to impair the rights of the Collateral Agent in the Collateral except to the extent such impairment shall be waived in accordance with the terms of Section 10.2 hereof. Each Assignor will at all times keep its Inventory and Equipment insured in favor of the Collateral Agent, at such Assignor's own expense to the extent and in the manner provided in the Credit Agreement; all policies or certificates with respect to such insurance (and any other insurance maintained by such Assignor) (i) shall be endorsed to the Collateral Agent's reasonable satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as additional insured and loss payee) and (ii) shall state that such insurance policies shall not be canceled or revised without 30 days' prior written notice thereof (or 10 days prior written notice in the case of nonpayment of premium) by the insurer to the Collateral Agent; and certified copies of such policies or certificates shall be deposited with the Collateral Agent. If any Assignor shall fail to insure its Inventory and Equipment in accordance with the preceding sentence, or if any Assignor shall fail to so endorse and deposit all policies or certificates with respect thereto, the Collateral Agent shall have the right (but shall be under no obligation) to procure such insurance and such Assignor agrees to promptly reimburse the Collateral Agent for all costs and expenses of procuring such insurance. Except as otherwise permitted to be retained by the relevant Assignor pursuant to the Credit Agreement, the Collateral Agent shall, at the time such proceeds of such insurance are distributed to the Secured Creditors, apply such proceeds in accordance with Section 7.4 hereof. Each Assignor assumes all liability and responsibility in connection with the Collateral acquired by it and the liability of such Assignor to pay the Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to such Assignor. 6.2. Warehouse Receipts Non-Negotiable. Each Assignor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued with respect to any of its Inventory, such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as -12- such term is used in Section 7-104 of the Uniform Commercial Code as in effect in any relevant jurisdiction or under other relevant law) or, if any warehouse receipt or any receipt in the nature of a warehouse receipt is "negotiable" (as such term is used in Section 7-104 of the Uniform Commercial Code as in effect in any relevant jurisdiction or under other relevant law) then the respective Assignor shall promptly take all action as may be required under the relevant jurisdiction to grant a perfected security interest in such Collateral to the Collateral Agent for the benefit of the Secured Creditors. 6.3. Further Actions. (a) Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such lists, descriptions and designations of its Collateral, warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, cer tificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Collateral Agent deems reasonably appropriate or advisable to perfect, preserve or protect its security interest in the Collateral. (b) Each Assignor hereby agrees that it will from time to time, at its own expense and at the request of the Collateral Agent or the Majority Lenders, take all actions (including making all appropriate filings) as may be necessary or in the reasonable opinion of the Collateral Agent desirable to perfect (and maintain the perfection of) any security interest in any material foreign Mark, Patent and/or Copyright, and in connection therewith shall deliver one or more opinions of foreign counsel confirming the validity and perfection of such foreign Marks, Patents and/or Copyrights. 6.4. Financing Statements. Each Assignor agrees to execute and deliver to the Collateral Agent such financing statements, in form reasonably acceptable to the Collateral Agent, as the Collateral Agent may from time to time reasonably request or as are necessary or desirable in the opinion of the Collateral Agent to establish and maintain a valid, enforceable, first priority perfected security interest in the Collateral as provided herein and the other rights and security contemplated hereby all in accordance with the Uniform Commercial Code as enacted in any and all relevant jurisdictions or any other relevant law. Each Assignor will pay any applicable filing fees, recordation taxes and related expenses relating to its Collateral. Each Assignor hereby au thorizes the Collateral Agent to file any such financing statements without the signature of such Assignor where permitted by law. -13- ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT 7.1. Remedies; Obtaining the Collateral Upon Default. Each Assignor agrees that, if any Event of Default shall have occurred and be continuing, then and in every such case, the Collateral Agent, in addition to any rights now or hereafter existing under applicable law, shall have all rights as a secured creditor under the Uniform Commercial Code in all relevant jurisdictions and may: (i) personally, or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from such Assignor or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon such Assignor's premises where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of such Assignor; (ii) instruct the obligor or obligors on any agreement, instrument or other obligation (including, without limitation, the Receivables and the Contracts) constituting the Collateral to make any payment required by the terms of such agreement, instrument or other obligation directly to the Collateral Agent; (iii) withdraw all monies, securities and instruments in the Cash Collateral Account for application to the Obligations in accordance with Section 7.4 hereof; (iv) sell, assign or otherwise liquidate any or all of the Collateral or any part thereof in accordance with Section 7.2 hereof, or direct the relevant Assignor to sell, assign or otherwise liquidate any or all of the Collateral or any part thereof, and, in each case, take possession of the proceeds of any such sale or liquidation; (v) take possession of the Collateral or any part thereof, by directing the relevant Assignor in writing to deliver the same to the Collateral Agent at any place or places designated by the Collateral Agent, in which event such Assignor shall at its own expense: (x) forthwith cause the same to be moved to the place or places so designated by the Collateral Agent and there delivered to the Collateral Agent; (y) store and keep any Collateral so delivered to the Collateral Agent at such place or places pending further action by the Collateral Agent as provided in Section 7.2 hereof; and -14- (z) while the Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition; and (vi) license or sublicense, whether on an exclusive or nonexclusive basis, any Marks, Patents or Copyrights included in the Collateral for such term and on such conditions and in such manner as the Collateral Agent shall in its sole judgment determine (taking into account such provisions as may be necessary to protect and preserve such Marks, Patents or Copyrights); it being understood that each Assignor's obligation so to deliver the Collateral is of the essence of this Agreement and that, accordingly, upon application to a court of equity having jurisdiction, the Collateral Agent shall be entitled to a decree requiring specific performance by such Assignor of said obligation. The Secured Creditors agree that this Agreement may be enforced only by the action of the Administrative Agent or the Collateral Agent, in each case acting upon the instructions of the Majority Lenders (or, after the date on which all Loan Document Obligations have been paid in full and the Aggregate Commitment has been terminated, the holders of at least the majority of the outstanding Other Obligations) and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent or the Collateral Agent or the holders of at least a majority of the outstanding Interest Rate Obligations, as the case may be, for the benefit of the Secured Creditors upon the terms of this Agreement. 7.2. Remedies; Disposition of the Collateral. Any Collateral repossessed by the Collateral Agent under or pursuant to Section 7.1 hereof and any other Collateral whether or not so repossessed by the Collateral Agent, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Collateral Agent may, in compliance with any mandatory re quirements of applicable law, determine to be commercially reasonable. Any of the Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Collateral Agent or after any overhaul or repair at the expense of the relevant Assignor which the Collateral Agent shall determine to be commercially reasonable. Any such disposition which shall be a private sale or other private proceedings permitted by such require ments shall be made upon not less than 10 days' written notice to the relevant Assignor specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the 10 days after the giving of such notice, to the right of the relevant Assignor or any nominee of such Assignor to acquire the Collateral involved at a price or for such other consideration at least equal to the intended sale price or other consideration so specified. Any such disposition which shall be a public sale permitted by such requirements shall be made upon not less than 10 days' written notice to the relevant Assignor specifying the time and place of such sale and, in the absence of applicable requirements of law, shall be by public -15- auction (which may, at the Collateral Agent's option, be subject to reserve), after publication of notice of such auction not less than 10 days prior thereto in two newspapers in general circulation in the City of Chicago. To the extent permitted by any such requirement of law, the Collateral Agent may bid for and become the purchaser of the Collateral or any item thereof, offered for sale in accordance with this Section without accountability to the relevant Assignor. If, under man datory requirements of applicable law, the Collateral Agent shall be required to make disposition of the Collateral within a period of time which does not permit the giving of notice to the relevant Assignor as hereinabove specified, the Collateral Agent need give such Assignor only such notice of disposition as shall be reasonably practicable in view of such mandatory requirements of applicable law. 7.3. Waiver of Claims. Except as otherwise provided in this Agreement, EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH ASSIGNOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and each Assignor hereby further waives, to the extent permitted by law: (i) all damages occasioned by such taking of possession except any damages which are the direct result of the Collateral Agent's gross negligence or willful misconduct; (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent's rights hereunder; and (iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and each Assignor, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the relevant Assignor therein and thereto, and shall be a perpetual bar both at law and in equity against such Assignor and against any and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under such Assignor. -16- 7.4. Application of Proceeds. (a) All moneys collected by the Collateral Agent (or, to the extent the Pledge Agreement or any other Collateral Documents require proceeds of collateral under such Collateral Documents to be applied in accordance with the provisions of this Agreement, the Pledgee under such other Collateral Document) upon any sale or other disposition of the Collateral, together with all other moneys received by the Collateral Agent hereunder, shall be applied as follows: (i) first, to the payment of all Obligations owing the Collateral Agent of the type provided in clauses (iii) and (iv) of the definition of Obligations herein; (ii) second, to the extent proceeds remain after the application pursuant to the preceding clause (i), an amount equal to the outstanding Obligations shall be paid to the Secured Creditors as provided in Section 7.4(c) hereof with each Secured Creditor receiving an amount equal to its outstanding Obligations or, if the proceeds are insufficient to pay in full all such Obligations, its Pro Rata Share (as defined below) of the amount remaining to be distributed; and (iii) third, to the extent proceeds remain after the application pursuant to the preceding clauses (i) and (ii) and following the termination of this Agreement pursuant to Section 10.8 hereof, to the relevant Assignor or, to the extent directed by such Assignor or a court of competent jurisdiction, to whomever may be lawfully entitled to receive such surplus. (b) For purposes of this Agreement, "Pro Rata Share" shall mean, when calculating a Secured Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid amount of such Secured Creditor's Obligations and the denominator of which is the then outstanding amount of all Obligations. (c) All payments required to be made to the Lender Creditors hereunder shall be made to the Administrative Agent under the Credit Agreement for the account of the Lender Creditors and all payments required to be made to the Other Creditors hereunder shall be made directly to the respective Other Creditor. (d) For purposes of applying payments received in accordance with this Section 7.4, the Collateral Agent shall be entitled to rely upon (i) the Administrative Agent under the Credit Agreement and (ii) the Other Creditors for a determination (which the Administrative Agent, each Other Creditor and the Secured Creditors agree (or shall agree) to provide upon request of the Collateral Agent) of the outstanding Obligations owed to the Lender Creditors or the Other Creditors, as the case may be. Unless it has actual knowledge (including by way of written notice from a Lender Creditor or an Other Creditor) to the contrary, the Administrative 6Agent under the Credit Agreement, in furnishing information pursuant to the preceding sentence, and the Collateral Agent, in acting hereunder, shall be entitled to assume that (x) no Loan -17- Document Obligations other than principal, interest and regularly accruing fees are owing to any Lender Creditor and (y) no Interest Rate Protection Agreement or Other Hedging Agreement, or Other Obligations in respect thereof, are in existence. (e) It is understood that the Assignors shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Collateral and the aggregate amount of the sums referred to in clause (a) of this Section 7.4 with respect to the relevant Assignor. 7.5. Remedies Cumulative. Each and every right, power and remedy hereby specifically given to the Collateral Agent shall be in addition to every other right, power and remedy specifically given under this Agreement, the Interest Rate Protection Agreements or Other Hedging Agreements, the other Loan Documents or now or hereafter existing at law, in equity or by statute and each and every right, power and remedy whether specifically herein given or other wise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Collateral Agent. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Collateral Agent in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or Event of Default or an acquiescence therein. No notice to or demand on any Assignor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Collateral Agent to any other or further action in any circumstances without notice or demand. In the event that the Collateral Agent shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Collateral Agent may recover reasonable expenses, including attorneys' fees, and the amounts thereof shall be included in such judgment. 7.6. Discontinuance of Proceedings. In case the Collateral Agent shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then and in every such case the relevant Assignor, the Collateral Agent and each holder of any of the Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Collateral Agent shall continue as if no such proceeding had been instituted. -18- ARTICLE VIII INDEMNITY 8.1. Indemnity. (a) Each Assignor jointly and severally agrees to indemnify, reimburse and hold the Collateral Agent, each other Secured Creditor and their respective successors, permitted assigns, employees, agents and servants (hereinafter in this Section 8.1 referred to individually as "Indemnitee," and collectively as "Indemnitees") harmless from any and all liabilities, obligations, damages, injuries, penalties, claims, demands, actions, suits, judgments and any and all costs, expenses or disbursements (including attorneys' fees and expenses) (for the purposes of this Section 8.1 the foregoing are collectively called "expenses") of whatsoever kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way relating to or arising out of this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement, any other Loan Document or any other document executed in connection herewith or therewith or in any other way connected with the administration of the transactions contemplated hereby or thereby or the enforcement of any of the terms of, or the preservation of any rights under any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of the Collateral (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or property damage), or contract claim; provided that no Indemnitee shall be indemnified pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent caused by the gross negligence or willful misconduct of such Indemnitee. Each Assignor agrees that upon written notice by any Indemnitee of the assertion of such a liability, obligation, damage, injury, penalty, claim, demand, action, suit or judgment, the relevant Assignor shall assume full responsibility for the defense thereof. Each Indemnitee agrees to use its best efforts to promptly notify the relevant Assignor of any such assertion of which such Indemnitee has knowledge. (b) Without limiting the application of Section 8.1(a) hereof, each Assignor agrees, jointly and severally, to pay, or reimburse the Collateral Agent for any and all reasonable fees, costs and expenses of whatever kind or nature incurred in connection with the creation, preservation or protection of the Collateral Agent's Liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Collateral Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. -19- (c) Without limiting the application of Section 8.1(a) or (b) hereof, each Assignor agrees, jointly and severally, to pay, indemnify and hold each Indemnitee harmless from and against any loss, costs, damages and expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any misrepresentation by any Assignor in this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement, any other Loan Document or in any writing contemplated by or made or delivered pursuant to or in connection with this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement or any other Loan Document. (d) If and to the extent that the obligations of any Assignor under this Section 8.1 are unenforceable for any reason, such Assignor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 8.2. Indemnity Obligations Secured by Collateral; Survival. Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. The indemnity obligations of each Assignor contained in this Article VIII shall continue in full force and effect notwithstanding the full payment of all the promissory notes issued under the Credit Agreement, the termination of all Interest Rate Protection Agreements or Other Hedging Agreements and the payment of all other Obligations and notwithstanding the discharge thereof. ARTICLE IX DEFINITIONS The following terms shall have the meanings herein specified. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. "Administrative Agent" shall have the meaning provided in the recitals to this Agreement. "Agreement" shall mean this Security Agreement as the same may be modified, supplemented or amended from time to time in accordance with its terms. "Assignor" shall have the meaning provided in the first paragraph of this Agreement. "Borrower" shall have the meaning provided in the recitals to this Agreement. "Cash Collateral Account" shall mean, collectively, each cash collateral account maintained with, and in the sole dominion and control of, the Collateral Agent for the benefit of the Secured Creditors. -20- "Chattel Paper" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of Illinois. "Class" shall have the meaning provided in Section 10.2 of this Agreement. "Collateral" shall have the meaning provided in Section 1.1(a) of this Agreement. "Collateral Agent" shall have the meaning provided in the first paragraph of this Agreement. "Contract Rights" shall mean all rights of any Assignor (including, without limitation, all rights to payment) under each Contract. "Contracts" shall mean all contracts between any Assignor and one or more additional parties (including, without limitation, any Interest Rate Protection Agreements or Other Hedging Agreements). "Copyrights" shall mean any United States or foreign copyright owned by any Assignor, including any registrations of any Copyrights, in the United States Copyright Office or the equivalent thereof in any foreign country, as well as any application for a United States or foreign copyright registration now or hereafter made with the United States Copyright Office or the equivalent thereof in any foreign country by any Assignor, other than those countries outside the United States where the grant of a security interest would invalidate such Copyrights. "Credit Agreement" shall have the meaning provided in the recitals to this Agreement. "Default" shall mean any event which, with notice or lapse of time, or both, would constitute an Event of Default. "Documents" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of Illinois. "Equipment" shall mean any "equipment," as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of Illinois, now or hereafter owned by any Assignor and, in any event, shall include, but shall not be limited to, all machinery, equip ment, furnishings, movable trade fixtures and vehicles now or hereafter owned by any Assignor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. -21- "Event of Default" shall mean any Event of Default under, and as defined in, the Credit Agreement and shall in any event, without limitation, include any payment default on any of the Obligations after the expiration of any applicable grace period. "General Intangibles" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of Illinois. "Goods" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of Illinois. "Holdings" shall have the meaning provided in the recitals to this Agreement. "Indemnitee" shall have the meaning provided in Section 8.1 of this Agreement. "Instrument" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of Illinois. "Inventory" shall mean merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods, supplies, incidentals, packaging materials, labels, materials and any other items used or usable in manufacturing, processing, packaging or shipping same; in all stages of production -- from raw materials through work-in-process to finished goods -- and all products and proceeds of whatever sort and wherever located and any portion thereof which may be returned, rejected, reclaimed or repossessed by the Collateral Agent from any Assignor's customers, and shall specifically include all "inventory" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of Illinois, now or hereafter owned by any Assignor. "Lender Creditors" shall have the meaning provided in the recitals to this Agreement. "Lenders" shall have the meaning provided in the recitals to this Agreement. "Liens" shall mean any security interest, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest in a financing lease or analogous instrument, in, of, or on any Assignor's property. "Loan Document Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX. "Marks" shall mean all right, title and interest in and to any United States or foreign trademarks, service marks and trade names now held or hereafter acquired by any Assignor, including any registration of any trademarks and service marks in the United States Patent and Trademark Office, or the equivalent thereof in any foreign country, other than those -22- countries outside the United States, where the grant of a security interest would invalidate such trademarks, service marks and trade names, and any trade dress including logos and/or designs used by any Assignor in the United States or any foreign country. "Obligations" shall mean (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each Assignor, now existing or hereafter incurred under, arising out of or in connection with any Loan Document to which such Assignor is a party and the due performance and compliance by each Assignor with the terms of each such Loan Document, including, without limitation, in the case of the Borrower, all "Obligations" under and as defined in the Credit Agreement, and in the case of each other Assignor, all "Guaranteed Obligations" under and as defined in the Credit Agreement or the Subsidiary Guaranty, as applicable (all such obligations and liabilities under this clause (i), except to the extent consisting of obligations or indebtedness with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Loan Document Obligations"); (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each Assignor now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement or Other Hedging Agreement including, in the case of the Assignors other than the Borrower, all obligations of such Assignor under Article X of the Credit Agreement or under the Subsidiary Guaranty, as the case may be, in respect of Interest Rate Protection Agreements or Other Hedging Agreements (all such obligations and liabilities under this clause (ii) being herein collectively called the "Other Obligations"); (iii) any and all sums advanced by the Collateral Agent in order to preserve the Collateral or preserve its security interest in the Collateral; (iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of each Assignor referred to in clauses (i) and (ii), after an Event of Default shall have occurred and be continuing, the reasonable expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Collateral Agent of its rights hereunder, together with reasonable attorneys' fees and court costs; and (v) all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 8.1 of this Agreement. "Other Creditors" shall have the meaning provided in the recitals to this Agree ment. "Other Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX. "Patents" shall mean any United States or foreign patent to which any Assignor now or hereafter has title and any divisions or continuations thereof, as well as any application for a United States or foreign patent now or hereafter made by any Assignor, except those patents or -23- patent applications in those countries outside the United States where the granting of a security interest in such patents is not permissible under the laws of that country. "Proceeds" shall have the meaning provided in the Uniform Commercial Code as in effect in the State of Illinois on the date hereof or under other relevant law and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Collateral Agent or any Assignor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to any Assignor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Pro Rata Share" shall have the meaning provided in Section 7.4(b) of this Agreement. "Receivables" shall mean any "account" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of Illinois, now or hereafter owned by any Assignor and, in any event, shall include, but shall not be limited to, all of such Assignor's rights to payment for goods sold or leased or services performed by such Assignor, whether now in existence or arising from time to time hereafter, including, without limitation, rights evidenced by an account, note, contract, security agreement, chattel paper, or other evidence of indebtedness or security, together with (a) all security pledged, assigned, hypothecated or granted to or held by such Assignor to secure the foregoing, (b) all of any Assignor's right, title and inter est in and to any goods, the sale of which gave rise thereto, (c) all guarantees, endorsements and indemnifications on, or of, any of the foregoing, (d) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, (e) all books, records, ledger cards, and invoices relating thereto, (f) all evidences of the filing of financing statements and other statements and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured parties, and certificates from filing or other registration officers, (g) all credit information, reports and memoranda relating thereto and (h) all other writings related in any way to the foregoing. "Requisite Creditors" shall have the meaning provided in Section 10.2 of this Agreement. "Secured Creditors" shall have the meaning provided in the recitals to this Agreement. "Termination Date" shall have the meaning provided in Section 10.8 of this Agreement. -24- "Trade Secret Rights" shall have the meaning provided in Section 5.1 of this Agreement. ARTICLE X MISCELLANEOUS 10.1. Notices. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been duly given or made when delivered to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, addressed: (a) if to any Assignor, at: c/o CII Technologies, Inc. 1396 Charlotte Highway Fairview, N.C. 28730 Attention: David Henning Telephone No.: (704) 628-1711 Telecopier No.: (704) 628-1439 (b) if to the Collateral Agent, at: Bank of America National Trust and Savings Association 231 South LaSalle Street Chicago, IL 60697 Attention: Agency Management - 8th Floor David A. Johanson, Vice President Telephone No.: (312) 828-7933 Telecopier No.: (312) 705-0573 (c) if to any Lender Creditor (other than the Collateral Agent), at such address as such Lender Creditor shall have specified in the Credit Agreement; (d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to each Assignor and the Collateral Agent; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. -25- 10.2. Waiver; Amendment. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Assignor directly affected thereby and the Collateral Agent (with the consent of (x) either the Majority Lenders (or, to the extent required by Section 12.01 of the Credit Agreement, all of the Lenders) at all times prior to the time on which all Loan Document Obligations have been paid in full and the Aggregate Commitment has been terminated or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Loan Document Obligations have been paid in full and the Aggregate Commitment has been terminated); provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors of such Class of Secured Creditors. For the purpose of this Agreement the term "Class" shall mean each class of Secured Creditors, i.e., whether (x) the Lender Creditors as holders of the Loan Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (x) with respect to the Loan Document Obligations, the Majority Lenders and (y) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. 10.3. Obligations Absolute. The obligations of each Assignor hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of such Assignor; (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement, any other Loan Document or any Interest Rate Protection Agreement or Other Hedging Agreement; or (c) any amendment to or modification of any Loan Document or any Interest Rate Protection Agreement or Other Hedging Agreement or any security for any of the Obligations; whether or not any Assignor shall have notice or knowledge of any of the foregoing. 10.4. Successors and Assigns. This Agreement shall be binding upon each Assignor and its successors and assigns and shall inure to the benefit of the Collateral Agent and its successors and assigns; provided, that no Assignor may transfer or assign any or all of its rights or obligations hereunder without the prior written consent of the Collateral Agent. All agreements, statements, representations and warranties made by each Assignor herein or in any certificate or other instrument delivered by such Assignor or on its behalf under this Agreement shall be considered to have been relied upon by the Secured Creditors and shall survive the execution and delivery of this Agreement, the other Loan Documents and the Interest Rate Protection Agreements or Other Hedging Agreements regardless of any investigation made by the Secured Creditors or on their behalf. 10.5. Headings Descriptive. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. -26- 10.6. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF ILLINOIS (INCLUDING, WITHOUT LIMITATION, 135 ILCS 105/5-1, ET. SEQ., BUT WITHOUT GIVING EFFECT TO ANY OTHER CONFLICTS OF LAW PROVISIONS). 10.7. Assignor's Duties. It is expressly agreed, anything herein contained to the contrary notwithstanding, that each Assignor shall remain liable to perform all of the obligations, if any, assumed by it with respect to the Collateral and the Collateral Agent shall not have any obligations or liabilities with respect to any Collateral by reason of or arising out of this Agreement, nor shall the Collateral Agent be required or obligated in any manner to perform or fulfill any of the obligations of each Assignor under or with respect to any Collateral. 10.8. Termination; Release. (a) After the Termination Date, this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 8.1 hereof shall survive such termination) and the Collateral Agent, at the request and expense of the respective Assignor, will promptly execute and deliver to such Assignor a proper instrument or instruments (including Uniform Commercial Code termination statements on form UCC-3) acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to such Assignor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Collateral Agent and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agree ment, "Termination Date" shall mean the date upon which the Aggregate Commitment and all Interest Rate Protection Agreements or Other Hedging Agreements have been terminated, no promissory note or Letter of Credit under the Credit Agreement is outstanding (other than Letters of Credit, together with all fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, which have been secured in a manner satisfactory to the applicable Issuing Lenders in their sole and absolute discretion) and all other Obligations (other than any indemnities described in Section 8.1 hereof and in Section 12.05 of the Credit Agreement which are not then due and payable) have been paid in full. (b) In the event that any part of the Collateral is sold or otherwise disposed of in connection with a sale or other disposition permitted by Section 8.02 of the Credit Agreement or is otherwise released at the direction of the Majority Lenders (or all the Lenders if required by Section 12.01 of the Credit Agreement), the Collateral Agent, at the request and expense of such Assignor, will duly release from the security interest created hereby and assign, transfer and deliver to such Assignor (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or released and as may be in the possession of the Collateral Agent and has not theretofore been released pursuant to this Agreement. (c) At any time that the respective Assignor desires that Collateral be released as provided in the foregoing Section 10.8(a) or (b), it shall deliver to the Collateral Agent a certifi- -27- cate signed by a Responsible Officer of such Assignor stating that the release of the respective Collateral is permitted pursuant to Section 10.8(a) or (b) hereof. 10.9. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Collateral Agent. 10.10. The Collateral Agent. The Collateral Agent will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Collateral Agent as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement and as provided in the Uniform Commercial Code in the State of Illinois. The Collateral Agent shall act hereunder on the terms and conditions set forth in Article XI of the Credit Agreement. 10.11. Additional Assignors. It is understood and agreed that any Subsidiary of the Borrower that is required to execute a counterpart of this Agreement after the date hereof pursuant to Sections 7.12 and/or 8.15 of the Credit Agreement shall automatically become an Assignor hereunder by executing a counterpart hereof and delivering the same to the Collateral Agent. * * * -28- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. CII TECHNOLOGIES, INC., as an Assignor By: /s/ David Henning ---------------------------------- Name: David Henning -------------------------- Title: CFO ------------------------- COMMUNICATIONS INSTRUMENTS, INC., as an Assignor By: /s/ David Henning ---------------------------------- Name: David Henning -------------------------- Title: CFO ------------------------- KILOVAC CORPORATION, as an Assignor By: /s/ David Henning ---------------------------------- Name: David Henning -------------------------- Title: CFO ------------------------- KILOVAC INTERNATIONAL, INC., as an Assignor By: /s/ David Henning ---------------------------------- Name: David Henning -------------------------- Title: CFO ------------------------- CORCOM, INC., as an Assignor By: /s/ David Henning ---------------------------------- Name: David Henning -------------------------- Title: CFO ------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent By: /s/ David A. Johanson ---------------------------------- Name: David A. Johanson -------------------------- Title: Vice President ------------------------- EX-12.1 13 STATEMENT OF COMPUTATION OF RATIOS Exhibit 12.1 COMMUNICATIONS INSTRUMENTS, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars In Thousands) (Unaudited)
Year Year Year Year Year Ended Ended Ended Ended Ended 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 -------- -------- -------- -------- -------- Earnings (Loss) Before Taxes and Minority Interest....... $ 1,004 $ (2,498) $ 2,782 $ 6,938 $ 5,355 ------- -------- ------- ------- ------- Fixed Charges: Interest Charges........... 1,189 2,172 3,139 5,243 11,835 Amortization of Financing Costs..................... 90 137 252 401 724 Environmental Interest..... -- -- 147 119 113 Estimated Interest Factor of Rental Expense......... 21 40 272 351 532 ------- -------- ------- ------- ------- Total Fixed Charges.......... 1,300 2,349 3,810 6,114 13,204 ------- -------- ------- ------- ------- Total Earnings Available for Fixed Charges............... $ 2,304 $ (149) $ 6,592 $13,052 $18,559 ======= ======== ======= ======= ======= Ratio of Earnings to Fixed Charges..................... 1.8x N/A 1.7x 2.1x 1.4x
EX-21.1 14 LIST OF SUBSIDIARIES EXHIBIT 21.1 LIST OF SUBSIDIARIES OF COMMUNICATIONS INSTRUMENTS, INC. (AS OF 12/31/98)
Name of Entity Name of Owner -------------- ------------- Electro-Mech, S.A. de C.V., a corporation Communications Instruments, Inc., a North organized under the laws of Mexico Carolina Corporation Kilovac Corporation, a California corporation Communications Instruments, Inc., a North Carolina Corporation Corcom, Inc., an Illinois corporation Communications Instruments, Inc., a North Carolina Corporation Kilovac International, Inc., a California Kilovac Corporation, a California corporation corporation Kilovac International FSC, Ltd., a Kilovac Corporation, a California corporation corporation organized under the laws of Jamaica Corcom, S.A. de C.V., a corporation Corcom, Inc., an Illinois corporation organized under the laws of Mexico Corcom West Indies Ltd., a corporation Corcom, Inc., an Illinois corporation organized under the laws of Barbados Corcom International Ltd., a corporation Corcom, Inc., an Illinois corporation organized under the laws of Barbados Corcom GmbH, a corporation organized Corcom, Inc., an Illinois corporation under the laws of Germany Corcom Far East Ltd., a corporation Corcom, Inc., an Illinois corporation organized under the laws of Hong Kong
EX-24.1 15 POWERS OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY COMMUNICATIONS INSTRUMENTS, INC. KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears below constitutes and appoints Ramzi A. Dabbagh and Richard Heggelund and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities which such person serves or may serve with respect to Communications Instruments, Inc., to sign the Annual Report on Form 10-K of Communications Instruments, Inc. for the fiscal year ended December 31, 1998, and any or all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or heir or his substitutes, may lawfully do or cause to by virtue hereof. This power of attorney has been signed as of the 29th day of March, 1998, by the following persons. /s/ Ramzi A. Dabbagh /s/ Richard Heggelund - -------------------------------------- ------------------------------------- Ramzi A. Dabbagh, Richard Heggelund, Chairman of the Board, Chief Executive Chief Financial Officer Officer and Director /s/ Michael A. Steinbeck /s/ G. Daniel Taylor - -------------------------------------- ------------------------------------- Michael A. Steinbeck, G. Daniel Taylor, Chief Operating Officer, President Executive Vice President of Business and Director Development and Director /s/ Brian P. Simmons /s/ Andrew W. Code - -------------------------------------- ------------------------------------- Brian P. Simmons, Andrew W. Code, Director Director /s/ Steven R. Brown /s/ Jon S. Vesely - -------------------------------------- ------------------------------------- Steven R. Brown, Jon S. Vesely, Director Director /s/ Donald Dangott - -------------------------------------- Donald Dangott, Director EX-27 16 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 469 0 15,598 (479) 26,656 46,591 22,841 (15,103) 129,881 22,633 133,044 0 0 0 (35,855) 129,881 120,030 120,030 81,285 81,285 20,880 (42) 12,552 5,355 2,371 2,984 0 351 0 2,633 0 0
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